The Minister for Housing and Local Government (Grant Shapps)
Today I am publishing the draft Local Audit Bill for consultation and pre-legislative scrutiny. A copy has been laid before the House. The draft Bill sets out a new, decentralised and more efficient audit framework, that gives local bodies greater responsibility.
The publication of the draft Local Audit Bill is another key step towards a more transparent and localist audit system, and builds on what has already been achieved since my right hon. Friend the Secretary of State announced our plans to abolish the Audit Commission. In 2010, the Government brought an end to the top-down regime of routine assessment and inspection of local authorities, reducing the burden on local bodies so they can concentrate on meeting the needs of local people. In preparation for closure the Government asked the Audit Commission to outsource the work of its in-house practice to the private sector. This year and for the next four years local bodies will benefit from a 40% reduction in their audit fees.
The package of reforms, including the proposals set out in the draft Bill we are publishing today, will bring total expected savings to the public purse of £650 million over the next five years. This figure, which is net of transitional costs, includes savings from the ending of assessment and inspection, a reduction in the cost of audit, and the slimming down and closure of the Audit Commission. Full details of the savings are set out in the consultation-stage impact assessment published alongside the draft Bill.
The new local audit framework set out in the draft Bill represents better value for money for taxpayers while protecting the integrity of the local audit system. There will be a more streamlined regulatory system that will continue to provide robust assurance over public funds. These reforms will also bring wider benefits: the new regime will be more localist, allowing local bodies to appoint their own auditors, with appropriate safeguards to protect auditor independence. The reforms will complement our existing initiatives to increase transparency and empower local scrutiny of public bodies.
In the proposed new audit framework, local bodies will be able to appoint their own auditors from an open and competitive market, on the advice of an independent auditor panel. The draft Bill provides the mechanism to delegate new responsibilities to the Financial Reporting Council, which will act as the overall regulator for auditors, and the professional audit bodies. It also sets out a new role for the National Audit Office, which will set the code of audit practice, and will be able to undertake a small number of thematic value-for-money studies relating to local government. The draft Bill makes provision for the repeal of the Audit Commission Act 1998, and for the transfer of assets, liabilities and continuing functions to other bodies once the Audit Commission closes.
Although there are no draft clauses included in the Bill at present, the accompanying consultation document makes it clear that the intention is to include provisions relating to the audit of health bodies in the final version of the Bill when it is introduced to Parliament.
I am also publishing alongside the draft Bill detailed proposals for the audit of smaller local public bodies (those with an annual turnover below £6.5 million). These bodies will be subject to a proportionate audit regime, including an option for smaller bodies to have their auditor procured and appointed by a sector-led body. This follows a proposal from the National Association of Local Councils and the Society of Local Council Clerks to establish a body for such a purpose. Additionally, bodies with a turnover below £25,000 will no longer be automatically subject to external audit. Instead, I am proposing new transparency requirements for all smaller bodies with a turnover below £200,000, and local people will still be able to raise objections and have complaints investigated by an auditor if deemed appropriate.
I welcome scrutiny of the draft Local Audit Bill by the House. We will seek to shorten and simplify the provisions, if at all possible, before it becomes a final Bill. It remains the Government’s intention to introduce a final Bill as soon as parliamentary time allows.