‘Creative accounting’ in Lancashire’s 19th Century cotton mills


It was a debate which divided Victorian Britain and saw the interests of big business pitted against the health and wellbeing of thousands of children.

The campaign for restrictions on the length of time that young people could work each day in the mills and factories which were powering the UK’s industrial revolution was fiercely opposed by wealthy factory and mill owners, who argued that any restrictions would reduce profits and competitiveness and hand an advantage to overseas rivals.

In a new study, academics at the University of Leeds have shown that the factory owners deliberately used false data as they sought to persuade Government to back their cause and deliberately over-estimated the impact that restrictions would have on their profits. 

This creative accounting led to the introduction of the ‘Factory Act’ being delayed, and meant children were forced to continue working in appalling conditions for several years more.

Steven Toms, Professor of Accounting at Leeds University Business School, studied financial figures produced by a group of leading Lancashire mill owners led by Henry and Edmund Ashworth, Robert Hyde Greg and Holland Hoole.

The figures, which forecast how profits and productivity would be affected if working hours were restricted, were compared to the profits actually recorded by these businesses between 1833 and 1845.

Professor Toms said: “The Ashworths, Robert Hyde Greg and Holland Hoole were among the leading businessmen of their time. They were avowedly free market and wholly opposed to the factory reforms movement, which was led by Richard Oastler, Michael Sadler MP and Lord Ashley (later Lord Shaftesbury).

“Between 1832 and 1847, a series of debates were held in Parliament and both sides published detailed forecasts which they claimed showed the impact that the proposed regulation would have on their mills’ productivity and profits.

“But it’s clear that the anti-regulation lobby were making much larger profits than they cared to admit, even with carefully arranged use of pessimistic data. They consistently estimated higher levels of fixed cost in order to justify their claim that the long working week was needed to produce a reasonable rate of return. 

“Even by modern standards of creative accounting, this was a pretty cynical attempt to head off regulation, and history shows that they were successful in delaying this for several years.”

The so-called ‘Ten Hours’ movement emerged in the early 19th Century and was championed by the influential Lord Ashley. The first Ten Hours Act, which was introduced in March 1833, proposed that children under nine-years-old should not be allowed to work in factories, and that no-one under the age of 18-years-old should work more than 10 hours a day in the working week. 

However, under fierce lobbying from the business owners, Parliament accepted watered-down proposals, which were introduced in 1833. Lord Shaftesbury recognised that the Act was not being strictly enforced, and in 1844 introduced a new Act which again proposed limiting the working hours of adolescents to ten hours per week. The Ten Hours Act was finally passed in 1847.

Professor Toms also compared the figures quoted by the ‘Ten Hours’ movement, and found that they tended to overestimate profits and underestimate fixed costs.

He said: “While the pro-regulation side also exaggerated these figures, it is not as straight-forward to criticise them. They were less concerned with the figures, and concentrated instead on fuelling the sense of moral outrage at the treatment of children and young people.”

Further information

Professor Toms is available for interview, please call the media relations team on 0113 343 4031.

A copy of ‘Creative accounting in the British industrial revolution: cotton manufacturers and the ‘Ten Hours’ movement’, is available here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2354300