Local Audit and Accountability Bill [HL]
Baroness Hanham Excerpts(11 years, 4 months ago)
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Lord Wallace of Saltaire
My Lords, in moving Amendment 18, which amends paragraph 4(9) of Schedule 9, I shall also speak to Amendment 19, which makes an identical amendment to paragraph 5(2) of Schedule 11. These are minor and technical amendments that ensure the provisions in the Bill which limit fines for unauthorised disclosure of information incorporate the changes being made to limits on fines by the Legal Aid, Sentencing and Punishment of Offenders Act 2012, known lovingly to many noble Lords as the LASPO Act.
The Bill currently provides for what happens if the provisions in the 2012 Act come into force before the day on which the Bill is passed. It omits to provide for what happens if the 2012 Act comes into force on the same day as this Bill is passed. The amendments correct that omission. If commencement of this Bill precedes commencement of the relevant part of LASPO, that legislation provides for such changes to be applied to earlier legislation. This means that, once the provisions of the 2012 Act are in effect, which, among other things not relevant here, removes the upper limit—previously set at £5,000—on level 5 fines, any offences committed after that time which would be subject to such a fine would no longer be limited to a maximum fine of £5,000.
The effect of this part of the LASPO Act 2012 on the Bill is that it will ensure that offences relating to the unauthorised disclosure of audit information provided for data-matching exercises or the wrongful disclosure of information by an auditor or inspector or a person acting on their behalf will continue to be treated as seriously as other offences previously subject to level 5 fines, and will ensure that for more serious offences the punishment can better fit the crime. I therefore beg to move Amendment 18 and that Amendment 19 be moved at the appropriate time during discussion of Schedule 11.
Lord McKenzie of Luton
My Lords, like my noble friend who was unable to support these amendments from the noble Earl, Lord Lytton, and the noble Lord, Lord Tope, I understand that—apart from the issue around this 50% funding—the Bill does what they are seeking to achieve. If you look particularly at paragraph 117 of the Explanatory Notes to the Bill, it says:
“These powers do not enable examinations of individual relevant authorities and are not designed to produce assessment of the performance of individual relevant authorities or comparative analyses in the form of published league tables”.
Unless that wording is defective—doubtless the Minister can help us on that—it achieves what the noble Lords want. As my noble friend says, whether it achieves what we want is another matter.
In relation to the other test in Amendment 18ZA—that is, an authority,
“who receives more than half their income from government funds”—
I can see that, for certain bodies, it is a test that is currently relatively straightforward to determine. However, if you seek to apply it to a local authority you can imagine the sort of criteria that you would have to unpick and examine. Presumably it is not part of government funds to take account of its income which comes from council tax. What happens when you come to the business rate? Is it part of its income? Do you look at the gross amount or the 50% under business retention that goes to central government and then comes back? Is that still government funding? Does it originate with the local authorities? All the issues around how tariffs, top-ups and safety nets work just from that regime itself could make that particular test in the context of local authorities extremely difficult to apply. It would be easy in some cases where either they would be clearly in or clearly out but I would be surprised if there were not a whole range where it would be extremely problematic.
The test at the moment, as I understand it, is that the Auditor-General can carry out examinations of bodies when more than half of their income comes from public funds and where they are appointed by or on behalf of the Crown. I am not quite sure how you translate that into the local authority context but it seems to me that the basic proposition which the noble Lords are seeking to achieve in terms of avoiding mission creep and certainly league tables is already in the Bill.
If that is right—and for that reason some of the comparative stuff to which my noble friend was referring is not available—it raises again the question we discussed earlier about the value-for-money profiles, the guardian of which is currently the Audit Commission. We discussed who was going to maintain those profiles, which I think would be part of the data that my noble friend and I would be looking for. We do not yet know where that is going to end up and how those profiles are going to be maintained, but I think that that is a slightly different issue from the one pursued by the noble Lord, Lord Tope.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, it is not very often that the noble Lord, Lord McKenzie, makes my case for me, and I am delighted to be in this unusual situation. Perhaps I should sit down without going any further. As always, however, the noble Lord provides a sting in the tail somewhere. On this occasion it was in his final question—to which I may not, even now, be able to give him an answer, but we will try.
Under the National Audit Act 1983 the Comptroller and Auditor-General can undertake examinations into the economy, efficiency and effectiveness or value for money with which a government department it audits has used its resources. He or she can also undertake these examinations in relation to bodies that receive more than half their income from public funds and which are appointed by or on behalf of the Crown.
Clause 34 broadens the Comptroller and Auditor-General’s powers to enable the National Audit Office to undertake examinations on groups of relevant authorities, enabling a more end-to-end view on the use of public money. The powers in Clause 34 have been designed deliberately to support the National Audit Office in undertaking its core roles. It enables examinations that support the National Audit Office either in holding the Government to account to Parliament or in providing analysis and advice that is useful to the sector. By definition, this does not mean that the NAO will be examining or reporting on individual authorities. It means that the comptroller can look at what is going on in a local authority but only in relevance to a wider group or area in relation to the money coming from Parliament.
The amendment would limit these powers to enable the Comptroller and Auditor-General to undertake examinations only on groups of relevant authorities that received more than half their funds from government. I think that that is where the noble Lord, Lord McKenzie, has stepped in and given a pretty clear explanation of why this is not going to work. The amendment is overly restrictive and would not support the National Audit Office in fulfilling its core roles. The Audit Commission currently has powers to undertake examinations in relation to all relevant authorities. Removing relevant authorities that receive less than half their resources from the Government would mean that the National Audit Office could not look across the whole spectrum and thus do its job. The amendment would also reduce the level of scrutiny of public spending that the NAO could carry out, including all the other elements mentioned by the noble Lord regarding the way that grants are paid and the money that goes into local authorities.
Amendment 18ZB would prevent the Comptroller and Auditor-General from undertaking examinations for the purpose of assessing the performance of individual authorities or the production of league tables. Clause 34(2) already provides for the first part of this. It states that a value-for-money examination must relate either to all authorities or to a particular description of relevant authority, and it is extremely unlikely that an individual authority would meet those criteria. An individual authority could be looked at but only in relation to a group and could not be identified as one authority. The Explanatory Notes set out that these powers are not designed for the National Audit Office to produce an assessment of the performance of individual authorities or comparative analyses in the form of published league tables. The Government do not wish to see a return to the comprehensive area assessment of local authorities. The NAO’s evidence to the pre-legislative scrutiny committee on the draft Bill confirmed that it is seeking neither to audit individual local authorities nor to interfere with the primary accountability of local authorities to the local electorate.
