English Devolution and Community Empowerment Bill (Eleventh sitting)
Tuesday 28th October 2025
(1 day, 14 hours ago)
Public Bill CommitteesEnglish Devolution and Community Empowerment Bill 2024-26 View all English Devolution and Community Empowerment Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 28 October 2025 - (28 Oct 2025)
The Committee divided: - Ayes: 6 / Noes: 11 - Question accordingly negatived.
The Committee divided: - Ayes: 3 / Noes: 11 - Question accordingly negatived.
The Committee divided: - Ayes: 11 / Noes: 3 - Question accordingly agreed to.
The Chair
I remind Members again that we observe all the normal courtesies: speaking through the Chair, not having our phones ringing, not eating food or drink of any kind, apart from water, bowing or nodding to the Chair on entry or exit, and remaining courteous throughout, which I know the Committee is. You have made great progress since I was here last. We will now continue our day-to-day consideration of the Bill line by line. The selection list for today’s sitting is available in the room. Bob in the normal way if you wish to contribute. I shall ask the movers of amendments if they want to press them to a vote, as we have done throughout.
Question proposed, That the schedule, as amended, be the Twenty Seventh schedule to the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 12—Local authority oversight over management of land of community value—
“(1) A local authority is responsible for overseeing the management of land of community value in their area.
(2) If the relevant local authority identifies deliberate neglect or mismanagement of land of community value by its owner, the authority may—
(a) exercise compulsory purchase powers, or
(b) refuse planning changes in relation to the land.”
This New Clause would require local authorities to oversee the management of land of community value in their area and enable them to exercise compulsory purchase powers in instances of mismanagement.
New clause 20—Right to apply to purchase derelict, mismanaged or inaccessible sporting assets of community value—
“(1) A community interest group or a parish council may apply to a local authority to purchase land to which this section applies.
(2) This section applies to land that is a sporting asset of community value (as defined by section 86C of the Localism Act 2011, as inserted by Schedule 27 to this Act) and meets one or more of the conditions specified in subsection (3).
(3) The conditions are that the land—
(a) has been left derelict for a continuous period of at least 2 years;
(b) is being, or has been, mismanaged in a way that significantly impairs its sporting value or public benefit; or
(c) has been unreasonably made inaccessible to the community, where it was formerly accessible for sporting purposes.
(4) For the purposes of this section land is—
(a) derelict if it is not actively used for its primary sporting purpose, or is in a state of disrepair that renders it unfit for such use, having regard to its previous use and condition;
(b) mismanaged if its condition or use is such that it fails to realise its potential as a sporting asset, due to neglect, poor maintenance, or inappropriate development, contrary to the interests of the local community;
(c) unreasonably made inaccessible if measures have been taken to restrict public access or use for sporting purposes without a compelling public or safety justification, where such access or use was previously permitted or established.
(5) An application under subsection (1) must—
(a) be in writing,
(b) identify the land to be purchased,
(c) include evidence demonstrating that the land meets one or more of the conditions specified in subsection (3),
(d) outline the community interest group’s or parish council’s plans for the future use of the land for sporting purposes, and
(e) be accompanied by such fee (if any) as the local authority may reasonably require.
(6) On receiving an application under subsection (1), the local authority must—
(a) notify the owner of the land of the application within 14 days, and
(b) consider the application.
(7) The local authority may not reject an application under subsection (1) if it is reasonably satisfied that—
(a) the land is a sporting asset of community value and meets one or more of the conditions specified in subsection (3),
(b) the applicant is a community interest group (as defined by section 86D(2)(b)(ii) of the Localism Act 2011, as inserted by Schedule 27 to this Act) or a parish council, and
(c) the applicant’s plans for the future use of the land are viable and will in the opinion of the local authority further the social or economic well-being or social or economic interests of the local community.
(8) If the local authority decides to approve an application, it must—
(a) notify the applicant and the owner of the land of its decision, and
(b) facilitate negotiations for the sale of the land to the applicant at a price to be agreed or, failing agreement, at market value determined by an independent valuation.
(9) The Secretary of State may by regulations make further provision for, or in connection with, applications under this section, including (in particular) provision about—
(a) the form and content of applications,
(b) the evidence required to demonstrate the conditions specified in subsection (3),
(c) the procedure for considering applications,
(d) appeals against decisions of local authorities, and
(e) the process for determining the purchase price and facilitating the sale.
(10) In this section, ‘local authority’ has the meaning given by section 86Z4(1) of the Localism Act 2011, as inserted by Schedule 27 to this Act.”
This new clause creates a right for local residents and organisations to apply to a local authority to purchase sporting assets of community value that are derelict, mismanaged, or unreasonably made inaccessible.
New clause 52—Assets of negative community value—
“In the Localism Act 2011, after section 92 insert—
“92A Assets of negative community value
(1) A building or other land in a local authority’s area is of negative community value if, in the opinion of the authority, the asset—
(a) has been the subject of a measurable and sustained increase in anti-social behaviour in the locality,
(b) has caused material disruption or harm to the amenity, cohesion, or wellbeing of the local community, or
(c) has been vacant or derelict for a continuous period of not less than three years, and during that period no meaningful attempt has been made by the owner of the asset to restore it to use.
(2) A local authority may maintain and publish a list of assets of negative community value in its area.
(3) Where a local authority has listed an asset of negative community value, the authority may—
(a) take such steps as may be prescribed by regulations to secure temporary management or community stewardship of the asset;
(b) invite community groups, charities, or other qualifying organisations to bring forward proposals for its use or stewardship;
(c) exercise such enforcement or compulsory acquisition powers as may be made available by regulations made pursuant to subsection (5).
(4) The Secretary of State may by regulations—
(a) make provision as to the procedure for listing an asset of negative community value;
(b) confer rights of appeal on owners or occupiers of listed assets;
(c) provide for safeguards to ensure proportionality and fairness in the designation and management of such assets;
(d) make further provision for the disposal, management, or transfer of listed assets to qualifying community groups.
(5) For the purposes of this paragraph ‘community group’ has the same meaning as in section 86D of this Act (as inserted by schedule 19 of the English Devolution and Community Empowerment Act 2025).”
This new clause would create a parallel category to “assets of community value” by enabling local authorities to designate “assets of negative community value” (ANCVs). Designation would trigger a framework for temporary community stewardship or pathways to transfer into community use. Further provision would be made via secondary legislation.
New clause 59—Local authority acquisition of dormant assets—
“(1) The Secretary of State must by regulations made by statutory instrument enable a local authority to carry out functions relating to compulsory acquisition of land under section 226A of the Town and Country Planning Act 1990 (inserted by Schedule 15 of this Act) where the local authority is satisfied that any land of community value to be purchased within the authority area is dormant.
(2) Land of community value is considered dormant if—
(a) the land has been included in the authority’s list of assets of community value under section 86A for five years continuously,
(b) a notice of relevant disposal under section 86M was issued at least once during the five year period under sub-paragraph (a),
(c) there has been a preferred community buyer whose offer was rejected despite the buyer offering the value price determined under section 86T or an agreed price with the owner by the end of the negotiation period (see section86S(4)), and
(d) the owner has not entered into a relevant disposal of the land with anyone other buyer during the permitted sale period under section 86M(6).
(3) Regulations made under this section are subject to affirmative resolution procedure.”
This new clause would allow the Secretary of State to authorise a local authority to engage the compulsory acquisition function under Schedule 15 of this Act if the land is considered dormant.
The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Miatta Fahnbulleh)
When I spoke last week on why clause 60 should stand part of the Bill, I covered the provisions in the schedule, but I will restate my position. The schedule strengthens the existing assets of community value scheme in England and will give communities real power to take ownership of cherished local assets. Together with clause 60, the schedule is vital to delivering the Bill’s community empowerment goals and protecting assets at the heart of our local communities.
David Simmonds (Ruislip, Northwood and Pinner) (Con)
It is a pleasure to serve with you in the Chair, Sir John. My hon. Friend the Member for Hamble Valley set out the view of the official Opposition during the debate last week, so I will not relitigate that in its entirety, although I am sure he will be keen for me to emphasise the sheer cross-party commitment on assets of community value.
We know about the risk to assets that are at the heart of a community, from a village pub or cricket field through to community centres and business premises. We need a means laid out in the law whereby the value they add to the local community can be retained where necessary. That was enshrined in legislation by our party when we were in government, and in general we support the direction of the current Government in taking up those principles. We will listen carefully to the debate.
Manuela Perteghella (Stratford-on-Avon) (LD)
It is a pleasure to serve under your chairmanship, Sir John. I will speak to new clauses 12, 20, 52 and 59. New clause 12 stands in my name, new clause 20 in that of my hon. Friend the Member for Frome and East Somerset (Anna Sabine), new clause 52 in that of my hon. Friend the Member for Richmond Park (Sarah Olney) and new clause 59 in that of my hon. Friend the Member for Twickenham (Munira Wilson).
New clause 12 would give local councils a legal duty to oversee how land listed as a community asset is managed. That means that if the owner neglects or mismanages land of community value, the council can take powers to purchase compulsorily, take ownership and restore the land to community use, or to block planning changes that would further damage or undermine the land’s community value. Such powers are essential to protect local assets from being run down deliberately to justify redevelopment. By granting councils those powers, we enable them to hold absentee or speculative owners accountable and ensure that designated community assets are properly maintained and used for community benefit. We all have in our constituencies examples of land that has been mismanaged or assets left derelict. With the new clause, councils would become a genuine safeguard for assets of community value far beyond simply listing the assets. They would have real power to hold landowners and speculative developers to account.
New clause 20 would give community groups and parish or town councils a legal right to apply to buy sports facilities such as playing fields, leisure centres, gyms or pitches that have been derelict for two or more years, managed in a way that harms their sporting value, or unreasonably made inaccessible to the public. If the council agrees that those criteria have been fulfilled, it will be able to facilitate negotiations for a sale. As we spoke about in a previous debate, the abolition of district councils means that town and parish councils will be asked to take on more assets. It is therefore important that the safeguards are in place and that the unitary councils support them.
New clause 20 would save local sports facilities that have been locked up or left to decay by private owners by empowering local communities to bring them back into use. I had an example of that in my constituency a few years ago. A sports pavilion was built as part of the conditions for a new settlement, but it was locked—it was not used. When I became the councillor for the area, I asked why it was not open, and was told that the condition was to build a sports pavilion, not to manage it. The community managed to get the sports pavilion opened, and it is now a fantastic community hub and café, but it took a lot of campaigning from the community and parish councils, lots of grant applications and so on. It is important that we give councils all the tools they need. It is not fair that local sporting heritage and public access to sports facilities are lost due to neglect, speculation or profit-driven redevelopment. The new clause would put power back into the hands of communities to reclaim their pitches, courts, clubs and sports pavilions, and to keep sport where it belongs—in public hands and for the public good.
