Regulation Regression: UK Axes Audit and Corporate Governance Reform Bill<\/p>\n
22 January 2026<\/p>\n
By\u00a0Jack Grogan-Fenn<\/a><\/p>\n The UK government has ditched<\/a> its long-awaited Audit and Corporate Governance Reform Bill in a controversial decision which has courted condemnation from corporate governance experts.<\/p>\n The much-anticipated bill was first mooted in 2018 after the high-profile failures of construction company Carillion and department store retailer BHS. Its core aims included introducing a new Audit, Reporting and Governance Authority to augment audit supervision, recategorising some large private firms as public interest entities and heightening the scrutiny their audits face and boosting competition by reducing reliance on the Big Four accounting firms.<\/p>\n By enacting these changes, the bill aimed to enhance accountability for company directors and improve transparency for investors and stakeholders. Industry experts have warned that abandoning the bill risks negatively impacting the UK\u2019s long-term competitiveness and growth.<\/p>\n Key Client Takeaways:<\/p>\n Audit Reform Bill Scrapped<\/p>\n The UK government has abandoned the long\u2011awaited Audit and Corporate Governance Reform Bill, citing economic growth priorities, reduced urgency and limited parliamentary time.<\/p>\n Shift Toward Deregulation<\/p>\n Instead of new legislation, the government plans to focus on simplifying and modernising corporate reporting to reduce business costs. The government intends to consult with investors and firms on \u201cstreamlining\u201d later this year.<\/p>\n Strong Criticism from Investors<\/p>\n Governance experts and major investor groups warn that shelving the bill undermines audit quality, market confidence and long-term UK competitiveness.<\/p>\n The UK\u2019s Minister for Small Business and Economic Transformation cited three reasons for not moving forward with and consulting on audit reform legislation in a letter published this week. These reasons were: to \u201cpromote economic growth and reduce administrative burdens; the need for major reform being \u201cless pressing than it [previously] was\u201d; and the government \u201cpursuing an ambitious legislative programme\u201d when \u201cparliamentary time is limited\u201d.<\/p>\n According to the letter, while the reforms would have been \u201cbeneficial\u201d they would have increased costs on business, with the government instead opting to prioritise deregulatory measures. \u201cWe intend to focus instead on the simplification and modernisation of corporate reporting,\u201d the document read. \u201cWe want to make the UK\u2019s reporting regime the most streamlined and proportionate in the world and will launch an ambitious consultation this year to co-design these changes with companies and investors.\u201d<\/p>\n Labour had revived the bill, which was put on hold by the previous Conservative government, with it being mentioned in their first King\u2019s Speech following their victory in the 2024 general election. The government also this week confirmed controversial plans to press ahead with allowing virtual AGMs<\/a>, something which could prove detrimental to shareholders, as previously covered by Minerva Analytics<\/a>.<\/p>\n The letter also claimed that there has been a \u201cgreat deal of progress\u201d since Carillion\u2019s 2018 collapse, as well as \u201cconsiderable improvement in the quality of audit regulation, and of audit itself\u201d. It pledges to continue support of the measures taken by the Financial Reporting Council (FRC) to make the audit market work better, minimise the administrative burden of regulation and to support growth. FRC CEO Richard Moriarty last week urged the government<\/a> to pass audit reform legislation during\u00a0\u201cpeacetime\u201d\u00a0rather than waiting for a future major corporate collapse or scandal.<\/p>\n The move drew criticism from several senior figures in the world of corporate governance, including Caroline Escott, Chair of the Governance for Growth Investor Campaign (GGIC) and Head of Investment Stewardship and Co-Head of Sustainable Ownership\u00a0at Railpen. \u201cEight years after Carillion\u2019s collapse and only a few months after audit and controls issues wiped off almost \u00a3600 million of shareholder value in one day at WH Smith, we\u2019re disappointed that these necessary and important audit reform measures have been shelved,\u201d said Escott.<\/p>\n \u201cHigh-quality audits and sensible corporate governance standards are vital for healthy capital markets and act as a foundation for growth, confidence, and resilience in the UK economy,\u201d she added. \u201cWe urge the government to reconsider its decision. Good governance is fundamental to the UK\u2019s economic growth, and high audit standards enable the high-quality audit that supports value creation in the interests of companies, investors and everyday UK savers alike.\u201d<\/p>\n Investors with more than U$245 trillion in AUM last month\u00a0backed a report from the GGIC<\/a> which challenged \u201cmisconceptions\u201d about corporate governance and its role in capital markets and show that strong governance is a \u201ccatalyst for sustainable economic growth\u201d rather than being a barrier, as reported by Minerva Analytics<\/a>.<\/p>\n James Alexander, Chair of the UK Sustainable Investment and Finance Association (UKSIF), also criticised the UK government\u2019s decision to scrap the bill. \u201cThe choice to abandon plans to further strengthen these foundations represents a huge missed opportunity, which has the potential to undermine the UK\u2019s growth and competitiveness in the long term,\u201d he warned. \u201cWe could see the consequences of this decision felt ultimately by businesses, investors, employees and consumers in the future, and we would urge the government to look again at this.\u201d Minerva Analytics<\/a> is one of UKSIF\u2019s more than 300 members, which collectively represents \u00a319 trillion (U$25.6 trillion) in AUM.<\/p>\n The fallout from the Carillion scandal continues to cast a long shadow, with the UK\u2019s Financial Conduct Authority this week fining<\/a> two of the firm\u2019s former finance directors\u00a0for their role in the company publishing \u201cmisleading statements\u201d. Since the collapses of Carillion and BHS, several major companies have failed due to auditing and corporate governance issues, including Patisserie Valerie, Thomas Cook and WH Smith, which have resulted in thousands of job losses.<\/p>\n