Select Committee on Business and Enterprise Thirteenth Report


1  Introduction

1. As one of the Committee's core tasks is monitoring the work of the executive agencies and associated public bodies of the Department for Business, Enterprise and Regulatory Reform (BERR) we consider at least one such body each year. This year we chose Companies House. Our interest was roused by the announcement that the commencement of part of the Companies Act 2006 would be delayed due to a large number of changes needed to systems and processes at Companies House. We were also concerned that the implementation of the Companies House Information Processing System (CHIPS) had been delayed from April 2005 to February 2008 and that £12.1 million of expenditure on the project had been written off.[1]

2. We decided to hold an oral evidence session with Companies House and in preparation we invited interested parties to submit written evidence to us on:

  • how Companies House performs its statutory functions;
  • satisfaction with the services provided by Companies House among its users; and
  • the causes, consequences and cost of delays to the Companies House Information Processing System.

We are grateful to those who took the time to respond and to Mr Gareth Jones, Chief Executive and Registrar of Companies for England and Wales, and Mr Geoff Dart, Director of Corporate Law and Governance at BERR, for giving oral evidence and responding to our further inquiries.

The role of Companies House

3. Companies House was established under the Companies Act 1844. Before this companies could only be established by Royal Charter. Without the protection of company status, investors were deterred from business because of their full liability for any debt. The Act gave company directors limited liability in return for a requirement to register their company's details, reports and accounts at Companies House for public scrutiny.

4. Companies House defines its two main functions as:

5. Companies are removed from the register when they are dissolved either compulsorily or voluntarily. If it appears to the Registrar that a company is no longer operating or if a company applies to be dissolved then a notice is placed in the London or Edinburgh Gazette giving three months notice and inviting objections. If there are objections dissolution can be put on hold. The aim of this process is to create a balance between the right of a company to dissolve and the right of an objector to resolve outstanding issues, such as unsettled payments.[3] Given that it is for the courts and not Companies House to adjudicate between disputing parties, we believe that this stance is reasonable.

DATA HANDLED

6. All limited companies in England, Wales and Scotland are registered at Companies House, more than 2.5 million in total. Companies House holds a huge amount of data: its database contains 315 million pages of company information. In 2005/06, 120 new companies were formed every working hour and 42 documents were processed every minute. In addition one company document was bought every 4 seconds.[4] (See table 1)

Table 1: Companies House activity levels
2005/06 2006/07 2007/08
Registration activity
Active Register (annual average, '000) 2048 2213 2390
Active Register (year end, '000) 2118 2339 2430
Incorporations ('000) 370 449 371
Removals from the Register (net of restorations, '000) 199 240 230
Statutory documents filed ('000) 7447 7795 7916
Company searches
Images ('000)—Company equivalent 3393 3655 4000
Image ('000)—Individual images 4676 5111 5595
Fiche based ('000) 19 15 9
Percentage of electronic searches 99% 100% 100%

Key Statistics: Companies House Annual Report and Accounts 2007/08

7. The information filed at Companies House is used by a variety of people and organisations for a mixture of purposes. For example, it can be used by a member of the public to check a company's details before buying its goods or services; and it can be used by businesses to find out about potential customers or suppliers and to monitor competition. Credit reference agencies, banks and law enforcement agencies also use the data.

FINANCES

8. Companies House has trading fund status, which effectively allows the organisation to manage its own finances. It is expected to cover its costs, rather than to make a profit, although it pays a dividend of 3.5% each year to the Treasury. It does this by charging for most of its services, although it provides some information without charge.[5] For example, it costs £20 to incorporate a company electronically and £1 to see a company's report.[6]

9. In 2007/08 Companies House made a surplus of £4.1 million from these services: £2 million from registration activities, £1.6 million from dissemination and £500,000 from other services;[7] in 2006/07 its surplus was £1.3 million.[8] We asked how this fitted with Mr Jones's assertion that "year on year the requirements of cost recovery are met."[9] In response, Mr Jones explained that forecasting Companies House income to meet the required 3.5% rate of return was a difficult task: for example a 1% change in take-up for electronic annual return would result in a reduction in fee income of £300,000 as it costs less for companies to file electronically than by paper. He considered that:

    maintaining sufficient cash to do what is required, but balancing that with the constraint of not cross-subsidising activity, nor making excessive surpluses taking one year with another, remain the major challenges to forecasting activity in Companies House.[10]

We also asked Companies House to explain why its Business Plan suggested that it had secured a £10 million loan from BERR to cover the implementation of the Companies Act 2006.[11] We were told that the loan had now been finalised at £4.5 million and the £5.4 million surplus in "reserves" gained in previous years was indeed being used for those costs.[12] Given the difficulties in accurately forecasting income, using surpluses in this way seems a sensible mechanism to meet the requirement for full cost recovery.

PERFORMANCE AGAINST TARGETS

10. Companies House met eight out of ten of its key ministerial targets in 2007/08 exceeding both of its customer service targets. (see Table 2)

Table 2: Companies House performance against targets
Key ministerial targets Targets out-turns & achievements

2006/07

Targets out-turns & achievements

2007/08

Efficiency and reliability

Take-up for electronic submission of documents

Targets 40% Out-turn 37% Targets

55%

Out-turn

47.9%

Image quality - legibility completeness

Targets 99.5% Out-turn 99.1% Targets

99.5%

Out-turn

99.7%

Compliance rate accounts Targets 95.5% Out-turn 95.4% Targets

95.3%

Out-turn

95.3%

Unit cost reduction.

