Government abandons Audit Reform Bill

UK government has announced that it is scrapping the long-awaited Audit and Corporate Governance Reform Bill saying that the rule changes would be too costly for large companies. This is a blow to the construction supply chain who bore the brunt of the failure of Carillion, has been impacted by persistently high levels of insolvency, the recent news of the escalating exposure to ISG and serious governancee failings being investigated following the failure of Henry Construction,

The Bill had, among other reforms, aimed to hold company directors to account for existing corporate reporting responsibilities and to create a new regulator with stronger powers. According to Department of Business and Trade the decision to scrap the Bill was made to “avoid significant new costs” for large organisations.

A letter from the Minister for Small Business and Economic Transformation, Blair McDougall, to the Chair of the parliamentary Business and Trade Committee, has also been published and further explains the change of direction.

McDougall confirms that with the government’s key priority being to promote growth and reduce administrative burdens, that it would “not be right” to prioritise the introduction of measures that would increase costs on businesses.

“We intend to focus instead on the simplification and modernisation of corporate reporting. We want to make the UK’s reporting regime the most streamlined and proportionate in the world,”

he wrote.

Another key factor in the decision, according to McDougall, was supposed progress in audit quality and regulation since the collapse of Carillion.

Reacting to the news ICAEW’s Chief Executive, Alan Vallance, has stated:

“We cannot hide our disappointment that after many false dawns, the government has decided to scrap the Audit and Corporate Governance Bill. The government had itself recognised that an Audit Reform Bill would increase global investor confidence in UK companies and increase the prospects of growth.”

FIS Chief, Iain McIlwee added his concerns to this decision reflecting:

“We continue to underestimate from a policy perspective how important the construction supply chain is to delivery and growth at our peril. It is all very well to consider the cost to large corporations, but SMEs are the backbone of the construction sector and economy and there is little consideration here to them.  The uncertainty added by the risk of insolvency further undermines our ability to innovate, and to invest in skills and does not take into account the confidence of investors who will be taking a view on the viability of projects based on the resilience of the supply chain.  The backdrop to all of this is that failure to build protection also impacts confidence in the loan, bond and credit insurance market, further removing much needed support from the supply chain..

Almost 8 years after the failure of Carillion it is a disgrace that nothing tangible has been done to protect our supply chain from exposure here. This announcement comes at a time when our community continues to deal with the fall-out from ISG, the evident lack of controls were in place and frankly this another kick in the teeth to those that are footing the bill for the failure of others. We need stability to support growth. Whilst I remain optimistic about the interventions proposed to improve payment and put a nail in the coffin of retentions, we have missed a huge opportunity here to help stabalise the sector. FIS has fed these views into the Construction Minister.”