Instruments of interest
Draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023
32.These draft Regulations would require companies with a high level of employees and turnover (those with at least 750 employees and an annual turnover of £750 million or more) to include in their annual accounts and reports additional information to:
- explain how they are managing significant risks, and building or maintaining resilience;
- demonstrate that they have enough realised profits to pay any dividend (or make any other distribution of profit), and explain the company’s approach to making dividends and other profit distributions over the short and medium term;
- describe the actions taken by the directors to prevent or detect major fraud; and to
- explain how the company assures the quality and reliability of its corporate reporting.
33.The Department for Business and Trade (DBT) says that these new requirements respond to the lessons learned from several major and sudden corporate collapses, including that of Carillion in 2018. According to DBT, the measures form part of the Government’s wider audit and corporate governance reforms.10 We note the guidance that the Department has published to help companies understand the new corporate reporting requirements.11
34.Asked about enforcement of the new requirements and the liability of company directors, DBT told us that:
“Directors who fail to take all reasonable steps to comply with the requirement to provide the information required by the draft regulations would be guilty of an offence under section 414A of the Companies Act (relating to information required to be contained in or with the Strategic Report) and under section 415 of the Act (relating to information required to be contained in or with the Directors’ Report). Additionally, directors are liable under section 463 of the Act to compensate the company for any loss suffered by it as a result of any untrue or misleading statements provided in reports which the directors knew to be untrue or misleading, or if the directors were reckless as to whether the statements were untrue or misleading.
Compliance with the new reporting requirements will be monitored by the Financial Reporting Council (FRC) under its existing corporate reporting review powers.
The Government has confirmed plans (in its response of 31st May 2022 to the March 2021 White Paper on ‘Restoring Trust in Audit and Corporate Governance’)12 to introduce a new Audit, Reporting and Governance Authority (ARGA) which will replace the FRC. ARGA will have enhanced powers to review corporate reporting (including directing changes to it) and to hold directors to account where they fail to meet their existing statutory duties in relation to corporate reporting and audit.”
Draft United Kingdom Internal Market Act 2020 (Services Exclusions) Regulations 2023
35.This instrument proposes to amend, add and remove services that are excluded from the market access principles of mutual recognition and non-discrimination under the UK Internal Market Act 2020 (UKIMA). An exclusion under the UKIMA means that the market access principles do not apply to that service sector or requirement. According to the Department for Business and Trade (DBT), the proposed changes seek to ensure the appropriate coverage for services within scope of UKIMA. DBT says that the changes include clarifying the wording of current exclusions, removing exclusions for sectors which are not necessary and adding new exclusions where there are strong policy or legal reasons for doing so.
36.Asked for further explanation of the proposed changes, the Department told us that, for example, new exclusions proposed in relation to heat networks and the supply of thermal energy and in relation to the award and authentication of academic or vocational qualifications “mainly reflect existing regulatory arrangements in the UK that were permitted under EU law”, and that these exclusions “will ensure that regulators can continue to require service providers to have different licences in the energy, utility, and qualifications-awarding sectors when operating in different parts of the UK”.
37.The Explanatory Memorandum states that the Department sought the consent of the Devolved Administrations (DAs) to the instrument, as required by the UKIMA. This consent was only obtained from the Welsh Government. Asked about Scotland and Northern Ireland, the Department said that it had “worked collaboratively and transparently with DA counterparts on the Services Exclusions for over two years”, adding that the “Scottish Government did not provide consent to the SI, primarily as a result of broader opposition to the UKIMA. The Northern Ireland Department for the Economy (responded on behalf of the Northern Ireland Executive) provided partial consent to the SI: they consented to the addition of exclusions, but not to the removal of exclusions.”