Three year target reduction on the 2004/5

range of transactions by 2007/8 The target

for 2006/7 was to limit the unit cost

increase to 1% of the 2004/5 (base year)

cost The target for 2007/8 is to reduce the

unit cost to 90% of the 2004/5 (base year) cost

Targets index

101

Out-turn index

95

Targets index

90

Out-turn index

89

Readily and freely accessible information

WebFiling, WebCHeck and CH Direct availability (Mon -Sat, 7.00am -12.00pm)

Targets 99% Out-turn 99.3% Targets

99%

Out-turn

98.5%

Customer service

Respond to complaints within 5 days

Targets 97% Out-turn 98.6% Targets

97%

Out-turn

98.4%

Customer satisfaction Targets >85% Out-turn 87.5% Targets

>86%

Out-turn

86.6%

Central government targets

Reply to Chief Executive's Targets Cases within 10 days 100%

Targets 100% Out-turn 100% Targets

100%

Out-turn

100%

Payment of Bills Targets 100% Out-turn 99.7% Targets

100%

Out-turn

100%

Rate of return as a % of the average capital employed Targets 3.5% Out-turn 5.8% Targets

3.5%

Out-turn

10.6%

Key Statistics: Companies House Annual Report and Accounts 2007/08

In addition the submissions we received for the inquiry were generally positive about the work of Companies House; in particular its communication with users and its responsiveness to customers were praised.[13] An incorporation and dissemination agent, 7side, told us "in our view Companies House generally perform extremely well, within their remit and meet the majority of their targets".[14] We are also pleased to note that Companies House was awarded Government Agency of the Year 2008 at the CBI Financial Director's Excellence Awards; and the Business Britain Award for Business Services Provider of the Year.

Electronic delivery of services

11. As already noted, the development of technology has been a cause for concern. It has not only been the new IT system (CHIPS) which has created problems for Companies House but also the consequences of moving from an entirely paper based register to an electronic one.

12. The number of documents which can now be accepted electronically by Companies House has risen from 67% in 2004/05, to 80% in 2007/08. In addition more companies are using the service so that in 2004/05 0.6 million documents were filed electronically but in 2007/08 this figure reached 3.1 million.[15] However 51% of documents are still filed on paper[16] and Companies House currently receives over three-quarters of a tonne of post every day.[17] Companies House's 2006/07 Annual Report said:

    we have not lost sight of our need to provide services to all our customers […] we still have customers who wish to continue sending us paper documents. We are very pleased that we have been able to maintain high levels of performance across all our services.[18]

Companies House has informed us that the "cost differential between electronic and paper services will continue to grow"[19] and that "the last Fees Regulations in 2004 took account of the difference in cost in processing electronic and paper documents. This was reflected for example in the fee of £15 for an electronic incorporation instead of £20 for one filed on paper, and in the fee of £15 when filing an annual return, as opposed to £30 when filed on paper".[20]

13. Papers filed electronically and the other files scanned into the system can be downloaded and viewed through the Companies House website; users can log on to the Companies Register from their personal computers as opposed to travelling to Companies House to access information. The electronic services currently receive more that 40 million hits per month.[21] As the register has become more widely accessible there is a risk that many users do not realise the unauthenticated status of the information; there are demands on Companies House to validate the data. Just as the information is more accessible to bona fide users of the website it is also more accessible to fraudsters—as the Information Commissioner said:

    The abuse of personal information is not in itself a product of the computer and internet age. Paper records have historically provided an effective means for abuse […] The difference lies in the scale, speed of access and sharing, and search efficiency which modern technology brings. Unless they are governed well, misuses of computerised datasets can threaten or cause harm to greater numbers of people in ever shorter periods of time, whether by accident or design.[22]

We discuss these subjects in more detail later in the report but first we examine the new Companies House computer system and the effects of its delay on the implementation of the Companies Act 2006.


1   Companies House Annual Report and Accounts 2006/07, Evolving for our future Back

2   Ev 25 (Companies House) Back

3   Ev 35 (Companies House) Back

4   Ev 25 (Companies House) Back

5   For example: basic company information, filing history, insolvency details Ev 25 (Companies House)  Back

6   Companies House website: http://www.companieshouse.gov.uk/toolsToHelp/ourPrices.shtml Back

7   Companies House Annual Report and Accounts 2007/08, All geared up Back

8   Companies House Annual Report and Accounts 2006/07, Evolving for our future Back

9   Q 14 Back

10   Ev 36 (Companies House) Back

11   Companies House Business Plan 2008/09, Building on Success Back

12   Ev 35 (Companies House) Back

13   Ev 42 (Companies House) Back

14   Ev 42 (Companies House) Back

15   Companies House Annual Report and Accounts 2007/08, All geared up Back

16   Ev 33 (Companies House) Back

17   Q 11 Back

18   Companies House Annual Report and Accounts 2006/07, Evolving for our future Back

19   Companies House Annual Report and Accounts 2006/07, Evolving for our future Back

20   Ev 33 (Companies House) Back

21   Companies House Annual Report and Accounts 2007/08, All geared up Back

22   Richard Thomas and Mark Walport, Data Sharing Review Report, 2008 Back


 
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Prepared 21 November 2008