Pensions UK and the Governance for Growth Investor Campaign have criticised the government’s decision to abandon legislation designed to reform company audits, calling on the government to ensure the UK’s corporate governance framework remains fit for purpose. 

The government said on Tuesday that the audit and corporate governance reform bill is being dropped “to avoid significant new costs for large firms”.

Plans to reform audit and reporting requirements – following the collapse of outsourcer Carillion in 2018 – previously ran into resistance from firms, but investors have said they are disappointed. 

“We view the decision as a missed opportunity to reinforce trust, confidence and resilience in UK capital markets. High‑quality audits, clear director accountability and effective audit oversight are fundamental to protecting savers’ money and supporting long‑term growth,” said George Dollner, who heads up strategic policy at Pensions UK. 

He said modernising and streamlining corporate reporting is welcome, but argued that “it cannot substitute for widely supported reforms on PIE status, director accountability and audit market oversight, particularly at a time when pension schemes are being encouraged to invest more in private markets”. 

Pensions UK is urging the government to set out “how it intends to address these gaps and ensure the UK’s corporate governance framework remains fit for investors, companies and everyday savers alike”. 

The organisation previously raised concerns about investor laxness in scrutinising audit quality because of very low shareholder dissent about audit-related issues.

Caroline Escott, chair of the £150bn Governance for Growth Investor Campaign was equally unimpressed with the government’s U-turn. 

“Eight years after Carillion’s collapse and only a few months after audit and controls issues wiped off almost £600m of shareholder value in one day at WHSmith, we’re disappointed that these necessary and important audit reform measures have been shelved,” she said. 

Audits and 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.

“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,” Escott added. 

There have been several scandals involving sub-par audits, sometimes leaving a defined benefit scheme unmoored or retail investors out of pocket following corporate collapse.  

The scrapping of the bill is part of a wider package designed to “slash red tape”, the government said, as it plans to allow virtual AGMs and streamline corporate reporting.

Campaign group ShareAction has voiced concerns over the idea of virtual AGMs, saying while they can save investors time and money, there is a risk that managers can more easily avoid scrutiny, said head of UK policy at ShareAction, Luke Hildyard.

“We should be extremely wary of AGMs that are conducted exclusively online with no in-person element. This makes it much easier for boards to manipulate the agenda, ignore questions and avoid scrutiny to the ultimate detriment of good governance," he warned.

“ShareAction has already documented multiple examples of abuses of this kind at companies in the UK and overseas that have held virtual-only AGMs since the pandemic. We urge the government to ensure robust safeguards that guarantee shareholders’ unfiltered right to hold the companies they invest in to account,"  Hildyard added.

The government has also launched a consultation “to speed up and simplify competition investigations—working closely with the [Competition and Markets Authority] while preserving its independence”.

This is despite concerns that the government is interfering with the CMA after the competition watchdog’s chair Marcus Bokkerink was replaced with former Amazon UK country manager Doug Gurr early last year, reportedly because the government viewed him as not sufficiently aligned with its ideas about growth.