A proposal in the UK government’s “Modernising corporate reporting” consultation would scrap the rules that stop companies paying out more to shareholders than they have earned. In this opinion piece, published in the Financial Times on 22 October 2026, Natasha Landell-Mills, Partner and Head of Stewardship, explains why that would weaken companies rather than support growth.
Doug McMurdo, Chair of the Local Authority Pension Fund Forum, contributed to the article.
It pays to read the small print. Buried deep within a 70-page UK government consultation on “Modernising corporate reporting” is a proposal to take a wrecking ball to a foundational investor protection.
The proposal is to abandon the UK’s longstanding regime for ensuring companies do not pay out excessive amounts of capital to shareholders. This capital maintenance regime would be replaced by vague attestation similar to that required of management to state their companies are a going concern.
Couched in soothing rhetoric of supporting growth and tackling wasteful complexity, it is sold as a win-win. But investors and the public should reject this framing. This is not a narrow technical tweak; it would strip away a core investor protection that has existed since the 19th century and codified in the 1980s. If it proceeds, the public will lose.
The current regime aims to ensure that capital is invested in productive activities, and not channelled straight back out of a company. Distributions must only be paid out of accumulated, realised profits. Two features of this regime stand out. First, prudence: companies must provide for foreseeable losses and liabilities, even where timing or value is uncertain. To ignore expected obligations could lead to excessive distributions, jeopardising the company’s ability to pay its debts as they fall due.
Second, companies must not distribute “unrealised” profits — those booked (or accrued) in the financial statements but not yet received in cash or near cash. The early recognition of income from long-term contracts before it has been paid is one example of “unrealised” earnings. Mark-to-market gains on a portfolio of assets are another. Paying cash dividends out before cash profits have been received risks an entity coming up short.
The capital maintenance regime underpins corporate resilience and its healthy functioning sustains investment, job creation and economic growth. The government suggests capital maintenance could be replaced with a solvency regime. However, what is being proposed looks more like a going concern-style approach, not rooted in the hard reality of a balance sheet test.
The UK already requires a going concern attestation and, according to the Audit Reform Lab think-tank, this has failed to provide early warning of impending failure in three out of four large corporate liquidations between 2010 and 2022. The problem is not onerous capital protection rules; it is that the rules we have are not being enforced.
Consider what has unfolded in the water industry. Water companies have paid tens of billions in dividends since privatisation in 1989, while infrastructure investment has fallen short. In November 2025, Ofwat announced that nine of 16 companies were under enhanced monitoring or in “action required” status over their financial strength.
The reasons for the proposal are hard to know but it is a matter of public record that the accountancy profession has long sought to remove the capital maintenance rules, arguing their failure to line up with International Financial Reporting Standards causes confusion. This may be simpler, but simplicity is no reason to remove essential safeguards.
The proposals are all the harder to fathom given the government’s recent calls for stronger enforcement. In 2019, a cross-party select committee was unequivocal in rejecting any weakening of the regime in its Future of Audit report, written after collapse of Carillion, a construction company.
Proposals to strengthen capital maintenance enforcement were duly drawn up as part of a review in 2022. They were due to be enacted until, in January, the government scrapped its Audit Reform Bill, citing costs to large companies. Now it wants to scrap capital maintenance rules altogether.
Weakening investor protections is not a growth strategy. Sheffield university research found that, since the financial crisis, a significant minority of large listed UK companies have distributed more dividends and share buybacks than they declared in group income. The productivity, investment, operating performance and impairment resilience of high distributors were materially worse than companies with lower distribution rates.
The government’s seemingly innocuous proposal is not just wrong-headed; it is dangerous and sets the scene for weaker companies and persistently low growth — the opposite of what the UK needs. The government must rethink.
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