However, the clause does not prohibit comparisons of individual authorities during the course of the examination. This is because such group or overall analysis is necessary in order for the National Audit Office to make conclusions about the economy, efficiency and effectiveness with which authorities in a particular group are using resources, or to provide evaluation, commentary and advice to relevant authorities. We believe that the Clause 34 will give the National Audit Office a strengthened role in the assessment of value for money, which the Government said we wanted to achieve when we announced the intention to close the Audit Commission. I know that that intention has received a great deal of parliamentary support, including from the Communities and Local Government Select Committee, the committee which undertook scrutiny of the draft local audit Bill last autumn, and from many noble Lords during our discussions.
However, I understand—and I know that the National Audit Office does too—the concerns that have been expressed about the risks of scope drift or expansion of the programme beyond what is intended. I believe that there are safeguards in the Bill that mitigate against these risks. I emphasise that it is not the Government’s intention to replicate the Audit Commission’s programme of studies. The powers are narrower than the Audit Commission’s and there will be fewer studies. Although the examinations programme is ultimately a matter for the Comptroller and Auditor-General, Parliament undertakes a full and thorough scrutiny of the National Audit Office’s strategy and budget. The House of Commons Public Accounts Committee scrutinises the strategy and budget annually, including the balance of work between different roles, before approving the National Audit Office’s budget for the year ahead.
Lord McKenzie of Luton
Before the noble Earl withdraws his amendment, can the Minister tell us any more about the value-for-money profiles, and in particular what the plans are to maintain those? Obviously that requires the compilation of data and comparative data.
Baroness Hanham
We are currently considering the future management of the Audit Commission’s value for money—the question asked. I cannot say anything more today but we will come back to this before Report, I hope, and I will certainly make sure that noble Lords are kept in touch with progress, which I think is what I said last time.
The Earl of Lytton
Not to prolong the matter, I beg leave to withdraw the amendment.
Baroness Hanham
The Earl of Lytton
My Lords, I will follow what the noble Lord, Lord Beecham, said, in the same vein, because I think that getting rid of the requirement altogether would create all sorts of difficulties, which the noble Lord, Lord Beecham, has referred to.
I cannot help commenting that for all the money that is spent on these things, they seem to be reproduced in the smallest print and in the most insignificant parts of the relevant newspaper. One always wonders whether a local authority chooses its moment to stick in an important announcement when the local football team has been moved up to the next division or whatever it happens to be, and nobody is going to read the small print in the public notices part of the paper. Maybe it is because they are being charged so much that the print is so small so they need to cram it into a smaller number of column inches in order to get value for money—but that is speculation on my part.
I agree that better and more efficient ways should increasingly be used to disseminate this information. Very often I hear about things not through the pages of the press, where they are carefully hidden, but because the parish council or some other organisation sends a round robin e-mail and I happen to be on the circulation list and that is how I get to know about it. I think that must be the experience of many noble Lords and many members of the public. So I support the general purpose here. Certainly, I would not necessarily support the removal of public advertising in the press for every single thing that is on the list of the noble Lord, Lord Tope.
Baroness Hanham
My Lords, happily, noble Lords have not quite agreed on this again, which is always very useful as far as I am concerned, but they have raised issues that are important and I want to acknowledge that.
The purpose of statutory notices is to inform the public about decisions that will affect their lives, their property and their amenity. There are 162 aspects they will need to be informed about but they are all relevant to local people, either individually or in groups. The amendment does not consider the effect on the public or on business and other groups, and would potentially put local people in the dark. We must acknowledge that there are still people who do not access information other than through newspapers. The local paper, where it exists, still fulfils a very public duty in that regard.
Removing statutory notices from the requirement to publish for local authorities would also stifle local transparency and the rights of local people to challenge decisions that impact upon their lives, because they would not know about them. This is a complex and contentious issue, as my letter to the noble Lord, Lord Tope, acknowledged. I do not believe there is any consensus about taking them out of local newspapers even if they cost a small amount to put in.
The burden of statutory advertising is one that we acknowledge, and the Communities and Local Government Select Committee’s recommendation a couple of years ago for a review of publication requirements for statutory notices cannot be ignored in the long term. Against this background, local newspapers remain an important part of local democracy, ensuring that local people are informed about the decisions that affect their daily lives. It is essential that local people have free and open access to information that can affect them or impinge upon them rather than having to rely on other means. I acknowledge that the requirement to publish some notices in newspapers comes from an age which has long since gone—1972 was a very different time from now—and they could perhaps be removed. However, other requirements remain as valid today as they always have been.
Looking at planning applications, there is a limited amount of time for local residents to make representations, yet applications can and do affect their and their neighbours’ quality of life and property. The previous Administration consulted in 2009 on removing the statutory requirements to publish planning notices in newspapers. It was not well received. The noble Lord, Lord McKenzie, may remember that.
The then Government concluded that it was clear from responses that some members of the public and community groups relied on the statutory notices in newspapers to learn about planning applications in their area. There was no conviction that good alternative arrangements could readily be rolled out. The effect of this amendment would therefore be to reduce public scrutiny regarding, for example, planning decisions, the provision of sex shops, bus-lane fines, casinos, betting shops and councillor allowances, among myriad others. I acknowledge that all 162 are laid out in Amendment 19E, but I have understandably mentioned a few which are important. Although some may be willing to see all these go, we would ask whether the blanket removal of a huge swathe of statutory notices is really in the public interest or ideal. That does not stop us looking at the statutory notices under initiatives such as the Red Tape Challenge, but they are currently as listed.
It is vital that we understand how local people receive and use information in the 21st century. Some make use of innovative technology, and everyone here sits with their little iPads making sure they know exactly what is going on at home when they are sitting here taking important decisions about legislation. However, not everyone is as privileged and not everybody has, or wants, easy access to technology. They like reading what they want in papers and we cannot disregard that.
It is also true that the money that pays for these statutory notices helps to keep local newspapers in existence. That is important to ensure that those who are not going to be tied up to the internet have ready access to information not only about statutory notices but about what is going on their local area. The newspaper industry is clear that competition with local authority newspapers for advertising revenue is damaging their primary source of revenue and preventing newspapers reporting on what local authorities are doing on behalf of local people.
