Despite an announcement in the King’s Speech in July 2024 that the current Labour government would advance the long-awaited audit reform and corporate governance bill, Business Secretary Peter Kyle has confirmed the legislation is being scrapped. This decision marks the end of a long-standing initiative to replace the Financial Reporting Council (FRC) with a more powerful body – the Audit, Reporting and Governance Authority (Arga).

The move to abandon the bill is driven by a broader UK government strategy to prioritise economic growth and reduce administrative burdens on large firms. In a letter to the business and trade select committee, Business Minister Blair McDougall explained that a review led to the “difficult decision” to halt the package of measures, citing the need to avoid significant new costs for businesses. Consequently, proposals to redefine public interest entities and grant regulators greater powers to pursue directors are expected to be dropped, The Times reports.

Industry reaction has been largely critical, reflecting frustration over years of delays following high-profile corporate failures such as Carillion and BHS. Alan Vallance, chief executive of the Institute of Chartered Accountants in England and Wales, expressed deep disappointment at yet another “false dawn” eight years after the Carillion collapse. While the cancellation was not entirely unexpected given recent economic sluggishness and global instability, it leaves the sector without the comprehensive overhaul many had anticipated.

Maggie McGhee, executive director of strategy and governance at ACCA, said: “Legislation to establish the Audit, Reporting and Governance Authority (ARGA) should have proceeded without delay.

“Over the years ACCA has been consistent in that. Establishing ARGA would have given businesses certainty and ensured the UK maintains its reputation for the highest standards of corporate governance.

“We cannot hide our disappointment and our disagreement with this decision which we thinks makes no sense. The time to reform and strengthen corporate governance is when we are in relatively good place, not when are in the midst of a corporate governance and audit failure crisis. So we disagree completely with the idea that the need for reform is less pressing. Businesses do not grow where corporate governance is below par.

“We will work with other stakeholders and the government to see that the FRC works as well as possible. The first step is for the government to do what it has said and put the FRC on a proper statutory footing. Please stop the delay now.”

Despite shelving the wider reforms, the UK government intends to place the FRC on a “proper statutory footing”. This includes granting the watchdog increased powers to gather information during investigations and making industry contributions to its running costs mandatory.

Richard Moriarty, the FRC’s chief executive, acknowledged the UK government’s need to balance competing priorities and affirmed that the regulator would continue its work regardless. However, the decision risks backlash from policymakers, including a cross-party group of MPs and peers who recently urged the Prime Minister to end the indecision, arguing that reform was essential to restoring confidence in UK markets.