FRS17 blamed for economic stagnation
The controversial accounting rule FRS17 could be behind a three-year stagnation in corporate profits, as companies make additional payments to their pension funds.
Link; FRS17 debate
,P> The CBI said the need to make additional financial provisions for pensions deficits under FRS17 rules would make the pension problem ‘more acute’, warning that efforts to shore up a £160bn pensions black hole will hold back economic growth.
The employers body said both actuarial practice and prudent application of company accounting rules should be used to reduce deficits in pension funds. However, the new CBI analysis states that ‘FRS17 rules would make the problem more acute’.
Ian McCafferty, CBI chief economic adviser, said: ‘The magnitude of the pension deficit has become a serious concern. It leaves companies caught between a rock and a hard place.’ He added: ‘The economy will suffer, with the effects rebounding on the government through lower tax receipts.’
Last year, CBI director general Digby Jones wrote to the Accounting Standards Board to complain about FRS17. He said companies were concerned about the volatility the rule was causing in their accounts.
Companies affected by pension problems include the big names of British industry such as BT, British Airways and Rolls-Royce.
In June, the FSA reported that its pension deficit had rocketed to a £102m shortfall using FRS17 rules. It said that, using an accounting measure ‘more relevant for financial management’, the figure would be about £50m.