It would be unfair to remove statutory notices in such a blanket way as proposed, particularly while independent newspapers are—as the noble Lord, Lord Tope, acknowledged—under threat and need to be kept in business. A small contribution to that is through the statutory notices, which seems a good use of public money. We would not wish to accept the amendment. With the comments I have made, and with the understanding that the coalition agreement was that we would try to protect local newspapers, I would ask the noble Lord to withdraw his amendment.
Lord Tope
My Lords, I am searching for the words in the coalition agreement which certainly comply with the amendment. I am, of course, grateful to all noble Lords who have spoken in the debate. Perhaps it was the way in which I introduced it; there seems to be some misunderstanding. There is nothing in what I am seeking, nothing in this amendment, which removes the requirement to publish statutory notices. What I am seeking to remove is the requirement to publish them in local newspapers; that is an important difference. I entirely agree, and wholly sympathise, with the view expressed by several speakers that by no means everybody accesses the web or electronic means of communications. The noble Earl, Lord Lytton, may well receive his parish notices by e-mail, but I suspect that not all in the parish study the parish e-mails. Maybe one day that will be the case, but it is not yet and I do not suggest that it should be.
This amendment would still require local authorities to publish their statutory notices, but it would require them to do so in a way that they thought likely to bring them to the attention of persons who live in the area. That could be in the local newspaper—perhaps in a better form than most statutory notices—by e-mail or on their website. Possibly the most effective way is still on a piece of paper put through the letterbox, which is still, I suspect, where many people get their information on planning applications and other matters of direct interest to their immediate vicinity. It is for the local authority to decide, depending on the circumstances of its own area, which is the most effective and cost-effective way of meeting a statutory requirement to publish public notices. Among the least effective ways is this statutory notice—with which we are all familiar but which is seldom read—published in the back pages of a newspaper.
Lord Beecham
My Lords, this rather intimidating-looking amendment is a probing amendment. It arises somewhat curiously from my membership of a committee set up by the All-Party Inquiry into Electoral Conduct, which is preparing a report on material produced in elections that might be racist or discriminatory in one way or another. In the course of discussions, some doubts were expressed about whether, under the present code of practice, it is possible for authorities to publish statements of fact correcting statements of that kind. I put it no higher than that there is a doubt about that. There is a legal opinion that it is perfectly legitimate to do so but certain reservations are held in the world of community relations and local government that it may not be permissible to make clear that what other people are saying is wrong in particular areas.
The reference here to the characteristics set out in the Equality Act cover the following areas: race, gender, age, gender reassignment, sexual orientation, and religion and belief. The concern is that particularly—but not exclusively—around the time of elections we may get significant misstatements which can be calculated to mislead people and may indeed in themselves be unlawful. The amendment seeks to clarify the position. The Minister may be able to say today or subsequently that, having taken advice from government lawyers, the position is okay and authorities are able to correct such misstatements.
To illustrate the kind of problem that one might face, a ludicrous urban myth is currently developing around the infamous bedroom tax, purporting to say that if you are a Muslim householder, you can describe one of your rooms as a prayer room and that will avoid the bedroom tax. This is complete nonsense but one can see how statements of that kind can cause considerable problems and, in the context of an election, be influential.
Therefore, the amendment seeks simply to sanction or confirm, if it is indeed the case, that it is permissible for authorities to publish,
“factual material by way of correction or rebuttal of inaccurate statements that promote discrimination, harassment or promotes or constitutes other unlawful acts”,
in the areas to which I referred. It is particularly important that it be made clear that that is permissible during the purdah of an election period because that is precisely when it may be that those with a particular axe to grind will be most likely to produce such material. It is important that it be rebutted, not in a party or political sense but in a purely factual sense, as quickly as possible in order that the situation should not be inflamed.
I hope that the Minister can assure me that the advice is that such publicity is permissible, including during an election period. If not, I invite the Minister to consider the position further and see whether the amendment or something along the same lines can be incorporated into the Bill. It is an area where, particularly given present tensions, councils acting responsibly can correct factual misstatements, thereby helping to promote community cohesion and avoid any discrimination or harassment of any of the groups identifiable within the characteristics listed in the Equalities Act. Of course, authorities have a duty under that Act; the question is whether we can confirm that that duty will allow them to take the steps to which I referred. I beg to move.
Baroness Hanham
My Lords, I just want to check for the noble Lord the exact position regarding elections because that is probably the most salient purpose of the amendment. Perhaps I may first reply in general.
As the noble Lord has acknowledged, Section 149 of the Equity Act 2010 places a duty on local authorities to tackle discrimination in all the areas that he mentioned. The Code of Recommended Practice on Local Authority Publicity, to which local authorities have a statutory requirement to have regard, sets out the seven principles that local authorities must abide by when producing any publicity. Publicity must be, lawful, cost-effective, objective, even-handed, appropriate, have regard to equality and diversity, and be issued with care during periods of heightened sensitivity.
The publicity code, in its guidance on the principle of publicity about equality and diversity, is clear that local authorities may seek to influence the attitudes of local people or public behaviour in relation to matters including race relations, equality, diversity and community matters. The provisions in the Bill relating to the publicity code allow the Secretary of State to make a direction requiring a local authority or group of local authorities to comply with some or all of the publicity code. As I understand it, the amendment is intended to ensure that any direction about compliance with the code would not prevent a local authority from exercising its obligations under Section 149 of the Equality Act. The code makes provision for just this sort of publicity; a direction to comply with the code would serve only to put the guidance on a statutory footing.
Paragraph 35 in the current code states:
“It is acceptable to publish material relating to the subject matter of a referendum, for example to correct any factual inaccuracies which have appeared in publicity produced by third parties, so long as this is even-handed and objective and does not support or oppose any of the options which are the subject of the vote”.
I think that that clears up the matter as regards being able to respond during elections, in particular.
Lord Beecham
Is an election to be treated the same as a referendum because a referendum is putting an issue? I am not sure that that is right. If that is the intention and that can be confirmed, that would be sufficient.
Baroness Hanham
My Lords, this is an important point. If the noble Lord withdraws the amendment, perhaps we can discuss this further before the next stage and identify whether, in parliamentary terms, a referendum would cover elections. If that is so, the noble Lord is right—the issue is not covered. Is the noble Lord happy to withdraw the amendment with that assurance?
