Ministers have announced sweeping reforms to corporate reporting, aiming to save businesses more than £450m annually by ditching "Hobbit-length" paperwork.

Under the overhaul, small and medium-sized enterprises (SMEs), including local family firms, will be exempt from certain reporting forms and audits, saving businesses thousands of pounds and hours of administrative work.

The Department for Business and Trade said the average annual report now runs to 98,000 words — longer than J.R.R. Tolkien's The Hobbit — and for FTSE 100 companies that figure swells to an average of 152,000 words.

Business secretary Jonathan Reynolds said: "No-one goes into business to fill out forms."

"For years, hardworking firms in this country have been weighed down by pen-pushing paperwork and frustrating costs, ticking boxes that do nothing to help them grow their business," he added.

In 2023, 81 per cent of executives at the UK's biggest listed companies reported that onerous reporting mandates were "eating up their time" and actively preventing them from doing their actual jobs.

Alongside relaxing the rules for SMEs, the government is adopting a "digital-first" approach, making electronic communications to shareholders the new default and ending reliance on physical paperwork. It is also exploring how AI could further automate and streamline corporate reporting and compliance in future.

"We're stripping back outdated bureaucracy and building a common-sense system fit for a 21st-century economy," Reynolds added.

The move follows Labour's scrapping of the long-awaited Audit Reform and Corporate Governance Bill, which it dropped in order to avoid placing major financial burdens on businesses. The proposed plan would have overhauled audit and corporate governance by replacing the Financial Reporting Council (FRC) with a new regulator, the Audit, Reporting and Governance Authority (ARGA), with expanded powers. That bill had itself stemmed from years of debate over UK audit and governance reform, including reviews prompted by high-profile corporate collapses such as Carillion in 2018, which had fuelled calls for stronger oversight of the audit market. Buried deep in a detailed announcement in January, the Department for Business and Trade confirmed it had dropped the Bill.

The changes come amid broader pressure on UK business confidence, with employer National Insurance contributions rising in April, and ministers have framed the reporting cuts as part of efforts to lift the country's growth outlook. The proposals will now go through a consultation process, with industry responses expected to shape how the final framework is implemented.

Industry bodies welcome the modernisation

Jordan Cummins, UK competitiveness director at the Confederation of British Industry (CBI), said: "Corporate reporting is a central piece of investor and market confidence, but it's also a resource heavy process for many businesses."

"Moves to modernise our reporting regime are welcome and firms across the UK will look forward to helping government and regulators land on a futureproofed and agile framework," he added.

Alan Vallance, chief executive of the ICAEW, said: "We fully support this initiative but with such transformative change to the reporting regime promised we'd encourage the government to take time to ensure all stakeholders are listened to, and all options are fully considered. We look forward to responding to this consultation in due course."

Dean Beale, executive director of the Centre for Public Interest Audit, added: "At first glance, the consultation covers some of the right things: bringing in greater proportionality to UK corporate reporting requirements, and moving corporate reporting on from lengthy PDFs to a fully digital information source for key stakeholders."

From an advisory perspective, Andrew Moyser, head of audit at MHA, welcomed the government's efforts to simplify corporate reporting for SMEs, but warned that stripping away statutory audit requirements could create hidden traps, shifting the burden rather than removing it and potentially harming a company's long-term growth. That tension — easing compliance costs while preserving the investor assurance that audits provide — is likely to sit at the centre of the consultation debate ahead.