New clause 52 would create a new category complementary to assets of community value: assets of negative community value. Those would be properties or land that encourage, for example, antisocial behaviour, cause harm or disruption to community wellbeing, or have been vacant and derelict for at least three years with no attempt at restoration. I am sure we all have such assets in our constituencies. I can think of a couple in mine. Once the assets are listed, local authorities could take steps to secure temporary management or community stewardship. That would also contribute to wider community wellbeing. The councils could invite community groups to propose new uses or use compulsory purchase orders to bring the assets back into productive community use. New clause 52 would also allow local authorities to tackle eyesore or nuisance buildings that attract crime or vandalism. It is a way to contribute to the sense of place. We could speed up regeneration by giving councils and communities tools to deal with long-term neglect.
New clause 59 would give local councils greater power to protect and manage land that has been officially recognised as being of community value, such as local parks, playing fields, pubs or community halls. If a council found that such land was being mismanaged, it would have the power to compulsorily purchase it or, again, to refuse planning changes. The new clause would strengthen community protections against speculative neglect and misuse of valued local assets. For example, it would stop landowners from deliberately running down community buildings, green spaces or sports facilities so that they can later argue for redevelopment. The new clause would make councils stewards of community assets, rather than just record keepers of a list. It would give real teeth to the community right to buy, which obviously is welcome, and to the assets of community value system, which is set out in the Bill.
Overall, our new clauses would expand community rights and local authority powers from just protecting community assets by listing them to actively reclaiming and repurposing land that has been neglected or misused. We feel that the new clauses are drafted in the spirit of the community empowerment aspect of the Bill. They aim to strengthen local control and community ownership, especially where private ownership fails the public interest.
Miatta Fahnbulleh
I completely agree with the importance of protecting community assets from unscrupulous owners, but it is not clear that new clause 12 is wholly necessary or appropriate, and I am worried that it would place an unreasonable burden on local authorities by requiring them to monitor the management of all assets of community value in their area.
The substantive provision of the new clause gives local authorities the power to intervene and take on assets of community value, but those intervention powers already exist where land has been neglected or mismanaged. For example, under section 215 of the Town and Country Planning Act 1990, local authorities can take steps to clear up land and buildings whose condition adversely affects the amenity of the area, and we are refreshing the guidance to ensure that local authorities can make full use of those existing powers. For that reason, I do not think that new clause 12 is necessary, and I ask the hon. Member for Stratford-on-Avon not to press it to a vote.
Regarding new clause 20, it is really important to make it clear that the purpose of this policy is not to compel landowners to sell their property without first disclosing an intent to sell under proposed new section 86M of the Localism Act 2011. There are already well-established legal mechanisms for the acquisition of land without the consent of the landowner—I refer again to the existing compulsory purchase order powers. Local authorities can use those powers on behalf of community groups or parish councils to acquire sporting assets of community value that are derelict, mismanaged or inaccessible.
Vikki Slade (Mid Dorset and North Poole) (LD)
The Minister talks about existing compulsory purchase rights for local authorities, but that is very different from communities wishing to list assets of community value and then coming together to go through the process of purchasing them. If the Minister wants to say, “Well, this isn’t needed because we already have that,” why is the Bill even bothering with assets of community value or giving communities the right to buy? This provision is designed to put the power in the hands of the community. We know that most of the district councils will not exist anymore, and the strategic authorities will not be interested in a little block of garages or piece of land. That is why the new clause is about the assets being in the hands of the community.
Miatta Fahnbulleh
I completely agree that the community right to buy is about putting power into communities, but the new clauses would require local authorities to enable and facilitate. My point is that, in the instances where we need a local authority to step in, support and enable, there are existing powers to do that. We want communities to have the right of first refusal, and that is why we are including this provision. We want them to be able to designate vital local assets as being of community value, and combined with existing CPO powers, our view is that this provides the right set of provisions to ensure that the system works, and that it works in the interests of communities.
David Simmonds
I sympathise with the Minister’s argument, but does she agree that there is a general weakness in the Bill in that the opportunity has not been taken to tidy up the legislation, particularly the role of parish councils and parish meetings in this context? The point has been well made that it is often through those vehicles that we see districts and others going through reorganisation already looking to enshrine the community value of these assets. It is a missed opportunity if we leave it hanging so that the convoluted but robust powers that the Minister outlined, which can take years to put into effect, remain the only available route, when there is an opportunity for an alternative structure to deal with that now.
Miatta Fahnbulleh
I take the hon. Member’s point. I also take the point that a process of asset transfer between authorities and town and parish councils is happening. Our judgment is that the provisions we are putting in place sit well alongside that and will enable the processes to happen, but we will keep that under review, because the end goal is to ensure that communities are able to say, “This asset really matters to us, and we want it for the use of the community,” and that we enable them to do that. As we do with any legislation, we will keep this under review ,and if it is not biting in the way that we intend, we will consider how to build and strengthen the provisions. None the less, the intent is very clear.
On new clause 52, I commend and share the ambition of the hon. Member for Stratford-on-Avon to combat antisocial behaviour and eliminate vacant and derelict properties. We all have them in our constituencies; we know how much they are hated and the blight they cast on our communities. We are absolutely committed to creating thriving places and to reversing the decline seen in many of our communities. That is why, through our £5 billion pride in place programme, we are enabling communities to play a role in driving forward. Alongside that funding, we have ensured that local authorities have access to a suite of tools to meet the challenge, which we understand and we know is real. That includes powers to auction the lease of persistently vacant high street properties via our high street rental auctions and compulsory purchase powers, which we have discussed. Section 215 of the Town and Country Planning Act 1990 sets out powers to clean up land and buildings that may be affecting the amenity of the area and encouraging poor behaviour. The community right to buy will play an important role in ensuring that assets are used in a way that is appropriate and adds value to the community.
Finally, through the Crime and Policing Bill, the Government are strengthening the powers available to the police and other agencies to tackle antisocial behaviour. Every police force now has a dedicated antisocial behaviour officer to work with communities to develop an action plan and give residents a say. We recognise the problem that the hon. Member for Stratford-on-Avon has highlighted through new clause 52, and we have put in place a suite of things that will fundamentally get to the heart of that problem, which we know all our communities despair of and hate. I ask the hon. Member to withdraw the new clause.
Manuela Perteghella
We will not press new clauses 12, 52 and 59 to a vote, although we may reintroduce them on Report, but we will push new clause 20 to a vote.
The Chair
As you know, new clauses are debated now but decided later, so you will have the chance to test the opinion of the Committee at a later stage in our consideration.
Question put and agreed to.
Schedule 27, as amended, accordingly agreed to.
Clause 61
Establishment of Local Audit Office
Miatta Fahnbulleh
I beg to move amendment 237, in clause 61, page 62, line 20, at end insert—
“(8) Subsection (9) applies to any sum received by the Office by way of penalty under—
(a) paragraph 2A of Schedule 1B (penalties against external registration body), or
(b) arrangements made for the purposes of paragraph 10 of Schedule 1C (penalties against registered local audit provider),
including any interest.
(9) The Office—
(a) must pay the sum to the Secretary of State, but
(b) may deduct any costs incurred by it in connection with the imposition or enforcement of the penalty, so far as those costs are not otherwise recoverable.”
This amendment makes provision about the destination of penalties enabled by Amendments 238 and 240.
The Chair
With this it will be convenient to discuss Government amendments 238 to 240 and 242.
Miatta Fahnbulleh
These amendments contain provisions relating to criminal offences and enforcement among audit providers, lead partners and external registration bodies. It is vital that the local audit system has the right levers to deter and sanction improper behaviour and to establish beyond dispute the Local Audit Office as the regulatory authority for this system. This is about maintaining stability rather than effecting change. The amendments maintain the existing criminal offences relating to misleading statements and wrongful holding out, and set out oversight powers over professional accountancy bodies similar to existing powers. We will also retain the principle that a professional accountancy body, where recognised as an external registration body, will be responsible by default for enforcement. An external registration body will be required to investigate and impose a sanction for serious breaches committed by audit providers and lead partners.
The LAO will supervise any enforcement activity conducted by an external registration body. This could include setting guidelines on indicative sanctions, depending on the type of breaches, and monitoring live cases. The LAO will have the power to reclaim responsibility for any particular enforcement decision if it is considered to be in the public interest. This will ensure that the LAO is the final authority on all quality matters. An improvement-led approach will be central to the LAO’s regulatory work, and we expect that any enforcement action will be considered only as a last resort. However, it is vital that these levers exist to ensure that the local audit system is accountable and responsive, rather than broken, as was expressed very powerfully in our oral evidence session.
David Simmonds
Again, the Opposition are broadly sympathetic to the Government’s direction of travel, but I will put a couple of questions to the Minister. I previously raised the issue that, in respect of local audit, there are a number of accredited accounting bodies to which professionals may belong. I have not seen a response, but I know that at the time there was some discussion about the Chartered Institute of Public Finance and Accountancy being the identifying body. I seek an assurance that the Government have given due consideration to what will happen where that qualified individual of an appropriate status belongs to another professional body that sets accounting standards, rather than CIPFA, not least because accounting is often as much an art as a science, and there are differences of opinion as to how different accounting provisions might be made.
Secondly, I would be grateful if the Minister can give some clarity to the Committee. Government amendment 237 requires that, when a penalty is imposed, the Local Audit Office must pay the sum of that penalty to the Secretary of State. Clearly, where there has been a failing in local audit, it is the specific local authority, or the general group of local authorities, that is the victim; they are the ones who have suffered a demerit or deficit as a consequence. It seems a little illogical that the penalty would be paid to the Secretary of State rather than those who have been directly affected by that failing. It would be helpful if the Minister set out how the Government will ensure that, where those failings have had an impact, and where penalties have been gathered to make some degree of remedy, it is the victims that see the benefit, rather than it essentially sitting in a Government office.
Miatta Fahnbulleh
I thank the hon. Member for his questions. He raised the question of CIPFA, and I committed to clarifying that in writing. I believe we have done so, but I will make sure that we come back to confirm that. On his very good point about ensuring that the penalties are not gobbled up by the central state, we are moving towards a more centralised system, whereby the LAO reports to the Secretary of State, who is then accountable to Parliament. That is the mechanism through which this will happen. However, the principle is right: if fines are imposed, they will be used to bolster the system, which we know needs huge repairs. We know that over time, as we reform the system, we will need to ensure that we are investing in it. Whatever the collection processes for these fines, it is right and fair that they ultimately go towards bolstering the system and ensuring that it is improving.
The Chair
The Minister has been very courteous in saying that she will make the letter available to all members of the Committee. Will it include the guidelines she mentions? Shall we discuss that offline, rather than testing her on it now?