Lord Beecham
Yes. I am grateful for the assurance and I beg leave to withdraw the amendment.
The Earl of Lytton
My Lords, the noble Lord, Lord Tope, will be pleased to know that the National Association of Local Councils supports the thrust of what he has advanced here. It does not believe that there is a problem, nor does it see a need to change the present code status. It is not aware of a single instance of the Secretary of State intervening in a parish council publicity matter. It says that the taking of additional powers by the Secretary of State is distinctly non-localist, and there are some concerns at the potential longer-term implications for parish newsletters. It certainly does not think that this is a legislative priority. I am at one with what has been said on this.
I have a separate concern that I expressed at Second Reading on the suitability of the present code to become a statutory code at all. When I put this to the Local Government Association, it agreed with me that the current drafting appears to be less than precise and said that it was a matter on which the LGA had taken some advice. However, that is not to say that the general thrust of the code is wrong. It actually contains some good principles but is qualified by all sorts of terms, mainly prefaced by the word “should”, and includes phrases such as “likely to be perceived”. There are also imperatives about there being no,
“commentary on contentious areas of public policy”,
and positions being presented “in a fair manner”. Authorities should not do anything,
“designed to influence members of political parties”.
Paragraph 13 of the code states:
“The purchase of advertising space should not be used as a method of subsidising voluntary, public or commercial organisations”.
That begs the question: when is a subsidy merely part of a cost contribution? I note also that the definition of what might be unreasonably partisan, contentious, sensitive or likely to have an influence if not even-handed is probably not a constant between Parliament at this level and the parish pump at that level. I certainly question whether it applies in equal manner to everything in between. How would making this code statutory improve things? Would it be simply an avenue for contention whereby the matter would have to be thrashed out in the courts—the Secretary of State versus some borough, parish or other?
Is that a profitable way to go forward, bearing in mind that there do not seem to have been any substantial problems? It is said there have been one or two in some London boroughs but I do not know whether they are regarded as being typical or whether those boroughs that have had the finger wagged at them have failed to observe the wagging finger. Other noble Lords may know more about than I do, but it seems to me that the case for the clause is not made.
Baroness Hanham
My Lords, I recognise that the Room is not with me but it is none the less extremely important that the clause stands part of the Bill.
The code of recommended practice, agreed by both Houses of Parliament, is the guidance to which local authorities must have regard when producing their publicity. It sets out the seven principles that local authorities have to abide by when producing their publicity. We know what they are and I shall not read them out. The publicity code is necessary because local authority publicity can be expensive and contentious. We acknowledge that the majority of local authorities abide by the guidance in the publicity code. However, there are some that do not. There are examples of local authorities that still produce weekly newspapers that are highly contentious and political. While there may be only one or two authorities that have done this, it is proper that someone is able to make sure that that does not happen.
Clause 38 provides the Secretary of State with the power to take action where a local authority is not complying with the publicity code. This would be taking action by direction. The Secretary of State can direct a local authority or a group of local authorities to fulfil or take notice of the publicity code and can require compliance. Such directions do not require all local authorities to comply—although it could do so, which would make the power statutory, if there were to be a real outbreak across every single local authority.
However, that is not what this clause is directed at. It is directed at the one or two authorities that are still not conforming to the publicity code. If a publicity notice is excessive and people complain, it enables the Secretary of State to direct the local authority to comply with that code. The clause sets out the procedures to be followed before a direction is given and these require the Secretary of State to give proper notice of the proposed direction and for an authority to make representations within 14 days.
Lord Tope
My Lords, I, too, have some concerns about this clause although I am a little unsure about whether to raise these concerns on these amendments or perhaps in a few minutes in the debate on whether the clause should stand part of the Bill. However, I will deal specifically with Amendment 19BB, which deals with the issue of retrospection. The case has been well made with particular instances. I have concerns about the retrospective nature of subsection (15) on rather practical grounds. By the time this Bill is enacted, all attention will be focused on the next financial year and not the current one. For the Secretary of State, whoever that may be at that time, to be penalising authorities at that stage for acting lawfully at the time when they took the action in respect of this current financial year seems to be both wrong and impractical. Should the Secretary of State take that view, what will be the practical implications by the time we are very nearly through the current financial year? I hope that when the Minister responds in a moment she will at least be able to give us some reassurance on the particular issue of retrospection, which is causing quite proper practical concern as well as political and philosophical concern.
Baroness Hanham
My Lords, as I understand it, the noble Lord has grouped together Amendments 19BB and 19BC. Amendment 19BB challenges the Secretary of State’s power to determine categories of authority and to set excessiveness principles which apply to them accordingly. Subsection (15) makes it explicit that, in doing so, he may differentiate between authorities on the basis of past council tax decisions. The amendment would remove subsection (15) because of concerns, as raised in our discussion, about retrospection and about it providing much wider powers to the Secretary of State when setting excessiveness principles.
I am happy to confirm that subsection (15) does not apply referendum principles retrospectively. It does not make any changes to the setting of council tax in previous years or change the referendum limits that applied. The Government were clear before council tax and levies were set for 2013-14 that they would take into account the decisions taken by local authorities on council tax in setting future principles. As already stated, no changes will be made to those principles that applied in 2013-14 or, indeed, to any other year. Both authorities and levying bodies can continue to plan accordingly.
In light of the fact that local authorities have had a pretty clear indication that their decisions for 2013-14 would be taken into account—what they did, where and why—in setting future principles, there is no argument that authorities were not aware of the Government’s intentions or justification for accusations of unfairness, given the Written Ministerial Statement of 30 January 2013, followed by an information note sent to all to local authorities on 8 February. Decisions taken on council tax increases for 2013-14 were taken in full knowledge of those warnings. Subsection (15) does not radically extend the Secretary of State’s existing powers. It clarifies those powers and removes any doubt as to whether they allow him to continue to take into account past council tax decisions when making decisions on the following year.
Amendment 19BC would provide that during a transitional period specified expenditure could be exempt from inclusion within the calculation on whether a council tax increase was excessive. The noble Lord will be aware that the excessiveness principles, which are set annually, already allow for different principles to be set for different categories of authority. For this reason, I assume this amendment is intended to press the case for the additional flexibility that we have been talking about.