38.We note that, as permitted under the UKIMA, the Department is going ahead with the instrument without consent from all DAs, and that, as required by the UKIMA, a Written Ministerial Statement has been published.13
Draft Statement of Changes in Immigration Rules (HC 1715)
Immigration (Passenger Transit Visa) (Amendment) Order 2023 (SI 2023/824)
39.These instruments impose a visa regime on visitors from Dominica, Honduras, Namibia, Timor-Leste, and Vanuatu. The original Explanatory Memorandums (EMs) laid with the instrument explained this change but contained no reasons for why it was being made. In response to our questions, the Home Office said that the reasons were:
- in Dominica and Vanuatu, a ‘citizenship by investment’ scheme has shown “clear and evident abuse of the scheme, including the granting of citizenship to individuals known to pose a risk to the UK”.
- There has been a “sustained and significant increase” in the numbers of people from Honduras and Namibia who have “abused” the provision that allows them to visit the UK for a limited period without a visa, by using that route to claim asylum.
- There has been a “sustained increase” in the number of Timorese nationals arriving at the UK border as non-genuine visitors, often with the intention either of fraudulently claiming EU Settlement Scheme status as dependants or to work illegally in the UK.
40.At our request, the Home Office agreed to revise the EM to include this information. However, the EM should not have been laid in its original form. We reiterate that the reasons why a policy has been chosen are essential elements of all EMs.
Draft Statutory Guidance on Digital Imprints
Electoral Commission (Limit on Public Awareness Expenditure) Order 2023) (SI 2023/807)
41.These two pieces of secondary legislation support the implementation of new rules which were introduced by the Elections Act 2022 (“the Act”). SI 2023/807 increases the amount that the Electoral Commission (“the Commission”) may spend on promoting public awareness of current electoral systems in the UK from £7,500,000 to £17,000,000 for the financial years 2023/24 and 2024/25, and to £12,000,000 per financial year from 2025/26 onwards. The Department for Levelling Up, Housing and Communities says that the increase will fund, among other things, additional publicity work that is needed after the Act introduced a new requirement for voters to produce photo ID at polling stations.
42.According to the Commission, 4% of all people who said they did not vote at the local elections in England on 4 May 2023 gave the new photo ID requirement as the reason, while 3% said they did not have the necessary ID document. 14 Of those that went to polling stations, 0.25% were not issued with a ballot paper because of the new ID requirement, indicating that around 14,000 voters who went to a polling station were not able to vote because they were unable to show a valid ID document. Public awareness of the availability of the Voter Authority Certificate, a free ID document issued by local authorities, was 57%. The data suggests the need for further awareness raising, and we welcome the additional funding that will enable such activity.
43.The draft Statutory Guidance on Digital Imprints is required by the Act and has been prepared by the Commission. New rules under the Act mean that those who promote certain digital campaigning material aimed at influencing the public’s support for candidates and other political actors have to state who they are and on whose behalf they are promoting material. The aim is to increase transparency for voters and empower them to make informed decisions about online campaigning material. The guidance sets out for campaigners, candidates and political parties how to follow the new rules and includes information for the Commission and the police on enforcement.
Merchant Shipping (Counting and Registration of Persons on board Passenger Ships) (Amendment) Regulations 2023 (SI 2023/787)
44.The Explanatory Memorandum (EM) accompanying these regulations clearly illustrates the problems for scrutiny caused by incomplete information. As well as making minor corrections, the instrument postpones by two years the deadline for all ships in UK waters to report data on the persons on board through the prescribed electronic methods. It says, “[f]rom 20 December 2025, all passenger ships […] will be required to use a harmonised method of collecting and reporting prescribed information... This information will be accessible to search and rescue authorities if there is an incident on, or involving, the ship thereby reducing the risk to lives at sea.” What the EM fails to mention is that there is already a parallel manual system in existence and so, in the opinion of the Department for Transport (DfT), there is no safety risk from the delay. Responses to our extensive questions on this and on the exemption provisions are included in Appendix 2. We recommend that the DfT improve the EM so that the context, effects and rationale for the changes made by this instrument are plain to a reader unfamiliar with this niche but important area of maritime safety regulation.