The Chair
I know that the Minister mentioned guidelines that will be published, and I just wondered whether they will be available during the course of our consideration, but let us think about that at the end of today’s sitting.
Question put and agreed to.
Amendment 237 agreed to.
The Chair
Can everyone in the Public Gallery hear us? I saw people leaning forwards and straining to hear. We are amplified, but this is a very large room. I ask all Committee members, for the benefit of those in the Public Gallery, to be guided by the great Joe Chamberlain, who is presiding over us here—he is one of my political heroes. Think Joe Chamberlain when you are speaking. In that spirit, let us move on.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Schedule 28.
Government new clause 9—Review of audit and reporting arrangements at Secretary of State’s request.
Miatta Fahnbulleh
The local audit system is broken. There is consensus about that across the House and within this Committee. It is fragmented and has significant capacity and capability challenges. The problems in local government reporting and the backlog of unaudited accounts have led to the disclaimed opinion on the whole of Government accounts for the past two years. This provides no assurance to Parliament, and puts public accountability and trust in the system at risk.
The Government are leading the most transformative programme of audit reform in over a decade. Clause 61 will enable the Local Audit Office, a new statutory and independent body, to be established by autumn 2026. The LAO will have an oversight, regulatory and appointing role in the local audit sector. It will cover a wide range of public sector bodies responsible for delivering essential services and managing public funds, as well as oversight of aspects of the NHS audit system.
The LAO will be instrumental in overhauling the local audit system and will play a crucial role in ensuring that reforms are effectively implemented to provide better value for taxpayers and support economic growth. The LAO will be vital to rebuilding transparency, accountability and public trust in local government, and will restore a crucial part of the early warning system for local authorities.
Schedule 28 sets out the core elements of the LAO’s constitution and governance to enable this new organisation to be established. Part 1 establishes the requirements for the board, as proper constitution of the LAO is critical to establishing its authority, ensuring operational readiness and enabling it to deliver its objectives. Part 1 also covers other provisions that are integral to the successful set-up and operating function of the LAO.
Part 2 of the schedule allows the Secretary of State to put schemes in place to legally and properly transfer employees who are currently performing functions that the LAO will be responsible for after it is established.
Paul Holmes (Hamble Valley) (Con)
Good morning, Sir John. I am asking for a genuine point of clarification from the Minister. The Library briefing says:
“If an MP were appointed”
to one of these boards,
“they would be disqualified from membership of the House of Commons”.
Why have the Government chosen to do that? There is no motivation behind my question; this is just for clarification.
Miatta Fahnbulleh
That is a very niche question. I will have to write back to the hon. Member to clarify.
Paul Holmes
I do not expect the Minister to know the answer this morning, but if she could write to me before the end of our sittings this week, I would be grateful. The reason I ask the question is that these are local audit offices for local authorities. The Secretary of State is appointing these boards, and there is obviously political oversight of those appointments, but it would seem sensible to have the expertise of someone representing the area. If this is a devolution Bill, appointing MPs would seem to be perfectly fine, so I am not sure why the Government are disqualifying them. If she could come back to me on that point, I would be most grateful.
Miatta Fahnbulleh
I am happy to write to clarify that key point.
Everything that we are doing through these new clauses and this reform package is in order to ensure that we have a system that is fit for purpose, fair and operates so that we can build trust and accountability within public bodies at the local level. Committee members will appreciate the importance of providing certainty to the people who have worked to maintain the local audit over the years, which is why we are putting in place these two provisions.
New clause 9 will provide the Secretary of State with a new power to require the LAO to conduct a review of local bodies’ financial reporting and audit arrangements. The LAO will have the power, through contract management and quality oversight, to monitor timeliness in the sector, and will have levers to hold firm account where audits are late. Those statutory reviews will address the accountability gap by providing a way to understand whether individual local bodies have adequately supported the audit process. We believe that those reviews are vital to restoring public accountability, providing assurance at each stage of the audit process and rebuilding our early warning system. They are an integral part of a much bigger reform that we think is both necessary and long overdue. I commend the new clause to the Committee.
David Simmonds
Will the Minister set out the role of the section 151 officer in relation to the Local Audit Office? Primary accountability around local government finance is in the council tax fixing process. By law, it has to be balanced in-year. The audit process sits behind that, verifying that the information presented, on which that decision has been lawfully made, is true and accurate. The section 151 officer holds that legal duty in each local authority. Can she set out how the accountability that she has described, which revolves around the role of that individual, will be dealt with by the law, particularly given the role that the Secretary of State is taking on in the appointments process?
Miatta Fahnbulleh
We are trying to ensure that there is a coherent system operating across all of local government. That is the core role that the LAO will play. The system is fragmented at the moment. There are multiple bodies, whether that is the NAO or other bodies, that are in some respects duplicating functions. The consistency and clarity that we need across our local public bodies is therefore not there.
The local government accounting system will remain as it is. Through guidance, but also through practice and working with the new LAO, we will try to ensure far better alignment between the functions held by local authorities, whether that is the accounting officer role or the audit committees, and the infrastructure that we are trying to provide at a national level. We do not think that the new clause will duplicate or undermine that system; it remains a core pillar.
However, we hope that the new clause will ensure that we have a national framework that works across the piece, that we are contracting auditors of the highest standards and that local authorities can use the insights from those audits to make sure that they are managing their public accounts effectively. We think it is complementary and supports our existing institutions. At the moment, it feels like the national infrastructure is undermining the efforts at the local authority level.
The Chair
With the courtesy that she has shown throughout the Committee, the Minister has agreed to write a further note to clarify some of those points. I am grateful for that.
Question put and agreed to.
Clause 61, as amended, accordingly ordered to stand part of the Bill.
Schedule 28 agreed to.
Clause 62
Local audit providers: registration and public provision
Vikki Slade
I beg to move amendment 16, in clause 62, page 65, line 17, leave out from “acting” to end, and insert
“who—
(a) are wholly independent of the Local Audit Office, and
(b) possess appropriate expertise.
(2) The Secretary of State must approve any appointment made for the purposes of subsection (2), and may only do so when they are satisfied that the person to be appointed satisfies the criteria specified in that subsection.”.
This amendment makes provision about the independence of persons appointed to scrutinise local authority audits.
This is a very small amendment that replaces
“acting independently of the Office”
with
“who are wholly independent of the Local Audit Office, and…possess appropriate experience.”
Small words can make a big difference. There is a difference between acting independently and truly being independent—I am sure that we have all been subject to suggestions that we are not really independent. We often rework our institutions retrospectively, and this is a great opportunity, at the beginning of a new organisation, to get the language spot on and set the Local Audit Office up with the highest chance of successfully fulfilling its functions, particularly as there has been so much dysfunction within the very local audit offices up until now.
Without this small amendment, we run the risk of certain members of the public and organisations challenging the true independence of the organisations, because often people will be double-hatting—acting in one space and then moving back to another, saying, “No, no. It’s okay, I’m independent”. Let us address that by writing this amendment into the legislation.
It is right that the Secretary of State should approve appointments made under the terms proposed in the amendment because that would create distance from the Local Audit Office and the Government, and if we are to treat this process with the importance it deserves, the Secretary of State should be required to retain some of these things. This is a small amendment that would make a big difference. I hope the Government will approach the amendment in the spirit in which it has been tabled, and will consider either issuing guidance or changing the Bill in these very small ways.
Miatta Fahnbulleh
Let me first clarify that no decision has yet been made on who will deliver public provision. It is important to state that. The Bill is drafted deliberately to allow flexibility, whether through the Local Audit Office itself, through a company that it establishes or in collaboration with the private sector. That said, I fully agree that if the Local Audit Office does act as the audit provider, it must be subject to robust and independent scrutiny to maintain trust and confidence across the sector. That principle is wholly right, and I think everyone would agree with it.
Clause 66 already requires the Local Audit Office to appoint an independent entity to scrutinise its audit work. We do not consider that amending the language from “independently” to “wholly independent” would change that position, although I recognise that it is a small change and I understand the intent behind it.
The expectation that the appointed body must possess appropriate expertise is inherent in the function itself and a statutory requirement for expertise would be unnecessarily prescriptive—it is in the practice, the guidance and the strength of the infrastructure and the institution that we are creating.
The LAO will remain accountable with the Department, and there will be robust mechanisms to ensure transparency and competence. That is a big priority for us as a Department, given the state of the system that we inherited. The Secretary of State will continue to use all the available levers to ensure we have a system and an LAO that is independent when it needs to be and of the highest standard and competence. I hope the hon. Member agrees that there are sufficient safeguards in place and will withdraw the amendment.
Vikki Slade
I believe the public would expect it to be very clear that someone was not “acting independently”, but were in fact independent, so I will push the amendment to a vote.
Question put, That the amendment be made.
Miatta Fahnbulleh
Clause 62 will establish a new framework for the regulation of local auditors, which will be overseen by the Local Audit Office. Independent reviews have been consistently clear that local audit regulation is too fragmented and lacks central co-ordination. The system is failing and, at the same time, audit quality requirements designed for corporate audits have driven up work on areas of accounts of little relevance to users. That contributes to delays and increases costs.
The clause enables the LAO to hold a register and regulate the sector directly, or to designate and supervise an external registration body to oversee the registration, quality monitoring and conduct of audit providers. Designation of an external registration body would reduce potential conflicts of interest for inspectors and monitoring. The LAO would retain overall authority for the audit quality and act as the final arbiter where enforcement action is required. We expect the LAO to continue the current model under which a professional accountancy body is recognised to register and oversee audit firms, although it will not be bound to do so. The framework will facilitate high-quality, timely audits and restore the confidence of local bodies and users.
Schedule 29 sets out the detail of the new framework for the registration, oversight and quality of local audits. It replaces the existing statutory framework, which aligned local audit regulation with corporate audit regulation, and had rigid statutory safeguards and regulatory functions delivered by a range of bodies. That reflected a move to the private market provision of the local audit, with the expectation that local bodies would individually appoint their own auditors. By contrast, the LAO will restore central oversight and public accountability to the local audit system, with mandatory and independent auditor appointments to all local authorities, as well as some other local bodies. The schedule streamlines and simplifies the regulatory framework. I commend the clause and the schedule to the Committee.
David Simmonds
I will briefly return to the question of accounting standards and how they will operate. As the Minister set out, the aim is to streamline and, broadly, to restore the Audit Commission district auditor-type system we have seen in the past, which itself had a number of issues. Clearly, when local authority councillors make their decision on fixing council tax—when local authority finance officers put that information together—they will always be mindful of the accounting standards that apply.
One of the issues is that there are a lot of different ways of approaching that. Some may use cash accounting and some will use accruals; some will use Sage and some will use Oracle. All of those have different characteristics in managing the system, and different auditors may have different views about which they prefer. Many of us will have experience of where a difference of opinion between auditors on the treatment of a transaction can have a significant impact, including by directly impacting the level of council tax that needs to be set.