It is intended that the detailed excessiveness principles for 2014-15 will be made later in the year. However, the principle will remain that local taxpayers should be protected from unwanted excessive council tax increases. It is local residents who should have the final say on whether to accept an excessive increase. We recognise that there may be specific reasons as to why a particular local authority may wish to set an increase above that level; the noble Lord, Lord Beecham, referred to the city deal in Leeds, and the noble Lord, Lord Smith, referred to Manchester. The city deal with Leeds on private sector investment has been predicated on increases in levies from the West Yorkshire Integrated Transport Authority. It is right that the levy set by the 22 elected councillors from the five district councils that manage the authority should be treated in exactly the same way as the costs of every other local authority investing in local transport projects. The Government accept that neither this nor any other city deal is dependent on setting an excessive council tax increase, nor that excessive increases in levies were agreed as part of the deal. The chair of the West Yorkshire Integrated Transport Authority put it well himself. He said that,
“transport will be managed locally rather than from Whitehall, with decision making to suit local needs, accountability to Council Tax-payers and creating a transport network fit for purpose”.
Local decision-making and local accountability to council taxpayers are what the current clause would provide by extending the transparency of decisions taken by bodies funded from council tax receipts and ensuring that local residents have their say when those decisions would require larger increases. In summary, the Secretary Of State already has flexibility to set referendum principles that address particular situations and the right to take into account the 2013-14 council tax level. With those explanations, I hope that the noble Lord will be willing to withdraw his amendments.
Lord Beecham
My Lords, of course I am not going to seek to test the opinion of the Committee today, but this is a matter to which I and other noble Lords from different parts of the House will want to return. I confess that I used the word “sophistry” to my noble friend to describe some of the assertions made by the noble Baroness—assertions no doubt made at the behest of those in somewhat higher positions within the department. This is not a satisfactory position. We will clearly need to look in detail at what she said but the reality is that decisions were taken in good faith, along with the Government, to establish a range of agreed policies without the expectation that these would somehow be affected by decisions of the kind to which the noble Baroness referred. If those agreements reached with government and other partners are to be sustained, it will, on the basis of the Government’s announced policy, be at the expense of core services. That was not envisaged at the time these deals were entered into, and it will make councils extremely reluctant to enter into any further arrangements with government when that could have the impact that it appears is now facing a number of significant authorities that are doing their best to work with government. It is an unsatisfactory position to which we will no doubt return on Report, but I beg leave to withdraw the amendment.
Lord Beecham
My Lords, I shall be brief. The position is a curious one in relation to what the Government regard as an area of excessive increases and what they regard as something else. An increase of more than 2% in council tax is excessive but an increase of 5.8% in social housing rents is acceptable. Indeed, the Chancellor has said today that social rents will increase by CPI plus 1% a year for virtually a decade. That actually will be rather less than the increases imposed in this past year but whichever way you look at it, it means that what is an unacceptable increase for council tax payers is well below what social housing tenants will be expected to pay. It is an interesting anomaly.
However, on the referendum point, it should be noted that three sets of organisations are involved in local government finance at the local level—the council, the levying bodies and the precepting bodies such as police commissioners. Several police commissioners increased their levies by significantly more than the 2% figure. That was acceptable because it did not raise the overall increase significantly. On the other hand, technically, their regime is rather different and rather more generous in terms of potential increases. However, if they breach the limit for precepting authorities, I understand that they would have to have a referendum. Therefore, there are two referendum systems here, as it were. It is odd that there are in effect two external bodies—some bodies, admittedly, comprise a combination of local authorities, but many do not—which can, by means of a levy, potentially force the council to have a referendum on its overall council tax levy, whereas precepting authorities are in a different category. That anomaly certainly raises questions to which we may want to return on Report.
I anticipate that the noble Earl will not seek to test the opinion of the Committee tonight. Given the fact that referendums are now, unfortunately, part of the system, despite the opposition of many of us when the Local Government Bill went through, I am not sure that we will get very far in that regard on Report. However, in this curious area of anomalous situations and differential rates of what is acceptable and what is not, we might at least provoke the Government into thinking about the system they are creating and the degree to which it is being made more elaborate, complex and, ultimately, less accountable to people with every successive announcement.
Baroness Hanham
My Lords, I thank noble Lords who have contributed to this debate. I shall try to deal with one or two specific questions at the end of my remarks. I shall lay out the purpose behind Clause 39 and pick up some of the questions as I go along.
Clause 39 amends the calculation that authorities must make each year to determine whether their council tax increase is excessive and therefore requires the approval of local people in a referendum. It changes the definition of excessiveness from an amount that excludes levies to one including levies. It will ensure that people get the final say over an excessive increase in the total council tax charged by an authority. The noble Lord, Lord Beecham, properly drew attention to the fact that precepts are already part of the local government charge. Currently, the excessiveness calculation is based on the relevant basic amount of council tax, defined so as to exclude changes in levies raised on an authority by levying bodies. The level of levies varies in different areas, but can make up more than 50% of an authority’s council tax requirement. This year, many council tax payers have seen their total bill increase by a higher percentage than they might have expected due to the impact of levies, with the overall increase appearing to be above the referendum threshold set by the Secretary of State and approved by the other place.
In short, a levy is a demand for payment by a levying body on a local authority. A large number of organisations and bodies have historically been granted the power to issue levies. Some of these are relatively small organisations but others are much larger. We have discussed more recent creations such as integrated transport authorities and joint waste disposal bodies, which carry out substantial functions across cities or regions.
Combined authorities can bring together a number of others to pool their resources and make savings, removing duplication and giving them an opportunity to make sure that the levy is not as much as it would otherwise be. However, we are clear that levying bodies are part of the local government landscape; they are funded to varying degrees by local council tax payers. We discussed the levies briefly. They were removed from the provisions of the Localism Bill, and it is partly an attempt now to exempt certain types of expenditure from the excessiveness calculation, such as that which has been approved by a local referendum. I have missed a page and shall go back.
Baroness Hanham
I was trying to be brief; it is always a mistake.
I want to make it clear that the Secretary of State is able to set excessiveness principles which compare council tax figures in 2013-14 with 2014-15, using the methods set out in this clause, and now including the cost of levies. This remains consistent with current arrangements, where the Secretary of State takes into account all relevant factors, including previous council tax levels. Noble Lords will be aware that the effect of the clause is to reinstate the model for council tax referendums contained in the Localism Bill when it was introduced to Parliament in 2010. Not one objection was raised to the inclusion of levies during the consultation or the parliamentary debate on council tax referendums. The concept of taking account of those is familiar, having been part of the consideration of the excessiveness under the old capping regime, to which reference has been made.
