When I joined Accountancy Age in March 1974, the lights were out. Prime minister Edward Heath’s confrontation with the miners had led to the blockading of power stations by pickets and such a shortage of electricity that it was cut off in rotation, six hours on, three hours off. The entire country had to work a three-day week and if companies wanted to do more, which the owners of Accountancy Age did, they had to do it without electricity.
The first copy I read was by the light of a Camping Gaz burner. Not for long, though, because within a few weeks the Heath government fell, and Harold Wilson moved back into Downing Street and bought off the miners.
When I left Accountancy Age in May five years’ later, it was just after Margaret Thatcher had defeated Jim Callaghan (who replaced Wilson in 1978) to preside over the ‘winter of discontent’ which returned the Tories to power.
As a period of political turbulence, it also marked the beginning of fundamental change in the accountancy profession. The 1970s accountant was rather like the actuary of today. It was a profession unused to public scrutiny, confident in its own beliefs and practices, which had gradually drifted out of touch with a changing public mood.
Following a series of mishaps, it found that the public’s perception of the profession and what it should do, was far removed from the image it had of itself and what it thought its purpose was.
Like actuaries today, accountants were summoned to the Treasury and told in no uncertain terms to clean up their act. Their struggle to begin the process of change was the defining issue of my period as editor.
But while that was the way the tide was flowing, it was often hard to see because of the squalls, of which the biggest was inflation accounting.
The end of 1974 saw the end of a two-year bear market that was even more severe than the one we just went through. The banking system was on its knees because dozens of fringe banks had folded, having lent too much on commercial property. Confidence was so fragile that Natwest Bank was forced to issue a denial one Saturday to say it was not going bust.
The first oil shock of 1973, when the price quadrupled overnight, was working through the system. Strikes were rampant, business was stagnating, inflation soared to 20% and companies were going under because inflation suggested they were making money when in real terms they were losing it hand over fist – but they still had to pay tax on the fictitious profits.
The profession’s solution was to devise a theoretically perfect system of inflation accounting based on current purchasing power adjustments, which was fiendishly complicated, produced bizarre results and bore no relation to the real world.
Industry rebelled and demanded an alternative system based on current costs. The profession then tore itself apart for two years arguing about it, until chancellor Dennis Healey finally imposed his own system. Not for the first time, Whitehall thought the profession had badly lost the plot.
Inflation accounting was, in fact, only one part of a bigger move towards accounting standards – a move that was itself controversial. Standards had been proposed a few years earlier to limit the scope for judgement in the preparation of accounts. They were the profession’s response to a huge City row when GEC chief executive Arnold Weinstock restated the profits of AEI, a company he had just taken over, from mega millions down to zero.
The City was outraged and demanded more certainty in accounts so it could have more faith in public profit figures.
Standards were the result and, though taken for granted now, many saw them as the death knell for the profession, precisely because they limited the scope for professional judgement. Many believed the profession had been permanently diminished when its ability to make judgements was curtailed.
But it did not stop Sir Henry Benson, who with Sir Ronald Leach, was one of the profession’s giants, creating and chairing the International Accounting Standards Board, forerunner of the body now headed by Sir David Tweedie that seeks to harmonise accounting worldwide.
Meanwhile, in industry two things dominated. One was the level of personal tax which was 87% on incomes over £15,000. With a further levy on unearned income, it took the effective marginal rate to 92%. Huge amounts of energy were spent on tax avoidance – it was even possible to lease rather than buy a suit and putting things on expenses became an art form – particularly when the government’s pay policy restricted pay rises to £6 per week.
The second was the rising status of accountants in industry. The climate of the time meant that companies needed to be run by someone who could understand the impact of inflation and the need to conserve cash – but at that time, even finance directors were not accountants.
It was hugely symbolic, therefore, when management accountant Alec Park became chief executive of British Leyland, the rump of which is now Rover Group. Where he led, many others were soon to follow.
And there was much, much more. A former president of the English Institute, Ken Sharp, became the first head of the Government Accountancy Service and was immediately and appropriately dubbed HOTGAS. His campaign against public sector waste led to the beefing up of the National Audit Office under the leadership of a bright young man called Howard Davies – of whom much has been heard since.
Elsewhere, a Manchester Binder Hamlyn partner Derek Boothman (later an ICA president) wrote the Corporate Report – a forward-looking document that encapsulated later demands for corporate social responsibility.
Then the six UK professional bodies sought to merge into one, but though the others agreed it was voted down by the elitist element of the English ICA.
And in London, an upstart firm that was not even in the top 10 caused fury by appearing to low ball on audit fees in order to pick up consultancy work. It was pilloried for behaving like a business, not a professional firm, even though the rest of the accountancy world quickly followed. Its name was Arthur Andersen.
Anthony Hilton is financial editor of the Evening Standard and was editor of Accountancy Age from 1974 to 1779.
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