I have not been able to locate a response from the Minister on the different types of accounting. Can she set out how the system will ensure sufficient flexibility to recognise legitimate professional differences between different types of accountants, authorities, businesses and systems? None of them is inherently wrong or incorrect; they just reflect different approaches to managing the finances of that local authority. Flexibility for local decision making should remain at the heart of what is supposed to be a devolution Bill.
Miatta Fahnbulleh
I apologise to the hon. Member for the lack of response—I will make sure we get one to him swiftly. Inevitably, different accounting standards will be used. We will set out guidance, and we will of course look to retain flexibility within that, so that local authorities can ensure that they are using the appropriate standards. We do, however, need a far more centralised and streamlined process, whereby the appointment of auditors is done through a central function—the LAO. Across the piece, there will be uniform and consistent standards that apply both to local authorities and public bodies. That is currently sorely missing, but within the system, there will be different accounting standards and professional body accreditation that individual auditors will apply to. For us, the key is consistency and clarity across the piece on the standards and norms that all professional accountancy bodies are using.
David Simmonds
The key challenge is that, unlike any other public body, local authorities are democratically elected. They are subject to an annual process of budget fixing, where they are legally obliged to balance that budget in year. That rule does not apply to any Government Department, or NHS bodies and so on, all of which have a conversation with central Government about how overspends, capital expenditure, borrowing and so on are dealt with, in a completely different way from local authorities. Could the Minister address that, and ensure that the Committee is fully aware of how those provisions will be considered?
Local authority finance is not the most exciting subject—[Interruption.] I hear murmurs of agreement—but ensuring investment for housing, children’s social care, adult social care, education and local transport depends on us getting this right. Rather than create a system that sets local authorities up to fail, we need to have that debate and put that right straightaway. Taking into account fully the specific, unique legal and financial impositions on local authorities in this audit arrangement is critical, so that decisions can be made locally in good faith and with the relevant level of local democratic accountability.
Miatta Fahnbulleh
I misunderstood the hon. Gentleman’s original question. The accountability of the finance director, the sets of standards already locked in and the legislation they have to consider to ensure good use of public funds completely apply to this. It is their responsibility to ensure that the council’s decisions are right, that it is financially viable and that it is delivering the services required. The changes we are putting in place do not cut across that or undermine it. It remains a fundamental plank of this.
We are, however, changing the oversight. First, we are enabling an independent auditor to come in and do the function of auditing, as that is currently not happening. Secondly, it will be done with auditors who adhere to a standard code of norms consistent across the public sector. That ensures that we are raising standards across the piece. If a council gets an audit, it will know it is an audit of good quality that will drive and deliver the change that we want.
Thirdly, we already have the best value regime, where central Government can intervene when local authorities are not performing, or there are financial considerations at play. That will still apply. This takes the best of the current system but deals with the existing gap, which is that we do not have a uniform, consistent auditing regime that ensures an independent review of what individual councils are doing. The new system will also ensure that when problems are found, there is a mechanism for escalating, so that councils will be financially viable and delivering effective services. We all want to achieve that but, sadly, the audit regime is not delivering it at the moment. It beggars belief, but it is where we are now. These additional provisions will strengthen the entire infrastructure, add to the responsibilities of our finance directors as accounting officers, and deliver local authorities that are more financially secure and able to deliver the services their users require.
Question put and agreed to.
Clause 62 accordingly ordered to stand part of the Bill.
Schedule 29
Local audit: registration bodies, registered providers and qualifications
Amendments made: 238, in schedule 29, page 297, line 17, at end insert—
“Financial penalties
2A (1) If the Local Audit Office considers that an external registration body has failed to comply with a requirement under—
(a) this Act, or
(b) an agreement under section 6B(5),
the Office may impose a financial penalty on the body.
(2) A financial penalty is imposed by giving the body a written notice requiring the body to pay the Office a financial penalty of a sum specified in the notice.
(3) Such a notice must—
(a) explain the Office’s reasons for imposing the penalty, and
(b) specify the time by which, and manner in which, the penalty must be paid.
(4) An external registration body must, as soon as practicable after the end of a financial year, notify the Office of its total income in that year from fees charged under section 6A(5).
(5) The amount of a penalty imposed on a body under this paragraph may not exceed 30% of the sum last notified by the body under sub-paragraph (4).
Directions and penalties: procedure etc
2B (1) Before giving a direction under paragraph 2 or imposing a penalty under paragraph 2A, the Local Audit Office must—
(a) give the body a notice of intent, and
(b) consider any representations made by the body in response to (and in accordance with) that notice.
(2) A notice of intent is a notice that—
(a) states the Office’s intention to give the direction or impose the penalty,
(b) sets out the intended terms of the direction or of the notice imposing the penalty,
(c) explains the Office’s reasons for intending to give the direction or impose the penalty, and
(d) specifies the time by which, and manner in which, representations may be made.
(3) Where the Office has given a direction under paragraph 2 or imposed a penalty under paragraph 2A, the Office may by written notice given to that body—
(a) cancel the direction or penalty, or
(b) vary the direction, or the notice imposing the penalty, it in any way that does not make it more onerous.
(4) The Office must publish—
(a) a direction under paragraph 2,
(b) a notice imposing a penalty under paragraph 2A, and
(c) any notice cancelling or varying such a direction or notice.
(5) But it must do so only after the direction or penalty can no longer be cancelled or varied on appeal (ignoring any possibility of an appeal out of time).
(6) If a penalty imposed under paragraph 2A is not paid in time—
(a) the penalty (or the unpaid part of it) carries interest at the rate for the time being specified in section 17 of the Judgments Act 1838;
(b) the Office may recover the penalty (or the unpaid part of it), with the interest, as a debt.
Directions and penalties: appeals
2C (1) An external registration body may appeal to the High Court against a direction given to it under paragraph 2 or a penalty imposed on it under paragraph 2A.
(2) The grounds on which an appeal may be brought are—
(a) that the failure of compliance on the grounds of which the direction was given or the penalty was imposed did not occur, or
(b) that any of the following is unreasonable—
(i) the decision to give the direction or impose the penalty;
(ii) any of the terms of the direction;
(iii) the amount of the penalty, or the time or manner of its payment.
(3) If satisfied that any of those grounds is made out, the court must allow the appeal and do whichever of the following it considers appropriate—
(a) cancel the direction or penalty, or
(b) vary the direction or the notice imposing the penalty.
(4) Otherwise, the court must dismiss the appeal.
(5) The court may—
(a) make an interim order suspending the effect of a direction or penalty appealed against under this paragraph;
(b) if it allows an appeal under this paragraph against a penalty, make any order as to interest that it considers appropriate (including an order varying the effect of paragraph 4(6)(a)).
Compliance orders by the court
2D (1) This paragraph applies if the High Court is satisfied, on an application by the Local Audit Office, that an external registration body has failed to comply with a requirement under—
(a) this Act, or
(b) an agreement under section 6B(5).
(2) The court may order the body to take steps that the court considers will secure that the requirement in question is complied with.
(3) Such a step—
(a) must be one that the body has the power to take;
(b) may consist of not doing something.
(4) This court may not make an order under this paragraph in respect of the requirement to comply with a direction under paragraph 2 unless it is satisfied that the failure of compliance on the ground of which the direction was given did in fact occur.”
This amendment empowers the Local Audit Office to take enforcement action against an external registration body if it fails to comply with its duties.
Amendment 239, in schedule 29, page 301, line 28, at end insert—
“(c) arrangements for the imposition of sanctions in respect of breaches that are established, and
(d) registration rules and lead partner rules designed to secure that providers and lead partners are bound by any sanctions.”
This amendment and Amendment 240 require the body maintaining the register of local audit providers to put in place a system of sanctions, including financial penalties, against registered providers and their lead partners.
Amendment 240, in schedule 29, page 301, line 30, at end insert—
“(3) The available sanctions must include financial penalties.
(4) The arrangements and rules must allow for appeals to be made to a person who will determine the appeal independently of the maker of the decision appealed against.
(5) The arrangements and rules must allow for the Local Audit Office to be able—
(a) to determine that a particular case raises or appears to raise important issues affecting the public interest, and
(b) to assume enforcement responsibility in a case in which it has made such a determination.
(6) For the purposes of sub-paragraph (5), the Office assumes enforcement responsibility if it assumes responsibility for the final decision (subject to any appeal) as to—
(a) whether the requirement or rule in question has been breached, and
(b) if so, the sanction to be imposed.”—(Miatta Fahnbulleh.)
See the explanatory statement for Amendment 239.
Schedule 29, as amended, agreed to.
Clause 63
New appointment arrangements for non-NHS audits
Miatta Fahnbulleh
Clause 63 is central to our reform agenda. It will give the new Local Audit Office responsibility for appointing auditors for all local authorities, as well as some other local bodies, such as police and fire bodies. Currently, such bodies can choose to opt into an appointment scheme overseen by Public Sector Audit Appointments Ltd or appoint their own auditor. In practice, more than 99% of bodies are opted into PSAA’s scheme, demonstrating the sector-wide support for a centralised appointment regime.
Centralised appointments significantly reduce burdens on individual authorities. The LAO’s position at the heart of the audit system will make it uniquely qualified to ensure that audits provide value for money, support market sustainability and effectively manage audit contracts. The clause will also establish a proportionate framework in which the LAO will make appointments, including requirements regarding when and how appointments are made. I commend the clause to the Committee.
David Simmonds
A number of these other local bodies are subject, in the Treasury’s eyes and legally, to different accounting rules. In particular, Government Departments have revenue and capital departmental expenditure limits, and the Treasury is happy to shift money between those annually: capital may be allocated to cover revenue shortfalls and so on. That is something that a local authority cannot do. Will the Minister set out how the appointment process will ensure a high degree of transparency, particularly at the local level, so that people can see the difference between bodies that are subject to the local authority regime of in-year balancing and the other local bodies that are subject to a separate regime, and why the levels of assurance and the nature of decision making may be different? I would be grateful for clarity and assurance on those points from the Minister.
Miatta Fahnbulleh
I confess that I am not 100% clear about what the hon. Gentleman is getting at. I might partly answer his question by saying that the majority of public bodies—99%—are going through the Public Sector Audit Appointments regime anyway, because they see value in it. What we are now doing is taking that function, aligning it with the oversight of the entire regime and putting it in the Local Audit Office. That will make it streamlined and more effective. We are not fundamentally changing the decisions that individual local bodies are making.