Levies were removed from the provisions of the Localism Bill as part of an effort to keep certain types of expenditure from the excessiveness calculation, such as expenditure which was approved by referendum or which was not under the direct control of the authority. However, since the passing of the Localism Act, there have been two developments. First, the rate of levy increases has outstripped the national increase in council tax. In total, the levy increased by 4.1% in 2011-12 at the time of an overall council tax freeze. The coalition Government have been clear from the outset about their wish to protect people from excessive council tax increases, and the inclusion of levies in the referendum legislation supports that. Secondly, authorities have shown themselves to be consistently capable of working with levying bodies in setting them and considering the cumulative pressure on council tax. Local authorities are well represented on the majority of boards of levying authorities, and there are hundreds of examples of councils and levying bodies already meeting the terms of the schemes which require a freeze or reduction in the overall council tax bill.
The Government do not accept that local councils will simply have an excessive increase forced on them by levying bodies. We have had representations that this clause could constrain authorities that have already come together to collaborate and pool resources. We must be clear about this, too. In many areas, transport and waste disposal are run by local authorities—the noble Lord, Lord Smith, drew attention to that—and are funded through the council tax, which is subject to referendum principles. In larger metropolitan areas, these functions are carried out by joint waste and transport authorities, funded by levies that are not currently subject to the referendum principles. It is right that the spending by these large organisations, with budgets in the hundreds of millions of pounds, should be subject to the same scrutiny and accountability as happens elsewhere in the country.
I should like to make it clear that a number of authorities lobbied for this change. One was Liverpool City Council, which approached the department last year, making the case for increased consistency in the treatment of different classes of local authority. That council may be alone, but it has been done.
The question was asked about elections, including those for thirds. Decisions on council tax and on the amount of council tax charges are taken in March and local elections take place in May. If there was a referendum at the same time, local electors would be very clear what the situation was and what they were voting on. I hope that that will, if not satisfy noble Lords, clarify the points raised, and as a result I beg to move that this clause stand part of the Bill.
“Charities Act 2011 (c. 25)99A The Charities Act 2011 is amended as follows.
99B (1) Section 149 (audit or examination of English NHS charity accounts) is amended as follows.
(2) In subsection (2) for “a person appointed by the Audit Commission” substitute “a person who—
(a) is eligible for appointment as a statutory auditor under Part 42 of the Companies Act 2006,(b) is eligible for appointment as a local auditor (see Part 4 of the Local Audit and Accountability Act 2013), or(c) is a member of a body for the time being specified in regulations under section 154 and is under the rules of that body eligible for appointment as auditor of the charity.”(3) In subsection (3)—
(a) for “the Audit Commission” (where it first occurs) substitute “the charity trustees”,(b) in paragraph (a) for “a person appointed by the Audit Commission” substitute “a person who is within subsection (2)(a), (b) or (c)”, and(c) in paragraph (b) for “a person so appointed” substitute “a person who is qualified to be an independent examiner”. (4) After subsection (3) insert—
“(3A) For the purposes of subsection (3)(b), a person is qualified to be an independent examiner if (and only if)—
(a) the person is independent,(b) the charity trustees reasonably believe that the person has the requisite ability and practical experience to carry out a competent examination of the accounts, and(c) the person—(i) falls within a description of person for the time being included in the list in section 145(3), or(ii) is eligible for appointment as a local auditor (see Part 4 of the Local Audit and Accountability Act 2013).”(5) Omit subsection (4).
(6) For subsection (5) substitute—
“(5) The Commission may—
(a) give guidance to charity trustees of an English NHS charity in connection with the selection of a person for appointment as an independent examiner;(b) give such directions as it thinks appropriate with respect to the carrying out of an examination in pursuance of subsection (3)(b);and any such guidance or directions may either be of general application or apply to a particular charity only.”(7) Omit subsection (8).
99C (1) Section 151 (audit of accounts of larger groups) is amended as follows.
(2) In subsection (4)(b), for “a person appointed by the Audit Commission” substitute “a person, appointed by the charity trustees of the parent charity, who is within section 149(2)(a), (b) or (c)”.
(3) In subsection (6)—
(a) for “Subsections (4) and (6) of section 149 apply” substitute “Section 149(6) applies”, and(b) for “they apply” substitute “it applies”. 99D (1) Section 152 (examination of accounts an option for smaller groups) is amended as follows.
(2) In subsection (6)—
(a) for the words from “the Audit Commission” (where it first occurs) to “so appointed” substitute “the charity trustees of the parent charity be audited by a person, appointed by those trustees, who is within section 149(2)(a), (b) or (c); or examined by a person, appointed by those trustees, who is qualified to be an independent examiner”,(b) for “(4) to (6)” substitute “(3A), (5) and (6)”, and(c) after “section 149(3)” insert “; except that in subsection (3A)(b) of that section the reference to “the charity trustees” is to be read as a reference to “the charity trustees of the parent charity”.”99E In section 154(1) (regulations relating to audits and examinations) after paragraph (a) insert—
“(aa) specifying one or more bodies for the purposes of section 149(2)(c);”.”
Local Audit and Accountability Bill [HL]
Baroness Hanham Excerpts(11 years, 5 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord McKenzie of Luton
My Lords, Amendment 14F is quite a narrow probing amendment. At the start of our deliberations today, perhaps I should just make clear that although we have some concerns about the fragmentation of the new local audit regime—an amendment to cover this will be forthcoming on Wednesday—we accept the broad technical means by which the Government seek to implement its framework, drawing on the Companies Act 2006 and the Audit Commission Act 1998. Our probing should be seen in that context.
The Companies Act 2006 sets out who may be treated as holding an appropriate qualification for the purposes of acting as a statutory auditor. A Secretary of State can include in this persons who are qualified to audit accounts under the law of a foreign country and someone who holds a professional qualification in a specified foreign country. For these purposes, an EU state is not treated as a foreign country. These provisions are specifically excluded from operating under the Bill, so can the Minister please confirm, under the local audit regime, what is the position of individuals qualified in an EU country regime, especially given the broader nature of local bodies’ audit? What is the rationale for excluding other foreign qualifications, which are included in the Companies Act? I beg to move.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, the Government believe that the Bill provides for sufficient suitable qualifications to be recognised for the purposes of local audit. As the noble Lord said, this amendment seeks to find out about the qualifications and, in particular, the approval of overseas qualifications from non-EU countries for the purpose of statutory audit. It also sets out the conditions that will need to be satisfied relating to the assurance of professional competence of those holding an overseas qualification.