Police Pensions (Remediable Service) Regulations 2023 (SI 2023/831)
Firefighters’ Pensions (Remediable Service) Regulations 2023 (SI 2023/843)
Teachers’ Pension Scheme (Remediable Service) Regulations 2023 (SI 2023/871)
45.These instruments modify various public sector pension schemes to implement a further stage of the remedy for the ‘McCloud’ judgment, which found that certain changes under the Public Service Pensions Act 2013 unlawfully discriminated against younger scheme members.
46.The Public Service Pensions and Judicial Offices Act 2022 (“the PSPJO Act”) provided the legislative framework for the McCloud remedy. In 2022, seven instruments implemented the ‘prospective’ part of the remedy by providing for the closure of the final salary (legacy) sections of various pension schemes.15 These further Regulations put in place the ‘retrospective’ element of the remedy provided for in the PSPJO Act. This will allow affected scheme members to roll their affected service back into the legacy schemes and select a choice of benefits (legacy or reformed scheme) for that period. The Regulations cover three schemes: other instruments covering other public sector schemes (for example, the NHS, the armed forces and civil servants) are expected to follow.
47.The Explanatory Memorandums (EMs) to these Regulations stated that the cost of the remedy to the public sector was significant, but provided no further substantive information. We note that the overall cost of the McCloud remedy, across all public sector schemes, is estimated at £17 billion.16 The departments provided us with estimates of the costs for each individual scheme covered by these Regulations (Police: £2.5 billion; Firefighters: £0.55 billion; Teachers: £2.8 billion). We accept that it is not possible accurately to apportion the cost of the remedy between its various aspects and, therefore, between the sets of Regulations; and also that the changes are required by the PSPJO Act. However, these overall cost estimates are essential contextual information and should have been included in the EMs.
48.We also asked the departments who would bear these costs and over what time period. We were told that the costs would be included in the latest scheme valuations, which will be implemented from April 2024, and will be met by additional payments over the 15-year period 2024 to 2039. The Department for Education said that for the Teachers’ Pension Scheme, the costs will be met by “contributions paid by TPS employers and scheme members”. The Home Office said that for the Police and Firefighters schemes, the costs will “fall mainly to employers, although some members will also have to make additional contribution payments”. Again, this is useful contextual information that should have been in the EMs.
10 DBT, ‘Audit and corporate governance reform’ (19 July 2023): https://www.gov.uk/government/collections/audit-and-corporate-governance-reform [accessed 4 September 2023].
11 DBT, ‘Guidance Corporate reporting: The Draft Companies (Strategic Report and Directors’ Report) (Amendment) Regulations 2023’ (23 July 2023): https://www.gov.uk/government/publications/new-transparency-over-resilience-and-assurance-for-big-business/corporate-reporting-the-draft-companies-strategic-report-and-directors-report-amendment-regulations-2023 [accessed 4 September 2023].
12 See Department for Business, Energy & Industrial Strategy, ‘Consultation outcome: Restoring trust in audit and corporate governance: proposals on reforms’ (31 May 2022), chapters 4 and 5 : https://www.gov.uk/government/consultations/restoring-trust-in-audit-and-corporate-governance-proposals-on-reforms [accessed 6 September 2023]
13 Lord Johnson of Lainston, Minister of State for the Department for Business and Trade, ‘Departmental Update’ (20 July 2023), HLWS973 [accessed 1 September 2023].
14 Electoral Commission, ‘Improvements needed to ensure voter ID does not become a barrier to voting’ (23 June 2023): https://www.electoralcommission.org.uk/media-centre/improvements-needed-ensure-voter-id-does-not-become-a-barrier-voting [accessed 4 September 2023].
15 See 35th Report (Session 2021–22, HL Paper 187), paras 28–30.
16 HM Treasury, ‘Public Service Pensions and Judicial Offices Act 2022, Assessment of Impacts’ (April 2022): https://www.legislation.gov.uk/ukpga/2022/7/pdfs/ukpgaod_20220007_en.pdf [accessed 4 September 2023].