In a significant policy reversal, the Labour government has officially abandoned its plans for a major overhaul of the UK's audit and corporate governance framework. The decision, confirmed on Tuesday 20 January 2026, was taken to avoid imposing significant new costs on large businesses.
A Long-Awaited Reform Shelved Again
The proposed Audit Reform and Corporate Governance Bill had a tumultuous history. It was first proposed in the wake of the catastrophic collapse of outsourcing giant Carillion in 2018. The bill was subsequently shelved by the previous Conservative administration in November 2023, who argued they needed to focus on economic growth and competitiveness.
Upon taking power, Labour reinstated the bill, featuring it prominently in its first King's Speech. The core of the legislation was to replace the existing Financial Reporting Council (FRC) with a new, more powerful watchdog called the Audit, Reporting and Governance Authority (ARGA). This new body was intended to have expanded powers to regulate and enforce standards.
Business Department Confirms U-Turn
The Department for Business and Trade buried the announcement of the bill's cancellation within a broader policy update. It stated the primary reason for scrapping the legislation was to prevent substantial new financial burdens on firms. Instead, the department is prioritising other business-friendly measures, including:
- Pressing ahead with plans to allow virtual annual general meetings permanently.
- Streamlining corporate reporting requirements for companies.
- Launching a consultation, also on 20 January, aimed at speeding up and simplifying competition investigations conducted by the Competition and Markets Authority (CMA).
The department emphasised it would continue to work closely with the CMA while preserving the regulator's independence.
Industry Reaction and Warnings Ignored
The move has been met with sharp criticism from key figures in the accounting and regulatory world. Alan Vallance, chief executive of the Institute of Chartered Accountants in England and Wales (ICAEW), expressed profound disappointment.
"We cannot hide our disappointment that eight years since the collapse of Carillion and after many false dawns, the government has decided to scrap the audit and corporate governance Bill," Vallance said. He argued that the FRC still needs full legislative powers to do its job effectively.
This criticism follows a direct warning issued just last week by FRC CEO Richard Moriarty. He urged the government to pass audit reform during "peacetime" rather than waiting for another major corporate scandal or collapse to force its hand.
The decision to drop the bill coincides with Business Secretary Peter Kyle unveiling a separate package of measures designed to support British scale-up businesses, including a review of red tape. The contrasting announcements highlight the government's attempt to balance regulatory ambition with a pro-growth agenda.