Section 1221 provides for approval of all those in a specified country who are qualified to audit accounts or only those who hold specified qualifications in that country. In the case of the latter, the Secretary of State may specify any additional requirements to be satisfied. The section allows the Secretary of State to recognise an overseas qualification only if there is comparability and/or equivalence of treatment of United Kingdom qualifications in the country in question.
For local audit, an auditor will hold a suitable qualification if it is one recognised under Part 42 of the Companies Act 2006 or if it is another qualification recognised under the Bill. If a third-country audit qualification has been recognised for company audit through the application of Section 1221 of the Companies Act 2006, it would be deemed an appropriate qualification for local audit. I must stress that we would expect anyone employed under those circumstances to have experience of local audit as carried out in this country. I hope that will help the noble Lord and that he will feel able to withdraw the amendment.
Lord McKenzie of Luton
I thank the Minister. I may have missed it, but what provision allows the Secretary of State to take account of a third-country qualification? I ask because the Bill specifically omits the provisions of the Companies Act which permit that. I was trying to spot the precise bit of the Bill that allows that to happen. I think it is entirely appropriate that it does—if it does—but if the noble Baroness could give me the particular reference, that would be good. Presumably for EU nationals, the position has not changed. Whatever EU directive applies, they would be entitled to be considered, as indeed someone with a UK qualification would be in Europe.
Baroness Hanham
My Lords, EU auditors may be subject to an aptitude test if they practise local audit in the United Kingdom on a permanent basis. Under all these provisions, the expectation is that people would be qualified, as they are in the United Kingdom, to carry out local audit. We shall come to that further on, because it is the qualifications that will matter. We would not see any dilution of the competence of auditors, whether they come from here, the EU or non-EU countries. Have I still not answered the noble Lord’s question?
Lord McKenzie of Luton
Perhaps we might deal with it in correspondence. I was just trying to see the particular reference that allows back in the approval of those with third-country qualifications. I can see the provision that takes it out of the starting point, which is the Companies Act 2006. I think there may be something else coming from the Box.
Baroness Hanham
My Lords, it is blindingly obvious—the provisions in paragraph 8 of Schedule 5 to the Bill, which amend the Companies Act. Why did I not think of it immediately?
Lord McKenzie of Luton
My Lords, I think I am grateful for that follow-up. I shall read the record to see that it remains blindingly obvious. From what the noble Baroness has said, I do not disagree and am supportive of the provisions and facilities made in the Bill. It is important that there is no lessening of standards, whether a qualification is an overseas one or a UK one. For the time being, I beg leave to withdraw Amendment 14F.
Lord McKenzie of Luton
My Lords, this amendment relates to Schedule 5 again, which relates to the new regulatory framework for auditors of local public bodies. It draws heavily, as we have discussed, on the framework contained in the Companies Act 2006, the provisions of which, as I have said, have our broad support. Schedule 5 applies Part 42 of the 2006 Act to local audits, as it does to statutory audits, but with some exclusions. The purpose of this amendment is to understand the exclusion of Section 1215(2) to (7) of the Companies Act.
Section 1215 takes us back to the subject of independence, and requires a statutory auditor to resign immediately on becoming prohibited from acting because of lack of independence, and this requirement is imposed similarly on local auditors. However the legal sanctions which underpin the failure to comply with this requirement for statutory auditors appear to have been omitted in the case of local audits. Doubtless the Minister will tell me that it is blindingly obvious and covered somewhere else. Could she draw my attention to a specific provision? I beg to move.
Baroness Hanham
My Lords, we may need to explain to Hansard that I was joking. The new audit framework sets out robust arrangements to provide confidence in the independence of the local auditor. This amendment seeks to replicate the criminal offences in Section 1215 of the Companies Act 2006 in the local audit framework, as the noble Lord explained. We have chosen not to replicate these particular criminal offences as we consider that there are other, more suitable mechanisms to do so—in short, the disciplinary powers of the recognised supervisory bodies and the ethical standards raised by the Financial Reporting Council.
The rules and practices that the recognised supervisory bodies will put in place will cover the independence of the auditor. They will also outline the disciplinary sanctions that could be applied if the independence requirements were found to have been breached. This could ultimately include the withdrawal of registration, and other sanctions could include that the firm responsible for the audit would not be able to accept new audits or particular types of audits, that a person may no longer be a responsible individual and that a specific employee may no longer be involved in audit work.
The Government have also been mindful of not introducing any new offences unless there is a compelling case to do so. Even though these offences are in the Companies Act 2006, they would be considered as new offences if applied to the provisions in the Bill.
That is the explanation. I hope that the noble Lord will be happy with it and that he will feel able to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I am certainly going to withdraw the amendment. If I understand the position correctly, there will be a difference of approach between local audit and the Companies Act provisions, where private sector auditors will continue to be subject to this regime. In a sense, they will still be subject to the supervisory requirements for local auditors that the noble Baroness outlined. Is that correct?
Baroness Hanham
My Lords, I think it is correct. As I suggested, the Financial Reporting Council issues ethical standards for auditors, and those cover the integrity, objectivity and independence of auditors, and it applies in the audited financial statement. Therefore, I think that we are covered from that point of view. We have also been working with regulatory partners, including the Financial Reporting Council, to decide how these may need to be applied to auditors of local bodies. Therefore, I think that some discussion is still going on about the matters that the noble Lord has raised.
Lord McKenzie of Luton
I will not dwell on it but I thought that one of the objectives of the current exercise was to align local audit with private sector audit arrangements. This seems to be creating a divergence. However, I am not sure that there is going to be further fruitful discussion on this. I hear what the Minister has said and I beg leave to withdraw the amendment.