If there was a big clamour for diversity in the market, that would be a different thing, but at the moment we hear from local public bodies that they want a centralised system. That makes their life much easier; it means there is a standard procurement process, which reduces the burden on them. It means that they get an auditor that is accredited and approved to be of a certain standard, and therefore they can be confident in that auditor. The system should make it easier for all our public bodies. At the moment, all our conversations suggest that they hugely support the direction of travel and have no concerns about it. Perhaps I have not understood the hon. Gentleman’s question. We are taking something that is happening by default anyway and making it better and standard, in a way that will work for all those public bodies.
David Simmonds
I am reassured to a degree by what the Minister says. I was personally involved in the setting up of the PSAA, although I do not have any direct interests in it. The market has clearly moved in that direction. My concern with bringing all these things into a central accountability stream that sits with the Secretary of State is that the legal and financial environments in which these bodies operate are quite different. If an NHS trust or a police organisation has overspent, it can ask the Secretary of State to reallocate capital for building, for example, a new police station to cover the revenue shortfall, but the local authority cannot do that.
The risk is that, if there appears to be a consistent standard, the judgments produced in respect of authorities that are operating within one legal and financial framework will be very different from those produced in respect of bodies operating within another. Given the Bill’s envisaged reorganisation of local government and the centralisation that the Minister has referred to, we need to retain a level of local clarity about what differences arise as a result of local decision making, so that council tax payers can see them, versus things that result from interactions with central Government via the Secretary of State.
Miatta Fahnbulleh
Decision making at the local authority level will remain. Accountability to the constituents in the local authority will remain. We are not fundamentally changing that regime, and hopefully we are making it better by, for example, moving to multi-year budgets for local authorities and consolidating budgets, so that there is far more flexibility for them to manage the challenges that we know they have to manage.
That is complementary to what we are trying to do by creating a national audit system that is coherent, of a high standard and works, which is not what we have now. These arrangements will not undermine the decision-making ability of local authorities. They will mean that a proper accountability system is in place, so that we are better able to validate when authorities are either failing or in financial distress and put in place the measures that I have talked about, such as the best value regime, to get them out of distress.
Once again, the clause is not an attempt to run counter to the accountability system that local authorities must have for their people. It is an attempt to strengthen that accountability system, so that local people have an independent basis to verify what the local authority is doing. I think that Members across the piece will support that.
Question put and agreed to.
Clause 63 accordingly ordered to stand part of the Bill.
Clause 64
Audit providers to nominate lead partner
Question proposed, That the clause stand part of the Bill.
Miatta Fahnbulleh
The clause will change the current requirement whereby local audits may be signed off only by a key audit partner—a senior auditor who meets specific eligibility criteria determined through statutory guidance. The current requirement for local audit sign-off is both rigid and unique to local audits. No other audit category places such a specific condition on the eligibility of senior auditors. That has restricted the pipeline of senior auditors to the sector and places a significant barrier to market entry. It can be difficult for a firm wishing to enter the market to recruit or develop individuals who can satisfy the specific criteria.
Under the clause, the requirement for key audit partners to sign off local audits will end. Instead, local audit officers will work with an external registration body to establish suitable competence requirements. The measure will empower the sector to draw on the best possible range of talent, while continuing to ensure that senior auditors are competent and understand the distinctive element of the local audit. I commend the
David Simmonds
The section 151 officer is the person in the local authority who has whistleblower protection; they have a legal obligation to ensure that the local authority has the information that it needs when setting its budgets, and that the information is true and correct. However, disputes about the treatment of financial decision making are also common, where a section 151 officer may have a lesser degree of comfort about a risk arising from a decision.
We talked earlier about assets of community value, and there are many MPs in this room who will have campaigned for their local authority and undertaken responsibility or an intervention to preserve an asset or local amenity. That leads to a debate about whether that is a good use of taxpayers’ money. The elected folk may be of the view that it is, but a section 151 officer may say that it does not stack up in financial terms. There needs to be a process for resolving that dispute, and that will revolve around the professional standards that the Minister has just set out. It would be helpful if she could set out what process of assurance there will be following a decision, so that we can all be clear that there is an adequate pipeline of people, as she has described, to undertake those roles, and that we do not suck out all of the expertise of section 151 officers, who are the only people who can undertake them. What consultation has the Minister undertaken with accounting bodies, such as the Association of Consulting Actuaries, CIPFA and all the others, so that they can ensure that the necessary degree of influence has been exerted to ensure that the training standards and process that will emerge from this will be sufficiently robust?
Miatta Fahnbulleh
We recognise that we have a challenge in bringing in sufficient audit capacity of the standard we need. That is the status quo. We are working closely with the sector to ensure that we are generating a pipeline and that there is training provision. We are working with the Local Government Association to ensure that that happens.
To be completely candid, we are in a mess. I will not play party politics by mentioning where that mess came from, but the status quo is dire. The regime is failing, and we do not have sufficient audit capacity of the quality that we want. That is why we are putting these reforms in place. I reassure the Committee that we completely understand the challenge we face. We want to keep high-quality finance directors in local authorities. We understand the risk that there might be bleed into the much bigger audit infrastructure and regime that we are creating, but the job now is to reach into the private and public sectors to train up a cadre of auditors so that the system is fit for purpose. At the moment, the system is under strain and collapsing. There is urgency, certainly on the part of the Government—that is why we are bringing forward these reforms—to address the problem.
Question put and agreed to.
Clause 64 accordingly ordered to stand part of the Bill.
Clause 65
Code of audit practice
Question proposed, That the clause stand part of the Bill.
Miatta Fahnbulleh
This clause will transfer responsibility for the code of audit practice from the Comptroller and Auditor General at the National Audit Office to the Local Audit Office. The clause also unequivocally sets out that, as the standard-setter for local audit, the LAO will be able to modify auditing standards to reflect the needs of local public bodies—a point that the hon. Member for Ruislip, Northwood and Pinner was making.
The LAO will review the interpretation and/or application of international standards on auditing, including where the requirements of specific standards should be interpreted for the local audit context. Currently, auditing standards are interpreted for corporate and local audit by the Financial Reporting Council. In the current system, it has not been possible to vary the interpretation of standards to better reflect the risk profile of local bodies.
It is vital that the LAO has the powers to interpret some standards differently for local audit. Otherwise, extensive work will continue to be required on areas of accounts that have little relevance to account users, contributing to timeliness and capacity issues as well as undermining value for money. Through its ownership of the code of audit practice, the LAO will be empowered to define appropriate audit requirements for different categories of body in the principal audit regime. This is central to delivering our commitment to a risk-based and proportionate approach to local audit that is focused on the needs of local bodies and account users. I commend the clause to the Committee.
David Simmonds
Will the Minister briefly set out some examples of things that are being undertaken but she feels are not adding value? We are all sympathetic, but it would be helpful to the Committee’s decision making if we understood what we are going to stop doing as a result of the decision we are being asked to take.
Miatta Fahnbulleh
It is not wild or out there to say that the new auditing body we are creating should have full flexibility to ensure that the standards being applied are appropriate. The feedback we are getting from local government and public bodies is that the status quo is not fit for purpose, that it is onerous, and that its requirements do not align with their needs or, critically, the needs of the user. Is the hon. Member suggesting that the current system is fit for purpose? Is he suggesting that we retain it or that it does not require reform? If he is, he should stand up and say so.
David Simmonds
The Minister is perhaps being a little mischievous in responding politically to what was essentially a technical question. We all recognise that there are challenges. Broadly, the audit system suffers not from a lack of regulation but from a lack of capacity. Measures such as Public Sector Audit Appointments were designed to address that, but they have not been sufficient, despite being implemented in consultation with the sector. We therefore agree that an alternative approach is required.
The Minister has been clear to the Committee that she feels that many of the requirements imposed by the current system are unnecessary. She has returned a number of times to the point about there being things that do not add value and are onerous. It would be helpful if she set out what those things are so that our colleagues in local authorities can understand what will be removed from the requirements upon them and the Committee can understand what risks, if any, that poses to the public.
Miatta Fahnbulleh
I dare not do the job of the Local Audit Office, or indeed trained auditors, and go into detail. This provision creates powers for the LAO to design a system that works for local bodies. As I said, the feedback that we have had from local authorities and public bodies is that the current system is onerous. It will depend on whether we are looking at a fire and rescue service or a local authority service, but it is absolutely right that we confer the powers on the LAO to look at the system and say, “We will change and adapt the standard so that it is fit for purpose.” I do not think that is controversial; I do not think it requires me to talk about it in great detail. We will issue guidance for the LAO and it will set the standards and what is appropriate. It is right that we give it the powers to do that in the Bill.
David Simmonds
The treatment of the dedicated schools grant, which has a huge impact on local authority budgets, is an example of an issue that comes up regularly on the Floor of the House. It is CIPFA’s view that, because it sits within a legal ringfence that has to be balanced each year, it is a budget killer for local authorities. However, ownership of that sits with a different Government Department that takes a different view about how it should be addressed. To me, that is a good example of something that is onerous and requires a lot of work, but in practice, the Government have collectively decided that they are going to deal with it in a different way and effectively ignore the rules that they imposed on local authorities to make it go away.
The Minister keeps returning to the point that she feels that there are elements of the system that are onerous and burdens that should be alleviated. It would be helpful if she briefly set out a couple of examples for the Committee so that we can understand what she thinks we should no longer look at so that we and our council taxpayers can at least understand the risk and reward associated with it.
Miatta Fahnbulleh
If the hon. Member wants examples, one example—I am sure that we can give others based on the conversations that we have had with local government—is that pensions do not drive local government decision making and financial resilience, so the audit reviews focus on operational assets that may not be necessary, depending on the local body that we are talking about. There are clearly examples within the system.
I come back to the fact that we are not prescribing this; we are saying it is right that a new body that will have oversight of a regime that we all agree needs to be reformed should be able to make sure that those standards are commensurate with what is required by the local authority and public bodies as well as the user. That is not controversial; that is common sense. It is right that we create the provisions for that new body to do that.
Question put and agreed to.
Clause 65 accordingly ordered to stand part of the Bill.
Clause 66
Audit committees
Manuela Perteghella
I beg to move amendment 18, in clause 66, page 70, after line 28 insert—
“(4A) A Local Audit Office may make arrangements about—
(a) the membership of an audit committee;
(b) the appointment of the members; and
(c) the conduct and practices of the committee.”
This amendment removes the role of the Secretary of State in appointing audit committees and provides LAOs with the ability to oversee the membership and work of audit committees.
The Chair
With this it will be convenient to discuss the following:
Amendment 17, in clause 66, page 70, leave out from beginning of line 29 to end of line 7 on page 71.
This amendment removes the role of the Secretary of State in overseeing the membership of audit committees.
Amendment 362, in clause 66, page 70, line 31, at end insert—
“(c) the training of members newly appointed to an audit committee.”
This amendment would require the provision of training for all new members of an audit committee.
