Companies House fraud prevention: good intentions, unhealthy design

STRIKING THE BALANCE

The UK government is trying to prevent economic crime.  At the same time, it is trying to support business growth.  The trouble is, this is an almost impossible balance to strike.  If you make it too hard for new and small businesses to grow, then you will kill the right of every citizen to make a living, by making the economic environment unbearable.

GREAT THEORY, POOR IMPLEMENTATION

An example of this is what is happening at Companies House.  In 2023, the government decided to focus on making sure that every limited company registered at Companies House had fully identifiable directors, a clear pattern of ownership, and accounts that made everything as transparent as possible.

That sounds good – it helps to prevent fraud and mismanagement.  But the trouble is, all directors of small companies are experiencing is more administration, difficulty, filing requirements, a hostile environment, and the risk of filing penalties.  Something intended to prevent fraud has become something that prevents growth and happiness.  This happens when well-intended government measures go too far in invading people’s privacy and time.

STIMULATING HAPPINESS

I may wish my children to be honest with me.  But I do not require them to turn out their pockets every five minutes.  Why?  Because I believe they have a right to a happy, unencumbered life.  The UK government should have the same belief about its citizens.  Otherwise we drift unintentionally towards a police state, with all the mental health problems that brings.

REFORMS AND PRESSURE

The government meant to reform company accounts with effect from 1 April 2027.  Small businesses, thank God, pushed back, and the government has given up on its 1 April 2027 target date, saying that it now realises it would unduly pressurise businesses at a bad time.

The changes will still come in, but their implementation will be softened.  I work a lot with ‘micro entities’ – very small companies with few employees.  They will suddenly have to make their sales and profit information available to the public, whereas currently they can keep this private, recognising the commercial sensitivity, and allowing them some privacy while they grow to a decent size.

The government has recently fudged it by saying they might allow some micro companies not to publicize their profit and loss accounts, without saying how.  This is typical taking with one hand, giving back with the other, and fudging the difference.  It would have been better to leave things as they were, and leave people in peace with a familiar system.  Instead, everything is still uncertain.

THINKING THINGS THROUGH FIRST

I have noticed several instances of this apparent proactivity, followed by realization of the impact, and subsequent ‘non-deciding’, which just makes things worse by leaving us all in limbo.  Stop trying to change things without thinking it through.  It just makes law-abiding people scared.

THE ENLISTING OF COMMERCIAL SOFTWARE COMPANIES

Another important change was that the government decided that all companies should use commercial software to file their accounts.  This is dressed up as an anti-fraud measure, but is actually, I suspect, also a way of cutting government expenditure and reducing government assistance for businesses, passing the cost of compliance on to those businesses.  This is crazy if you want to grow an economy.

Why make early-stage directors, who are trying to keep costs down and grow, pay a lot of money for commercial software where it is neither helpful nor necessary?  Guess who it helps?  The government’s cost-cutting and the profits of software companies.  Guess at what expense?  The mental health and effectiveness of those trying to make a living.  Better to retain good government software, free at the point of use.

A HOSTILE ENVIRONMENT

The argument is put forward: well, if you are operating efficiently and doing all the right things, this should all be natural.  Yes and no.  In the real world, the laxity and privacy afforded to small business is what gives them the ability to flex with the times and prioritize.  Instead, the government is in danger of crippling small businesses with requirements that are user-unfriendly, and effectively privatize a community approach, replacing it with an impersonal and damaging system of penalties and lack of empathy.

ALIENATING TERMINOLOGY

My biggest objection to the government’s conduct through all these changes, is the reliance on outdated and cryptic terminology, as though no one has though of how the person in the street thinks.  So we are told that “those filing information with Companies House need to either verify their identity directly with Companies House or through an ACSP (Authorised Corporate Service Provider)”.  This just scares company directors without making it friendly for them.  The warnings, deadlines and penalties that follow just panic everybody.  This is a system written by developers and technocrats, who have ignored input from psychologists and those with an interest in mental health and happiness.

GOOD INTENTIONS, UNHEALTHY IMPLEMENTATION

The reason the government gets away with it, is that the original intentions to combat economic crime sound so worthy.  The trouble is, the implementation is terrible, and emotionally deaf.  It is turning us into a nation of afraid, bewildered, penalty-fearing, lost citizens, instead of taking the opportunity to collaborate and reward each other.

MISUSE OF A GOVERNMENT MONOPOLY

Commercial companies could not get away with such a tone-deaf approach.  Their customers would just go elsewhere.  But the government knows that, short of a revolution, there is no alternative supplier of compliance requirements.  It is pressing on with implementing draconian measures, and then commissioning software companies to make it happen, using ‘authorised representatives’ as stooges who charge high prices, and are expected to shop non-compliers, or simply reject or alienate them, on behalf of the government.  More and more, charities will have to pick up the pieces, and we will develop into a two-tier society of rich compliers and poor non-compliers.

THE NEED FOR KINDNESS

Professional institutes tend to lap up the changes as just more compliance fodder, a reason to run more seminars and sell more consultancy.  But there comes a time when we have to ask the government to stop making things extra-complicated and difficult, and to start behaving like ethical suppliers (Octopus Energy is one), who truly empathise with citizens.  Come on government, try harder to represent the real interests of your people.  Do you really think they want a police state that penalises them for aspiring to start small businesses? Perhaps, instead, we can have an empathic society with a bit of kindness in it.