Accounting and investor groups on Thursday hit out at the government’s move to ditch a bill from its next legislative programme that would have implemented long-delayed reform of audit and corporate governance.
A draft bill to underpin the reform, including the creation of a new regulator of audit firms, has been dropped from the Queen’s Speech scheduled for May 10, according to government officials.
The planned shake-up of audit and corporate governance was drawn up in response to a series of corporate scandals including retailer BHS in 2016, outsourcer Carillion in 2018 and cake chain Patisserie Valerie in 2019.
Business secretary Kwasi Kwarteng had said the reform was a priority when he was appointed last year and the shake-up was promised in the Conservative party’s 2019 election manifesto.
The government had proposed replacing the existing audit regulator, the Financial Reporting Council, with a new body called the Audit, Reporting and Governance Authority, which would be handed new powers, including the ability to take action against company directors.
Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales, a professional body, expressed concern at the prospect of no draft bill appearing in the Queen’s Speech.
He said his sector understood the government had many competing priorities but questioned whether ministers would ever make audit and corporate governance reform a priority.
It seemed there was “always going to be something that is more important”, he added.
Mike Suffield, a director at the Association of Chartered Certified Accountants, another professional body, also voiced disappointment at the dropping of the draft bill from the government’s forthcoming legislative programme.
“What we’re witnessing now is policy drift, which is unacceptable for something so important,” he said.
Roger Barker, head of policy at the Institute of Directors, the business lobby group, said the FRC would be left in “limbo” without the legislation to establish the ARGA.
“The importance of corporate governance has come even more to the fore given P&O and other corporate scandals, and we have been waiting for so long for a response from the government, which makes it strange that other things were more pressing,” he added.
Natasha Landell-Mills, head of stewardship at institutional investor Sarasin & Partners, also expressed concern.
“Audit reform has been routinely kicked into the long grass, despite its centrality to building a more resilient corporate sector,” she said. “This matters not just to investors, but to employees, suppliers and wider communities in which businesses operate.”
Further delay to audit and corporate governance reform would be a “disaster”, said Peter Parry of the UK Shareholders Association, which represents private investors. “We’ve been working on this for so long [but] there’s a real risk of this collapsing now,” he added.
Ministers in the business department had originally hoped legislation to implement the audit and corporate governance reform would be included in the government’s legislative programme for 2022-23.
This spring they changed tack by saying a draft bill that would undergo scrutiny by MPs over the coming year would be included in the Queen’s Speech.
Officials said on Thursday it had dropped down Downing Street’s priorities because other legislation sponsored by the business department had taken on greater urgency.
These are bills to help pave the way towards the UK achieving net zero emissions by 2050, and to bolster the authorities’ attempts to root out illicit money.
The government said it would set out its legislative programme in the Queen’s Speech and that it would publish its response to a public consultation about the proposed audit and corporate governance reform “shortly”.