Draft Local Audit (Amendment of Definition of Smaller Authority) Regulations 2025
(2 days, 1 hour ago)
General CommitteesRead Hansard Text Read Debate Ministerial Extracts
The Minister for Local Government and English Devolution (Jim McMahon)
I beg to move,
That the Committee has considered the draft Local Audit (Amendment of Definition of Smaller Authority) Regulations 2025.
It is a pleasure to serve under your chairmanship, Mr Stuart. The regulations were laid before Parliament on 16 June 2025. Local audit is vital for ensuring the proper use of taxpayers’ money and maintaining trust and confidence in local public services, but for too long it has been placed under significant pressure. That has left an unacceptable backlog, which we are determined to resolve so we can be assured that the sector is fit, legal and decent.
It is on that basis that the Government are committed to reforming the local audit system, including by addressing long-standing concerns around proportionality and capacity. Smaller authorities include bodies such as parish and town councils, internal drainage boards, port authorities and parish meetings. They deliver important local services, from maintaining local community halls and allotments to managing small ports and drainage systems, but they do not have the same financial reporting requirements or full audit processes as larger authorities.
Many of our reforms focus on the principal audit regime for larger authorities, which is, quite frankly, broken. However, we also need to ensure that the smaller authority audit system is sustainable and functioning well. A small element of the reforms, which includes the draft regulations, aims to ensure that the overall system is proportionate and responsive to concerns and feedback. We are not removing assurance and accountability for smaller authorities; that will continue to be provided through the annual governance and accountability return, which we have committed to reviewing. We aim to ensure that it remains fit for purpose by improving transparency and ensuring that administrative burdens on smaller authorities are proportionate while enhancing the effectiveness of local reporting, assurance and audit processes.
Uplifting the threshold for smaller authorities is primarily a pre-emptive measure that aims to avoid smaller authorities ending up in the principal audit regime, which would be disproportionate to their size and functions. Raising the threshold to £15 million is not about reducing accountability, but about ensuring that our regulatory framework is fair, proportionate and fit for purpose. Doing so will allow smaller authorities to focus their efforts on delivering much-needed local services, rather than navigating disproportionate reporting, assurance and audit processes.
The current threshold for smaller authorities has remained unchanged since its introduction in 2014. More than a decade has passed, and yet the threshold has not been adjusted to reflect the evolving financial landscape. What was once a reasonable level is now outdated, placing an unnecessary burden on smaller authorities whose financial activity has grown over time because of spikes in grant funding or other revenue, without any increase in risk or responsibilities. Smaller authorities, such as parish councils or drainage boards, are unlikely to have the equivalent range of service delivery, asset base or liabilities of even the smallest district council, and yet they are at risk of becoming subject to full financial audits at far greater resource levels and cost, as well as drawing on the limited capacity in the audit market for principal authorities.
The current threshold no longer reflects the principle of proportionality. In 2024-25, 12 bodies that were previously classed as smaller authorities had income or expenditure above the current £6.5 million threshold. These bodies are generally regarded as lower risk, and their exceeding the threshold simply reflected growth in activity or budget rather than an increase in risk profile. It is not proportionate for such smaller authorities to be subject to the same level of financial reporting, assurance and audit requirements as large organisations such as unitary and metropolitan councils, which have responsibility for a wider range of public services. Such smaller authorities have significantly lower risk profiles and more limited resources, and this has resulted in disproportionate financial reporting requirements and audit costs.
There have also been knock-on consequences for audit appointments. The appointing body, Public Sector Audit Appointments Ltd, has been unable to secure auditors for two bodies, Salisbury city council and Lindsey Marsh drainage board, meaning that they are without any external assurance. My Department has included measures in the English Devolution and Community Empowerment Bill to resolve this issue retrospectively in relation to the financial years when the two bodies were unable to get any external audit assurance. The audit of bodies that have recently exceeded the smaller authority threshold is considered unattractive to auditors, and has contributed to the struggle to appoint an auditor for Salisbury and Lindsey Marsh.
There is a significant difference in the complexity of financial reporting requirements between the preparation of accounts in the smaller authority limited assurance regime and the full accounts prepared by bodies in the principal audit regime. As a result, smaller authorities often find it difficult and more challenging to produce such accounts and there is currently no support framework for assisting smaller bodies in the transition to the principal audit regime. We have acknowledged in the local audit reform strategy the need for a different approach to audit regimes to reflect an organisation’s duties and complexity, not just its financial size. Subject to parliamentary approval, the Local Audit Office will work with the Department to take that work forward.
