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The new Labour government has put a beefed-up audit regulator and new rules to avoid taxpayer-funded bank bailouts at the heart of its plans to bolster the UK’s economic stability.
Measures outlined in the King’s Speech on Wednesday would give the Bank of England new powers to deploy funds stumped up by the banking sector to help cover the costs of resolving stricken smaller banks.
The goal of the bank resolution (recapitalisation) bill is to ensure taxpayer money would not have to be injected into hobbled lenders, drawing on lessons from the collapse of Silicon Valley Bank last year.
The measures include creating a stronger UK audit regulator that would be handed new powers to punish company directors who failed to publish accurate accounts.
Plans to increase oversight of auditors and to improve corporate governance rules have been in the works for several years under previous Conservative governments following the high-profile collapses of retailer BHS in 2016, contractor Carillion in 2018 and café chain Patisserie Valerie in 2019.
However, the long-awaited legislation will be in draft form and is not expected to be passed into law in the first 12 months of the Labour government. It means that by the time the law comes into force, a decade may have passed since the demise of BHS.
The new law would abolish the Financial Reporting Council and replace it with a new accounting watchdog called the Audit, Reporting and Governance Authority — a body that newly appointed business secretary Jonathan Reynolds told the Financial Times last year would have “teeth”.
The bill would increase the number of businesses subject to stiffer audit requirements by classing more companies as “public interest entities”. But in a nod to the new government’s vow to boost economic growth, the law is expected to trim the number of rules that apply to smaller “public interest entities”.
The new law would also aim to “protect against conflicts of interest at audit firms” and “build resilience” in the audit sector — a signal that Labour may persevere with controversial measures to dilute the dominance of the Big Four of Deloitte, EY, KPMG and PwC.
FRC chief executive Richard Moriarty, who would also lead the new regulator, said the changes would address “serious gaps” that had left the watchdog as “the regulatory equivalent of . . . a sheriff for only half the county”. The bill is also expected to end the regulator’s reliance on voluntary funding from the accounting sector, which accounts for about 40 per cent of its budget.
The government will also plough ahead with plans to introduce a so-called lock that would ensure big fiscal packages must always be accompanied by an assessment from the Office for Budget Responsibility. The “budget and responsibility bill” would aim to prevent a rerun of the episode under former prime minister Liz Truss in 2022, when she announced a “mini” Budget but did not subject it to an independent assessment by the OBR.
Under the new bill, the OBR would be empowered to examine any “significant and permanent” tax and spending changes. The bill would further aim to reinforce market credibility by preventing “large-scale unfunded commitments” that were not scrutinised by the OBR, the government said.
The legislative package will also contain previously announced plans to set up a £7.3bn national wealth fund to invest in green technologies with the aim of “crowding in” an additional £20bn of investment from the private sector.
