Speaking at the party’s State of the Economy conference on Saturday, shadow chancellor John McDonnell said that the party is commissioning a review into the entire auditing and accounting regime in the UK following the collapse of Carillion.
McDonnell said that under the next Labour government, the big six firms (the Big Four plus Grant Thornton and BDO) would no longer be able to “act like a cartel that prevents new market entrants or drive down standards”.
“There will be no more Carillion on Labour’s watch,” McDonnell said.
On Thursday, in a scathing report into Carillion MPs called for the break up of the Big Four, claiming they had been “complicit” in the collapse of the construction services giant.
Following the report KPMG UK chairman Bill Michael admitted that the profession was an “oligopoly”.
“The lack of openness, transparency and accountability means nobody ever seems to be punished for their transgressions.”
Prem Sikka, professor of accounting and finance at the University of Sheffield, will lead Labour’s review, which will also look into the UK’s regulatory system, something that McDonnell says “is simply not fit for purpose”.
McDonnell highlighted the fact that the financial sector has at least 29 overlapping regulatory bodies, creating a “regulatory maze” that leads to “enormous opportunities for waste, duplication, obfuscation and buck passing” and fails to protect consumers.
Sikka said that he has been working on this ever since the Carillion scandal broke.
He said in recent weeks they have held meetings with various stakeholders, including institutional investors, company directors and the big accountancy firms.
There are about 14 people on the review team and they have been asked to develop specific proposals to reform the world of accounting and auditing.
“I think this sort of review should have been conducted years ago. It hasn’t really happened because the Financial Reporting Council (FRC) has known what the problems are…but doesn’t follow it up.
“I think that change across the profession is very likely as the appointment of the Kingman review is at least indicative of some concerns in government quarters. Obviously the parliamentary committees have been unhappy and we’ve found that institutional investors are very concerned about the direction of accounting and auditing. That itself is quite an eye-opener for us,” added Sikka.
On Friday, Sir John Kingman named the 11 members of the panel that will support him in the government’s own independent review of the FRC, announced in April.
Earlier in the year a joint enquiry into the collapse of Carillion by two select committees of MPs criticised the FRC, calling it “toothless” and “ineffective” as a regulator.
The remaining big six firms and the FRC have been contacted for comment.