This statutory instrument raises the audit threshold for smaller authorities to £15 million. This change will apply from the 2025-26 financial year and aims to bring proportionality and efficiency to the system. It will reduce unnecessary financial reporting and audit requirements, help to free up capacity in the principal local audit market, and allow auditors to focus on areas where assurance is critical.
The regulations will be made, if Parliament approves, under the enabling provision in the Local Audit and Accountability Act 2014, and their provisions will come into force on the day after the day the regulations are made.
We published the local audit strategy in December 2024, which included consultation on these proposals. Over 230 responses were received, and on the specific question of uplifting the smaller authorities threshold, 85% of respondents were in favour of this change. The Government responded in April this year confirming our intention to implement the new increased threshold. The change will support smaller authorities by ensuring they are subject to the appropriate governance and accountability arrangements. It will also protect value for money, and it is part of our measures to ensure a more sustainable local audit system.
I am sure our discussion today will demonstrate that we are all committed to ensuring audit arrangements remain proportionate, so that local leaders can focus their time and resources on serving their communities effectively. I look forward to answering any questions raised in the course of the debate.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
It is a pleasure to serve under your chairmanship, Mr Stuart. I am sure we are all delighted to be here—I could sense the excitement in the room when Members read the subject matter.
The Opposition commend the Government for their efforts to bring about a greater degree of fairness in local government audit. This has been a challenge for many years, in particular as a result of many larger audit businesses stepping away not just from very small public bodies, as the Minister described, but even from large local authorities, where the fees have not been large enough to justify the risks. A slew of big names, with which we are all familiar, have departed from that area of work.
We should recognise that efforts have been made over the years to address that problem. In my time in government, I was involved in launching Public Sector Audit Appointments Ltd as a means by which local authorities, working together, sought to increase the supply of effective and accredited auditors to undertake this work, but all of us, whether we represent areas with larger metropolitan authorities, or rural areas where small parish meetings sit within the audit envelope of a large local authority, are conscious of the importance of transparency. Because there is a large degree of consensus on this subject, we will not oppose the regulations this evening.
Jim McMahon
I thank the shadow Minister for his usual pragmatism and support in these matters. We all recognise the importance of Parliament having oversight of public money and making sure that it is spent fairly and appropriately, and that there are checks and balances—but it must be proportionate to the authorities that are bearing the cost. That is what we achieve with these measures.
These regulations deliver a clear benefit to smaller authorities by aligning audit requirements with the scale and risk of their operations, and they help to ensure that the local audit system is proportionate and effective. I commend the regulations to the Committee.
Question put and agreed to.
Draft Hovercraft (Application of Enactments) (Amendment) Order 2025
(2 days, 1 hour ago)
General CommitteesRead Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Transport (Mike Kane)
I beg to move,
That the Committee has considered the draft Hovercraft (Application of Enactments) (Amendment) Order 2025.
It is a pleasure to serve under your chairmanship, Mrs Hobhouse. The purpose of the order, laid before this House on 1 July, is to ensure that the full range of maritime legal powers currently available in relation to ships is also available to make regulations for hovercraft operating in the United Kingdom.
We can be proud of the industry as the only commercial hovercraft application, we think, in the world—my officials searched in vain for anywhere else that had one. We manufacture hovercraft for a range of purposes in the UK, and they are one of our great exports, so I am delighted to speak about them in this Committee. Christopher Cockerell, in the 1950s, came up with the modern-day design of the hovercraft, which crossed the Dover strait in 1959, although Emanuel Swedenborg actually came up with the concept in 1716, before it could be developed properly.
The UK has one commercial hovercraft operation, comprising two hovercraft that operate in inshore waters between Portsmouth and the Isle of Wight. The hovercraft are regulated as high-speed craft and comply fully with existing legislation. The principal legislation governing hovercraft is the Hovercraft Act 1968, which provides for Orders in Council to be made to bring hovercraft within the scope of any relevant ship requirements under the Merchant Shipping Act 1995, because hovercraft operate at sea in the same way as ships.
The powers in the 1968 Act were used to make the Hovercraft (Application of Enactments) Order 1989, which is the basis on which current relevant ship requirements are applied to hovercraft. The new order, if approved, will amend the 1989 order to make it possible to apply future relevant legislation made under the 1995 Act to hovercraft as it applies to ships. It is our intention to make this order now because, for the purpose of extending the current merchant shipping fees regulations in November 2025, it is necessary to ensure that, in relation to all possible future hovercraft operations, the Department will be able to charge fees for regulating hovercraft in the same way that it charges for regulating other types of ships and vessels.
