The chair of the £150bn (€172bn) pension fund-backed Governance for Growth Investor Campaign (GGIC) has criticised the UK government’s decision to scrap a planned audit and corporate governance reform package.
The decision was revealed this morning by the Department of Business and Trade (DBT), which cited wanting to avoid increasing costs on business and to instead prioritise “more deregulatory measures”, such as simplifying and modernising corporate reporting.
In a letter to the parliamentarian chairing the Business and Trade Committee in the House of Commons, DBT minister Blair McDougall also said the need for major reform “is less pressing than it was”.
He said there had been “a great deal of progress” since the collapse of Carillion in 2018, with “considerable improvement in the quality of audit regulation, and of audit itself”.
Carillion, an outsourcing company, went into liquidation in January 2018 with just £29m in reserves, triggering intense scrutiny of the audit profession and regulation as well as of investor stewardship of the company.
The Audit and Corporate Governance Reform Bill had, among other reforms, aimed to create a new definition of public interest entity (PIE), to hold company directors to account for existing corporate reporting responsibilities and to create a new regulator with stronger powers.
Citing the Carillion case as well as a more recent £30bn accounting error at WH Smith, Caroline Escott, head of investment stewardship at Railpen and chair of the GGIC, said the investor group was disappointed that the government was shelving its planned audit reform measures.
“High-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,” she said.
“Although the modernisation of corporate reporting initiatives is to be welcomed, streamlining corporate disclosure is no substitute for implementing sensible and widely welcomed measures on PIE status, director accountability and audit market oversight that would have helped protect people’s savings.”
She continued: “We urge the government to reconsider its decision. Good governance is fundamental to the UK’s 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.”
The government has said it will still aim to put the Financial Reporting Council on a statutory footing “as soon as parliamentary time allows”.
It also announced it was “pressing ahead with plans to allow virtual AGMs” and was today launching a competition to speed up and simplify competition investigations by the Competition Markets Authority.
