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The UK government has scrapped legislation that would have tightened corporate governance rules for large companies after the financial services industry lobbied against the changes.
Business secretary Kemi Badenoch withdrew the “burdensome” legislation after companies raised concerns about the cost of the new corporate reporting requirements, said the Department for Business and Trade on Monday.
The legislation was put forward by the government just three months ago. Parliament was due to debate it on Tuesday. The business department said it would now “pursue options to reduce the burden of red tape”.
Roger Barker, director of policy and governance at the Institute of Directors, which represents company board members, said Monday’s announcement “places the government’s longstanding reforms of audit and corporate governance in disarray”.
The dropping of the draft secondary legislation is the latest delay to a long-planned overhaul of the UK’s corporate governance regime.
The government is also expected to omit separate, long-awaited primary legislation to implement sweeping changes to audit and boardroom rules when it presents its legislative agenda in the King’s speech next month.
Monday’s announcement was “a further sign that the government is pulling back from reforms announced in the wake of the collapses of Carillion, BHS and Patisserie Valerie”, said Barker, referring to the corporate scandals that sparked calls for a shake-up of audit and boardroom rules.
Barker said he shared concerns about the volume of reporting requirements faced by UK companies but criticised the government’s U-turn.
“As with other announcements in recent weeks, the government’s unwillingness to follow through with long-expected reforms is a source of uncertainty for business,” he said.
Prime Minister Rishi Sunak faced similar criticisms from business groups and political opponents this month after cancelling the construction of the northern leg of the HS2 high-speed rail link.
Jonathan Reynolds, Labour’s shadow business secretary, said: “Constant Conservative U-turns have become the real burden facing British business. The government are once again seeking plaudits for abandoning their own failed policy.”
The now scrapped corporate governance legislation would have applied to public and private companies with at least 750 employees and annual turnover greater than £750mn.
It would have required such businesses to publish an annual statement explaining how they were ensuring their resilience over the short, medium and long term.
The rules would also have required companies to disclose their distributable profits, publish directors’ assessment of the risk of material fraud and explain whether disclosures on metrics such as a company’s carbon emissions would be independently audited.
The government said that a call for evidence on non-financial reporting requirements had “identified a strong appetite from businesses and investors for reform, including to simplify and streamline existing reporting”.
The shelving of the draft legislation was welcomed by London Stock Exchange chief executive Julia Hoggett, who said that “ever-increasing corporate governance processes” had “impacted the effectiveness of listed companies and the standing of the UK over other capital markets”.
The move was also backed by insurance market Lloyd’s of London and financial services lobby groups UK Finance and TheCityUK.
The government said it “remains committed to wider audit and corporate governance reform” and would legislate “when parliamentary time allows”.