Manuela Perteghella
These amendments go to the heart of local accountability and good governance. They would ensure that the checks and balances that protect public money are independent and not micromanaged from Whitehall.
Amendments 17 and 18 would remove the Secretary of State’s power to appoint or control audit committees, and instead allow local people to decide their own membership, appointments and practices. Local audit officers are closer to the ground and so understand the specific challenges facing councils, combined authorities and local agencies. Let us give them the power to shape their own audit committees so that they reflect local context, expertise and priorities.
At a time when councils are under intense pressure, when residents are anxious about how their money is spent, and when public trust in local government finances has been shaken, the last thing we need is the perception that Ministers can influence who audits local authorities. Audit committees are there to hold power to account, not to be overseen by it. Removing that oversight would be a simple but powerful step towards a transparent and decentralised local audit system.
Amendment 362 would require mandatory training for all newly appointed audit committee members, so that they understand their responsibilities and the technicalities of local audit. Mandatory training would ensure that new members start with a shared understanding and pick up those very important skills. Without training, there could be missed red flags, opaque decisions and audit delays that cost taxpayers millions.
We are calling for the mandatory training of audit committee members so that they know how to scrutinise budgets, assess risks—that is the most important thing—and challenge constructively. Those are essential skills for their positions, so amendment 362 would raise standards across the board. As we have done throughout, the Liberal Democrats would like to see local power given to local people, with local decisions made by our local councils. We want to ensure that our local audits are not only independent but equipped with the skills to help prevent the next financial crisis before it happens.
David Simmonds
I am sympathetic to the issue behind these amendments, although I am not convinced that this is the mechanism to address it. I will briefly explain why, and where this sits in the context of the previous debate. The Minister gave the example of the pensions audit as something that we could alleviate, but my personal experience would suggest that is a very poor example, and amendments 18 and 17 connect to it.
If we think back to the last big financial crash when the last Labour Government were in office, the local government pension scheme, which is currently overfunded, saw a huge fall in the value of its assets to the extent that it was then 30% underfunded. Local authorities across the country, which have a legal obligation to make up any such shortfall, were then faced with this question: to what extent will we have to make financial cuts to public services to bridge that gap at short notice so that, if the pension fund is falling short, council tax will bail it out? That is not something about which we could say, “You don’t really need to know about it, and you can safely ignore it.” It is something that, if it goes wrong, could be critical to the finances of that local authority.
When these amendments talk about local arrangements, I think they are seeking to enable flexibility in a local authority, for example, whose pension fund profile may be slightly different from its neighbours or outwith the norm, because it has a younger or older workforce than is typical, or because it has entered outsourcing arrangements. That flexibility would allow the local authority to have people on its audit committee who have the relevant experience to ensure that the audits and information reflect that, and that the decision making properly reflects those risks and does not unduly impact on council tax payers. Does the Minister have a good view or a strong reason as to why that element of local expertise should be disregarded, given the extremely significant financial risks associated with the example that she gave the Committee of something that she envisages the Government will stop requiring councils to do?
Miatta Fahnbulleh
Let me deal directly with amendments 18 and 17. I reiterate to the hon. Member for Stratford-on-Avon what I have consistently said: the governance regime of local government finance is not changed by the measures in the Bill. It will still stand, including the decisions that accounting officers and the finance director need to take, and the accountability to the local community still holds. We are shoring up the system of assurance so that it is fit for purpose, and to ensure that there is independent scrutiny that then feeds back into what the local authority does. That is how the system should be operating, but it is not currently, which is why we are driving through these reforms.
On the amendments, I recognise the important role that the Local Audit Office will play in overseeing the local audit system. Amendments 18 and 17, however, would delegate important policy and legislative functions from Ministers—who are directly accountable to the House, which is the way we believe it ought to be—to an independent body.
Given the central role that audit committees play in local financial governance, it is essential that responsibility for their statutory framework remains with the Secretary of State, who is responsible for the overall integrity and effectiveness of the local government system. My Department will continue to work closely with the Local Audit Office and key stakeholders in the sector to ensure that audit committee requirements are effective, proportionate and well-functioning. We think, however, that parliamentarians would want the Secretary of State to be ultimately accountable, so that Parliament can hold them to account. For that reason, I ask the hon. Member to withdraw her amendment.
On amendment 362, I fully support the hon. Member’s view that audit committee members must demonstrate the necessary skill, understanding and competence that we are asking of them. The committees are integral to robust local governance, playing a critical role in ensuring that public resources are used efficiently, transparently and in the public interest. Clause 66, however, already provides for the Secretary of State to issue statutory guidance in relation to audit committees. It is our intention that the guidance will include a requirement for members to undertake appropriate training.
Alongside that, we will continue to work with the LGA and CIPFA to ensure that training programmes support existing and new audit committee members. There is a job to be done to make sure that we have a pipeline of members, that they are fit for purpose and that we have the right training and capacity building in place. I hope that that assures the hon. Member that we are doing everything we can to ensure that training is fit for purpose, as we need audit committee members of a high quality and standard, and that we will continue to work with the relevant bodies to ensure that that is a reality.
Manuela Perteghella
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 362, in clause 66, page 70, line 31, at end insert—
“(c) the training of members newly appointed to an audit committee.”—(Manuela Perteghella.)
This amendment would require the provision of training for all new members of an audit committee.
Question put, That the amendment be made.
The Chair
With this it will be convenient to consider new clause 45—Local public accounts committees—
“(1) Within one year beginning on the day on which this Act is passed, the Secretary of State must by regulations make provision for the establishment of a public accounts committee in each mayoral strategic authority area (‘local public accounts committees’).
(2) Regulations made under this section must—
(a) make provision relating to the membership of local public accounts committees, including appointment; tenure; and arrangements for chairing of committees;
(b) make provision about support for local public accounts committees by the relevant local audit services;
(c) empower local public accounts committees to require the provision of information from all providers of public services in the mayoral strategic authority area;
(d) make provision about the functions of local public accounts committees, including the power of the committees to report on—
(i) the effectiveness with which mayoral strategic authorities exercise any of their functions;
(ii) the effectiveness with which any local partners exercise functions on behalf of the strategic mayoral authority.
(iii) the effectiveness with which any local partners collaborate with the mayoral strategic authority.
(3) For the purposes of this section, ‘local partner’ has the meaning given in section 17B of the Levelling-up and Regeneration Act 2023 (as inserted by section 21 of this Act).”
This new clause would require the introduction of Local Public Accounts Committees within one year of this Act coming into force. LPACs would ensure scrutiny and accountability across the whole of the local public service spending and activity.
Miatta Fahnbulleh
Clause 66 introduces a statutory requirement for all local authorities, excluding NHS bodies, to establish an audit committee with at least one independent member. Members will be aware that audit committees are the cornerstone of good governance and financial management in local government. They provide independent oversight of financial controls, risk management and internal audits, reinforcing transparency and accountability in the use of public funds.
Although many councils have already adopted audit committees as best practice, and combined authorities are required by statute to do so, it is time to standardise this requirement across the board. Consistency in governance structures is essential to ensuring that all local bodies are held to the same high standards of scrutiny and accountability.
In addition, the clause mandates that at least one member of the audit committee must be independent. Independent members bring impartiality, technical expertise and continuity, ensuring that scrutiny is robust and well informed. Where elected members may lack specialist knowledge in audit or finance, independent members can provide the professional insight needed to effectively challenge financial reports.
Mandating audit committees is a key pillar of our local audit reform programme. It is about getting the basics right. Good governance and financial management start at the heart of local authorities. The clause is a practical, proportionate and necessary measure to strengthen local accountability and ensure that every authority is equipped to manage public money responsibly, and I commend it to the Committee.
David Simmonds
I have a brief question for the Minister. One challenge is that most local authorities will have an arrangement, although it is not always called the audit committee; sometimes it is the finance scrutiny committee or the overview committee—there are lots of different arrangements. Could the Minister set out briefly what specific requirements, if any, she intends to impose on local authorities about who can be a member of an audit committee and what its composition is? Will it sit within the overall political balance structure that exists in all local authorities? I ask that just so that we understand where it will fit within the new arrangements.
Miatta Fahnbulleh
We will issue guidance when the Bill gains Royal Assent. The broad principle, which is applied across the piece with all our reforms, is that where there is good practice, we look to build on that. However, we will set out principles that we want to see standardised across the piece, to ensure that we have mechanisms that are fit for purpose and effective. To take the example of the independent member, we think that having that expertise massively helps, whatever function it is. However, where there are existing arrangements in place, our intent is to transition those to something that adheres to a set of principles that we will set out in guidance.
Vikki Slade
Thank you, Sir John; I was feeling slightly confused. There is an irony about the issues in the Bill being followed by a reassurance that we should not worry, because the Government will issue guidance after Royal Assent. This is the point where we have the ability to improve the Bill, but we are not debating the areas where we want to do that—on things like requiring people to be properly trained—or to understand a bit more about the shape of these organisations. That is disappointing.
I want to talk specifically to new clause 45, on local public accounts committees. On Second Reading, the then Secretary of State showed a lot of support for the introduction of local public accounts committees. We have already established—indeed, the Minister just said—that all strategic authorities will be held to the same high standards, as they should be. But we believe that that should apply across the public sector and to all those who hold public sector money and contracts.
New clause 45 would make provision for new local public accounts committees to be formed within one year of the legislation being passed. These LPACs would be at mayoral strategic authority scale to ensure scrutiny and accountability of the mayor, but also scrutiny across the whole of local public services. Given the mayor’s convening power across all those areas, that feels like the right space for them.
To convince the Minister of the necessity of LPACs, I direct her towards an excellent report by the Institute of Public Policy Research entitled “Accountability matters: Securing the future of devolution”. In it, the authors summarise the case well:
“The system of mayoral accountability currently in existence is complex and broad, but yet also manages to be insufficient to keep up with the developing power of mayoral authorities.”
Therefore, there is a clear need to ensure that as the Bill broadens the range of functions to be held, a suitable accountability system is built to keep powers in check. The local accounts committee is very much about the financial lens, but we also want to talk about accountability—justifying why money has been spent in a certain way and why choices have been made. The Public Accounts Committee in Parliament is held in high esteem not only in Parliament but out in the real world, where its reports are considered to be almost a go-to space for real scrutiny.
I accept that there was talk on Second Reading about a single local public accounts committee possibly following, that is still going to be very remote. The south-west of England, for example, will have two or three strategic mayors, which is very different from Greater London or Greater Manchester. If we have a single local public accounts committee trying to talk about how things work in, say, Manchester, that will not mean very much to local people—it will not mean much more to them than the PAC here does. We have an opportunity to scale things down to a local level.