This order will contain powers to ensure, through the use of provision for ambulatory reference, that legislation for hovercraft can keep pace with changes in shipping legislation where necessary. The order will cover provision relating to safety requirements, pollution prevention measures and inquiries and investigations into ship casualties, ensuring that hovercraft remain subject to the same modern regulatory standards as ships where necessary. Doing so supports consistency, safety, the protection of the maritime environment and growth across maritime operations.
The order updates and refreshes some provision in the existing 1989 order to bring it up to modern drafting standards. The order also makes specific provision in respect of the ambulatory reference powers in the 1995 Act, which will mean that provision in regulations for ambulatory reference to ship requirements, where those ship requirements are applied to hovercraft by this order, will also cover those requirements as they apply to hovercraft in the same way that they apply to ships. That will ensure that the relevant legislation for hovercraft keeps pace with international standards in the same way as ships, ensuring a level playing field for UK industry and international competitors.
I have highlighted the importance of this Order in Council for ensuring that hovercraft operating in the UK are subject to the same regulatory regime as ships, and that the Department has appropriate powers to ensure compliance with relevant safety and pollution prevention standards. I therefore commend this statutory instrument to the Committee.
Mr Richard Holden (Basildon and Billericay) (Con)
It is a pleasure to serve under your chairmanship, Mrs Hobhouse. I rise to speak to the statutory instrument before us, which concerns hovercraft and the invaluable role they play in supporting the local economy, particularly on the Isle of Wight, and our wider transport network. We welcome the Government’s step to modernise outdated references and ensure that hovercraft fall under the same rules as other vessels on safety, accident investigations and pollution prevention. Simplifying the legislative structure under which hovercraft operate seems to be the right way to go.
The Opposition have no objection to these measures in principle, but we have some small questions for the Minister. As he said, the UK hovercraft sector is small, with a single significant operator. It is therefore vital that this order does not create hidden costs for operators or passengers. I would be grateful if he confirmed that this is a purely administrative simplification and that there are no plans for fee increases or additional burdens that could risk the future of this unique and iconic part of our transport system. There are already concerns about the cost of crossing the Solent, particularly from residents of the Isle of Wight, who rightly and understandably wish to be sure that this change is purely administrative.
I hope that the Government have gone about consultation with industry in the proper manner and engaged with Hovertravel—I am sure they have. I also hope that a genuine assessment has been made of any potential disproportionate impact that this instrument may have on this small but vital sector. Can the Minister confirm that that consultation has taken place?
Finally, while the introduction of the ambulatory references may streamline regulation, the automatic application of future treaty changes always poses potential risks. As the Minister said, international maritime treaties are generally drafted with conventional ships in mind. Our hovercraft sector is somewhat unique, and requirements designed for vessels of that scale may not always be suitable for hovercraft operations. I would therefore be grateful if the Government set out what assessments have been made to ensure that this approach will remain appropriate, and what safeguards exist if future international standards prove ill-suited to the unique character of our hovercraft sector. I have no doubt that the Minister will be able to provide ample answers to clarify those points and prevent us from having to divide on these measures.
Mike Kane
I thank the Opposition for their support for this statutory instrument and welcome the right hon. Member to his elevated place. This is like the ghost of Christmas past, as we shadowed one another in opposition not so long ago, and I wish him well in his new position. He asked me a number of questions. Yes, the sector is unique—that is a good point. It operates only in the Isle of Wight. I have an ongoing relationship with Hovertravel as we try to solve some of the long-standing issues around transport to the Isle of Wight. My officials have worked closely on standards with Hovertravel at least since I have been in post, along with Wightlink Isle of Wight ferries. There is a good working relationship there.
This order is an administrative change, and engagement is not necessary yet. The engagement will take place when changes happen around the regulatory fees or marine pollution. That is what the order allows us to do.
The right hon. Gentleman asks about costs. As this is a technical instrument, it does not contain regulatory requirements, and does not impose any immediate costs on businesses, charities, voluntary organisations or the public sector. I reiterate that we are unique in having the only commercial service on the planet—or so we think; if anybody knows of anywhere else, please let me know. We manufacture and produce hovercraft. We sell them across the world to maritime and coastguard authorities and for defence applications. More power to our elbow as a nation; may we carry on doing that.
I hope that I have fully answered the right hon. Gentleman’s questions. As I said, the order makes provisions to ensure that hovercraft will remain subject to the same regulatory standards as ships; that is what we are after. It is necessary to support consistency, safety and growth across the maritime sector, as well as to ensure relevant powers to change fees. Regulatory oversight of hovercraft as well as ships is desirable. I therefore commend the order to the House.
Question put and agreed to.