Having led a local authority—as several members of the Committee have—I regularly witnessed the frustration of the public and council members when other organisations were not democratically accountable. The health authority is the perfect example, and I can see lots of raised eyebrows in the Committee Room. As a local government leader, I tried to sit in integrated care board meetings to bang the drum for local government, but people were not interested. However, it is local members who then knock on doors and get grief about the problems in the health service, the police service, the Prison Service or housing associations—all the organisations that people have experiences with. But it is local authorities they then turn to when they want someone to blame.
Council members have a unique opportunity to ask the questions that no one else can, and it would be a huge missed opportunity—in setting up a whole new regime, with strategic authorities and the Local Audit Office—if we did not put an LPAC-shaped piece of the puzzle, as a holding space, into the regime. We are not asking for it to be set up now—we recognise that there is a lot going on—but for a commitment to put it into the system going forward, so that these organisations know that it is coming and can start to prepare for what it means. This is a perfect opportunity to do that.
I will end with a quote from the Department’s White Paper on devolution, which set out plans to
“improve external scrutiny of value for money on local public spending, including exploring a Local Public Accounts Committee model.”
So it was there in the White Paper; there were quite a lot of things in it that did not make it into the Bill, and we would like to see this one dragged through.
David Simmonds
The only element where I have any disagreement with the hon. Member for Mid Dorset and North Poole is over whether the legislation needs to be implemented for local public accounts committees to happen. There have been a number of measures in this regard, and I think of the Localism Act 2011, where there was a great deal of debate about the role of the local armchair auditor and the requirement for local authorities to publish all expenditure over £500—itemised—so that people can see what is being spent day to day, as a means of bringing about transparency.
In this debate about audit committees, we have already covered the fact that there are different local arrangements. Some have everything dealt with by a single, financially focused scrutiny and overview committee, while others do it as part of a wider context or in the context of individual service areas. So there are different approaches, and it is important that that local discretion continues to exist.
I am not convinced that it is necessary to have further legislation, but it is right that we bring the matter to public attention. One weakness of the Westminster-focused Public Accounts Committee is that it does not always grasp local nuance. Home-to-school transport in rural Lincolnshire or North Yorkshire is a completely different challenge from that in Greater London, where all local authorities are, effectively, levied so that public transport in the capital is free for children going to school. Such things are difficult to capture. When we hear that North Yorkshire spends £51 million over a couple of years taking kids to school, that sounds like an extraordinarily high level of expenditure, but it is driven entirely by local circumstances; it is not the result of inefficiency or negligence on the part of decision makers. The point is well made that we have to have that really clear grasp in decision making that comes from people understanding and knowing their local place.
Miatta Fahnbulleh
I thank the hon. Member for Mid Dorset and North Poole for tabling new clause 45, and I have a lot of sympathy with what it tries to do. She rightly quoted the English devolution White Paper, in which we committed to explore local public accounts committee models. We consulted on the initial proposal for such a model in December last year, as part of our local audit reform strategy. The Government’s response on 9 April confirmed that they would explore how any model could draw on audit findings and interact with the Local Audit Office, once established. It is important to consider how that would fit with the reformed local audit landscape.
Mayoral strategic authorities are already expected to follow the principles and processes described in the English devolution accountability framework and scrutiny protocol. That includes the requirement to have overview and scrutiny committees and an audit committee. We absolutely recognise that there is scope for further strengthening the system of accountability and scrutiny for mayoral strategic authorities, and we are carrying out engagement with the sector on what that looks like. Although I accept the principle of new clause 45, the Government intend to do further work to ensure that whatever new regime or additional arrangements to strengthen the status quo we put in place, they work well alongside not only the huge reforms we are driving through in the audit system but what already exists on the ground, to ensure that we are not duplicating or creating confusion.
We need a little time to work that through and to think about the right set of reforms to put in place. However, the principle that we absolutely need to strengthen the status quo is one we completely accept and recognise the need for. I ask the hon. Member for Mid Dorset and North Poole to allow us the time to do the work properly, so that we can come up with a system that works alongside the reforms we are driving through. I therefore ask her not to press the new clause.
Vikki Slade
My resistance is because I wonder how long it is likely to be before the different stages of the Bill go through. What assurance do we have that the new clause does not disappear, in the same way as other things have disappeared on the journey so far? That puts me in a difficult position, because this issue is hugely important. Allowing the Government time and then seeing the new clause disappear would not give us the chance to have anything on the record. It is because enough organisations feel that they want to have it on the record that we have pushed it. I know that the Minister wants me not to push the new clause, but I need to for the benefit of all those organisations that have worked so hard on it and that want to see it go as far as it possibly can.
The Chair
The hon. Lady does not need to decide now. I can tell that she is cogitating. If she so desires, we can come back to the new clause and test the view of the Committee.
Question put and agreed to.
Clause 66 accordingly ordered to stand part of the Bill.
Clause 67
Smaller authorities: change of terminology
Question proposed, That the clause stand part of the Bill.
Miatta Fahnbulleh
Clause 67 paves the way for greater flexibility in how audit regimes are determined, moving away from a one-size-fits-all approach that relies solely on the size of a local authority. We recognise that local authorities vary not just in scale, but in complexity, risk profile and the services they deliver for local people. This proactive measure will enable the Local Audit Office, working closely with my Department and the sector, to design and implement audit frameworks that are proportionate, targeted and fit for purpose. Although any changes to the classification of local bodies within the category 2 regime would require secondary legislation, the clause removes any ambiguity about the future basis for audit regimes. It makes it clear that size alone should not determine audit requirements; risk and complexity should also be considered. That flexibility will lay the foundations to reduce unnecessary burdens on smaller or lower-risk councils, while maintaining robust oversight where it is most needed.
On clause 68, fixing the broken local audit system for authorities is the intention behind all the measures we are debating in this part of the Bill. However, the Bill also provides an important opportunity to address specific challenges within the smaller authorities audit system. In recent years, Salisbury city council and Lindsey Marsh drainage board have surpassed the outdated financial threshold for smaller authorities—a limit that remained unchanged for more than a decade, despite significant growth in local budgets and financial activity. Public Sector Audit Appointments Ltd has been unable to secure auditors for those bodies under the principal regime, leaving them without external assurance, and contributing to the wider audit backlog.
The principal regime demands significantly more complex financial reporting, which smaller authorities may not be well equipped to deliver. There is currently no transitional support for those moving into the regime, despite limited internal capacity and capability. Overall, those circumstances mean that auditors from the principal regime are reluctant to be appointed to those bodies, particularly given the wider capacity problems.
Clause 68 lays the groundwork for regulations that will allow those two bodies to be retrospectively treated as smaller authorities, enabling them to receive a limited assurance review. That is a more proportionate and practical solution than leaving them unaudited in the principal regime. It will help ensure that public resources are used more efficiently, both within local authorities and across the audit system, while maintaining robust yet appropriate external scrutiny.
David Simmonds
Broadly, the Opposition agree with the Government’s direction of travel, and this seems a logical thing to do. This kind of update is periodically required. However, it would be helpful if the Minister could set out, for the benefit of transparency in Committee, what the assurance process will be around risk. To reflect on where things have gone wrong, West Somerset district council—then the smallest local authority in England—was essentially not financially viable, but it was also the planning authority for the Hinkley Point nuclear power station, so it was absolutely critical that it could do its job for the needs of national infrastructure. Its budget was essentially broken by the loss of a business rates appeal in respect of Hinkley Point, which cost its £6.5 million out of its already very small budget.
Sometimes there are risks that sit beneath what will be classified as smaller authorities, especially given our earlier debate about how reorganisation is seeing asset transfers between districts and parish and town councils as a result of the need to manage opportunities and challenges. Could the Minister therefore set out who will be accountable? Will Ministers sign this off? What is the role of the delegated legislation Committee in making these decisions? What will be the role of the Local Audit Office in deciding how risks are managed? We need to be confident that what may appear to be a low-risk environment does not produce a very nasty surprise.
Miatta Fahnbulleh
It will be the Local Audit Office, working closely with my Department, but we will obviously engage with the sector while doing that. As the hon. Member will understand, there is always a judgment call in this, and it is about balancing a set of factors. Our job is to ensure that the Local Audit Office has the capabilities and skills to be able to make that judgment, working with our respective authorities. Ultimately, if we get it wrong, it is for Parliament to haul up the Secretary of State and hold them to account.
Question put and agreed to.
Clause 67 accordingly ordered to stand part of the Bill.
Clause 68 ordered to stand part of the Bill.
Clause 69
Amendment paving way for separation of LGPS accounts
Question proposed, That the clause stand part of the Bill.
Miatta Fahnbulleh
The hon. Member for Ruislip, Northwood and Pinner was dissatisfied by my pensions example. In part, I hope the clause speaks to some of the challenges that we are trying to get at.
Clause 69 is the first step in separating pension fund accounts from the accounts of the administering authorities. It removes the implied requirement in the current legislation for the accounts to be published together. We can then make regulations to introduce the change in practice. Decoupling the accounts is widely supported by auditors and local authorities and was recommended by the Levelling Up, Housing and Communities Committee in the last Parliament. The clause implements that recommendation. It is a relatively straightforward change that will deliver real practical benefits. Pension fund audits will no longer be held up by audit delays on administering authority accounts, allowing timely assurance to be provided to scheme members and admitted bodies.
Many other organisations rely on pension fund audits to confirm pension figures in their own accounts, and their audits have been disrupted and delayed by problems around administering authorities that rarely relate to the pension fund. As well causing problems for local bodies, the issue has caused problems in completing the audits of the whole of Government accounts and at least two Government Departments. Decoupling will shorten and simplify administering authorities’ accounts. It is more logical to publish pension fund accounts separately, as those funds are ringfenced for the benefit of scheme members and not available to the administering authority for other purposes.
David Simmonds
In many ways, the clause reinforces the concerns that I set out earlier. The Minister said that this was an area where no value was being added and that it was the Government’s intention to reduce expectations. In fact, the clause increases expectations: it requires the publication of a separate opinion on the pension fund’s accounts. As I set out earlier, the concern we all recognise is that, where there is a shortfall, the local authority is required to make up that shortfall and, where there is potentially a surplus, it may choose to reduce the pension contributions that it makes on a regular basis, as is already the case. We have seen examples across the private sector in the past when that has been significant in both negative and sometimes positive ways.
The assumptions made about the pension fund are critical to the setting of the council tax, which is a statutory process. This is not the only set of relevant accounts that must meet that same test. Local authorities have limited but varying degrees of control over the parking revenue account, housing revenue account and dedicated schools grant, but all are ringfenced for specific purposes and all can create significant financial liabilities that fall on the council tax payer in the event that something emerges within them that had not previously been considered.
Although I understand that the Minister thinks that separating out the requirement makes life easier for some parts of the Government, it can none the less create significant issues in the council tax fixing process. Will she set out the Government’s thinking about how those risks will be managed? In particular, how will the legal requirement to set an in-year balanced budget be met, and how does imposing a requirement for an additional and separate opinion, with a separate timetable, represent a reduction of the burden on the local authority?
Miatta Fahnbulleh
We are having the same debate over and over again. Ultimately—I have said this before and I will say it again—it will be for the accounting officer and the finance director to make the judgment about their accounts in year and over a multi-year period. We are not changing that. Given that pensions are administered by a single body, it is bizarre that the system at the moment involves individual local authorities having to audit their pension funds.
David Simmonds
I invite the Minister to reflect that she may have inadvertently misled the Committee. Each local authority has a statutory duty in respect of its own pension fund. There are some pooling arrangements and common standards, but if a local authority in one place has chosen to invest in something that has gone down, it will have a shortfall that will not be replicated in the neighbouring authority that has invested in something else. It is not the case that there is one single scheme. Each of the individual schemes will have an impact on the local authority that employs those members; they are not part of some amorphous national scheme.
Miatta Fahnbulleh
No, they are not, but the auditing requirement at the moment is burdensome, as local authorities and, under the previous Government, the Select Committee have said. I think the hon. Gentleman is just asking a probing question, which is fine, but no one is telling us that this measure is a bad idea. No one is telling us that decoupling is not helpful. It will mean that local government auditing does not hold back pension fund auditing and vice versa. Everyone agrees that this is a simple provision.
Miatta Fahnbulleh
I will not give way; I am going to have to close down this debate. Critically, none of this detracts from the core function of the finance director, nor does it detract from the core function of local authority governance or local authority financial accountability. Everyone agrees that it will make the system stronger, so I struggle to understand the hon. Gentleman’s issue with it. No one says that the status quo is fit for purpose, and he himself has conceded that it is not. We are taking the existing system and providing stronger assurance and stronger audit to fix a system that is fundamentally broken, and I come back to the fact that it was broken under the Conservatives’ watch.
The Chair
The Minister has been very generous in taking interventions, and I have allowed them to be quite lengthy, if I can put it that way. She has made her position clear.
Question put, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 241.
Schedule 30.
Miatta Fahnbulleh
Clause 70 introduces schedule 30, which makes minor and consequential amendments to Acts of Parliament—primarily, the Local Audit and Accountability Act 2014. Despite the amendments being minor and consequential, this schedule is an integral part of the wider reforms that we are driving through, by ensuring consistency across legislation.
As we have said, the Bill establishes the LAO as the body responsible for appointing auditors for all local authorities, as well as certain other local public bodies. However, health service bodies will continue with their existing arrangements to appoint their own auditors. Government amendment 241 corrects a minor drafting error and omission from the Bill as introduced, by ensuring that all previous references to relevant authorities in the provision now apply only to health service bodies.
I ask that these minor and consequential amendments stand part of the Bill.
Question put and agreed to.
Clause 70 accordingly ordered to stand part of the Bill.
Schedule 30
Local audit: minor and consequential amendments
Amendments made: 241, in schedule 30, page 311, line 10, at end insert—
“(b) for “body by a relevant authority” substitute “Office or body by a health service body”.”
This amendment makes a consequential amendment that was missing from the Bill as introduced.
Amendment 242, in schedule 30, page 316, line 28, at end insert—
“Offences of deception etc
32I False or misleading information
(1) It is an offence for a person knowingly or recklessly to provide information that is false, misleading or deceptive in a material way—
(a) for the purposes of, or in connection with, an application under the local audit provisions, or
(b) in purported compliance with any requirement having effect under those provisions.
(2) In subsection (1), “the local audit provisions” means—
(a) Parts 2A to 5A of this Act (including any regulations under any of those Parts),
(b) an agreement under section 6B(5), and
(c) registration rules within the meaning of paragraph 3 of Schedule 1C.
(3) A person who commits an offence under this section is liable—
(a) on summary conviction, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);
(b) on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine (or both).
32J Wrongful holding out
(1) It is an offence for a person who is not a registered local audit provider to—
(a) describe themselves as a registered local audit provider, or
(b) hold themselves out so as to indicate, or be reasonably understood to indicate, that they are a registered local audit provider.
(2) It is an offence for a person who is not an external registration body to—
(a) describe themselves as an external registration body, or
(b) hold themselves out so as to indicate, or be reasonably understood to indicate, that they are an external registration body.
(3) It is an offence for a person who is not a recognised qualifying body to—
(a) describe themselves as a recognised qualifying body, or
(b) hold themselves out so as to indicate, or be reasonably understood to indicate, that they are a recognised qualifying body.
(4) A person who commits an offence under this section is liable on summary conviction to imprisonment for a term not exceeding the maximum term for summary offences or a fine (or both).
(5) In subsection (4), “the maximum term for summary offences” means—
(a) if the offence is committed before the time when section 281(5) of the Criminal Justice Act 2003 comes into force, six months;
(b) if the offence is committed after that time, 51 weeks.”—(Miatta Fahnbulleh.)
This amendment creates offences, similar to those currently provided in the Companies Act, about misleading conduct in the context of the new local audit regime.
Schedule 30, as amended, agreed to.
Clause 71
Rent reviews and “put options”: prohibited terms
Miatta Fahnbulleh
I beg to move amendment 375, in clause 71, page 72, leave out lines 22 to 25 and insert—
“54A Rent reviews and arrangements for new tenancies
(1) Schedule 7A makes provision about rent reviews.
(2) Schedule 7B makes provision about terms relating to rent in arrangements which require a new tenancy to be granted or taken.”
This is consequential on the amendments of Schedule 31 in my name.
The Chair
With this it will be convenient to discuss the following:
Clause stand part.
Government amendments 376 to 381.
Government amendments 384 to 386.
Government amendment 391.
Amendment 303, in clause 78, page 78, line 7, at end insert—
“(5A) Section 71 will not come into force until the Secretary of State has—
(a) completed a consultation about the impact of section 71 on businesses, and
(b) laid a report summarising the consultation before both Houses of Parliament.”
This amendment would prevent section 71 from coming into force until a consultation on its impact on businesses has been completed and a report summarising the consultation has been laid before both Houses of Parliament.
Miatta Fahnbulleh
Clause 71 and schedule 31 will ban the use of upward-only rent review clauses in commercial leases in England and Wales. Those clauses put commercial tenants at a disadvantage by keeping rents artificially high even when the market declines. In no other credible market would one party be contractually bound to accept only upward price changes, with no recourse to changing conditions. We saw in covid how damaging that can be. We have also heard at first hand from stakeholders and business representatives—including UKHospitality, the Federation of Small Businesses and the British Independent Retailers Association—about the adverse effects that upward-only rent reviews have.
An efficient and dynamic market for leasing commercial property is vital for growth and for the vitality of our high streets. Upward-only rent reviews create an imbalance of supply and demand, contributing to the blight of empty properties that we have seen, ranging from high street shops to empty office floors. The UK is an outlier in continuing to permit those clauses. This ban follows the lead of countries such as Ireland and Australia. We absolutely recognise that the ban creates some initial uncertainty for investors. However, landlords will still have access to a range of lease models, such as stepped rents and inflation-linked leases, that offer predictability and flexibility; and we have committed to consulting on whether to permit the use of rent “collars” via secondary legislation.
It is important to remember that our high streets are more than retail spaces; they are the social and economic heart of our communities. The Government have set out ambitious steps to support high streets through our Pride in Place strategy. This measure is part of that. If we want new businesses to take a chance on a tenancy and if we want resilient high streets, it is essential that the leasehold market works efficiently. I urge that this clause stand part of the Bill.
Government amendment 375 is a technical amendment updating clause 71 in line with the amendments in schedule 31 tabled in my name. The amendment ensures that readers can continue to navigate the scope and effect of those provisions as intended when drafted.
I now turn to Government amendments 376 to 381, 384 to 386 and 391. These amendments work together to clarify the scope of the ban on upward-only rent reviews, ensuring that tenants are provided with protection when it is right that they receive it. Government amendment 376 brings forward a large proportion of these changes. In particular, the new part 1 sets out a new definition of “business tenancy”. It expands the scope of the ban so that a tenant who is still bound by the lease does not lose the protection of the ban simply because they have vacated the premises, have not yet taken occupation, do not intend to take occupation, or have sub-let the whole premises. It is right that tenants receive the protection of the ban in these circumstances. Without the amendment, it is likely that they would be deterred from sub-letting, which might in turn damage their ability to trade successfully.
Part 2 expands the tenant’s ability to trigger the rent review, so that it applies regardless of whether the lease contains prohibited terms. It also applies if the lease was granted in a compliant manner but was later varied to include non-compliant terms. Finally, paragraph 5A of part 3 provides for the ban to apply in circumstances where a lease is granted in a compliant manner but later varied to include non-compliant terms.
Finally, I turn to Government amendment 391 and to amendment 303. To further ensure that tenants are provided with protection when it is right they receive it, amendment 391 replicates new paragraph 1 of new schedule 7A, contained in amendment 376, in schedule 7B. Cumulatively, the amendments will ensure that the enacted ban is robust, clear and applies in the right circumstances.
Amendment 303 would require the Government to undertake a consultation on the impact of the ban on upward-only rent reviews before the provision comes into force. But that amendment is not mine, so I will speak to it later.
Mike Reader (Northampton South) (Lab)
It is a pleasure to speak about this issue. I thank the Minister, who has been gracious in giving me a lot of time to discuss upward-only rent reviews. I hope to use a couple of minutes to clarify a couple of points in the Minister’s statement that I do not think completely reflect the evidence that we have heard and, perhaps, the current position of the Bill. I say that in a constructive way, recognising that there is further opportunity to improve the Bill and make sure it delivers what we promised in the White Paper. As the Minister herself says, we have to protect high streets and small businesses, which can often be caught in really challenging upward-only rent reviews. She is completely right that the impact was seen particularly during the covid era.
I will talk about international evidence first and then come back to how we can improve; I recognise that the amendments start to go that way. The Minister mentioned Ireland in particular, which is often cited as one of the great examples of action on upward-only rent reviews; industry there was concerned that sectors would collapse, but actually there was a relatively minimal impact. I am sure that the Minister’s civil servants will argue that that is a great example of why the worries of the Royal Institution of Chartered Surveyors, the British Property Federation, the UK Warehousing Association and agents such as Colliers, which have all written to me in the past week or two to share their concerns, are perhaps unfounded.
The scheme in Ireland was specifically brought in with collars and a floor, which meant that there was protection—that was at the point of introduction rather than through secondary legislation, which I think is important. It was introduced in a very different market with very different interest rates, corporation tax and other factors that drive corporate rents. The challenge with the way the legislation is written at the moment is that it has unintended—