Lord Tope
My Lords, I express my appreciation to the noble Lord, Lord McKenzie, for raising this issue, because I know it is one of concern. Indeed, it was one of the concerns, as I think he mentioned, expressed by the Chartered Institute of Public Finance and Accountancy, best known to us all as CIPFA. One of the concerns that it raised in its Second Reading briefing was that the wider scope of public audit has not been fully embedded in the Bill. This is perhaps an example of that. CIPFA makes the point, which those of us familiar with local government will understand very well, that public audit is a good deal wider than private sector audit. I do not think I need to labour the point. We are looking forward to the Minister’s response, which I see she is eager to give us.
Baroness Hanham
Too eager, perhaps. I say at the outset that we are absolutely clear that the auditors must be competent, appropriate and steeped in local government finance. We should start there, with that as the interest common to us all, to make sure that any changes are made in the most appropriate way so that we can be sure of getting the same high standards of auditing that taxpayers expect and to which they have been accustomed.
The Bill sets out a pretty robust regulatory regime. The National Audit Office will have to develop the underpinning code of audit practice and produce supporting guidance that will set out how auditors perform their role. What this means, essentially, is that the boards going for public audit will not change. In addition, the future local audit framework will require all auditors to be suitably qualified and competent to carry out local audits.
The Bill requires auditors to hold an appropriate qualification. This is either a qualification recognised under Part 42 of the Companies Act 2006, for a statutory audit, or another qualification recognised under this Bill. The Secretary of State will be able to make regulations setting out the minimum requirements that other qualifications will need to meet in order to be recognised for the purposes of local audit.
It is clearly crucial that local auditors are, as I have said, suitably qualified, that they attain an appropriate qualification and that that demonstrates that an individual understands, among other things, auditing standards, accounting standards and audit procedures. These standards and skills must be applied to audit assignments regardless of whether they are in the public or private sector.
However, while holding an appropriate audit qualification is necessary, it is not sufficient in itself for those individuals within firms assigned responsibility for signing audit reports of local bodies. What is important for local audit is that auditors have the skill and experience of local audit, which includes understanding the wider scope of public audit. As such, we believe that the amendment is unnecessary as the Bill requires all individuals to have this appropriate level of competence to carry out local audits, regardless of whether they hold a qualification under Part 42 of the Companies Act 2006 or another one recognised under the Bill. This critical requirement regarding competence is set out in paragraph 27 of Schedule 5. The amendment would apply only to the other qualifications recognised under the Bill, and not those recognised under Part 42 of the Companies Act.
It maybe helpful for me to outline briefly how the framework works for the companies sector and then explain how the framework for local audit will ensure that all local auditors understand the wider scope of public audit, thus removing the need for this amendment. Under the Companies Act, it is for the recognised supervisory body to set out the requirements for approving those individuals who will be responsible for signing audit reports for companies. The requirements established by the recognised supervisory bodies are subject to agreement and oversight by the Financial Reporting Council. Once an individual has been approved to sign an audit report of a company, it does not follow that they could sign such a report for any company. That individual would need to be competent to sign the audit report of the specialism of that particular company; they would need to have the relevant skills, experience and knowledge of the relevant subject matter of the company or industry in which they work.
We are replicating this framework for local audit. The recognised supervisory bodies for local audit will have responsibility for approving the individuals nominated by its member firms for signing the audit reports of local bodies. This will also be overseen by the Financial Reporting Council. Under rules that it will agree with the Financial Reporting Council, a recognised supervisory body will approve an individual to take a key responsibility in the audit of a local body only if that individual has an appropriate level of competence to carry out local audits. A firm that cannot demonstrate that a nominated person has recent experience of auditing a local body and understands the wider scope of local audit will not be considered competent and therefore cannot be approved by the recognised supervisory body.
To provide further assurance on this issue, I should also say that there are established standards and professional obligations with which firms must comply regardless of whether they are appointed to a company or a local public body. In particular, the international standard on quality control requires all firms to have policies and procedures that ensure that individuals have the right knowledge and experience to undertake a specific engagement. For local audit, this would mean that a firm could not put forward an individual to be responsible for a local audit if that individual did not understand the wider scope of public audit. If it did so, it would be in breach of its obligations and would risk breaching the terms of its registration with the recognised body.
The noble Lord, Lord Tope, raised the question of CIPFA and the discussions that have taken place. It may be helpful for noble Lords to know that I recently saw and had discussions with CIPFA about this, and it is being closely involved in discussions that are going ahead with the council, so its views are well taken into account. We recognise that it is probably one of the very few bodies with qualifications that continue to exist for auditors who will be required to do this work.
The register will be published when we see the draft regulations, which will be available at the next stage in the Commons. The register will be published in 2016, in time for the local appointment of auditors. We have discussed the question of how many firms will be able to do this, and I remember saying earlier that we hope and anticipate that smaller local firms will be able to get their staff qualified, if they do not have that qualification, so that they can bid for contracts. We expect that the smaller, new contracts will open up the market to smaller firms. We are anticipating that this will not just be the big four or the bigger four and three bidding—which I think got us to seven before—and that there will be increasing competition. We believe that there should be plenty of smaller companies available, once local authorities start to appoint their own auditors.
I hope that has picked up the points on the register and those made by CIPFA. I know that it is involved in what is going on to ensure that these regulations and qualifications are satisfactory.
Lord McKenzie of Luton
I thank the Minister for a very full reply. It is very helpful to have that on the record. I also thank the noble Lord, Lord Tope, for his support for this line of enquiry. I note that the register will not be available until 2016, but it is good that the draft regulations will be available when the Bill goes into the Commons. I think we shall have to see the outcome of that and how many local firms end up in a competitive position in the market. One of the fears is that those firms that are active in the local audit market currently do it through specialist divisions. They have the financial clout to invest in the training in these sorts of arrangements. I think we would have common cause in wanting there to be a number of firms in the market—certainly it should be expanded from the existing base. I am somewhat sceptical about whether that would be achieved. In the mean time, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, Clause 20 covers the general duties of auditors of a health service body and sets down the areas on which the auditor must be satisfied. These include that the body has made proper arrangements for securing economy, efficiency and effectiveness in the use of its resources. Clause 20(4) precludes the auditor’s opinion on the accounts making any reference to this requirement unless he is not satisfied in that matter, so the auditor cannot positively state that he is satisfied that the body has made proper arrangements for securing economy, efficiency and effectiveness in the use of its resources. Obviously, an informed reader of the auditor’s report would be able to interpret what appears to be silence on this, but it seems an odd restriction. Perhaps someone could explain its purpose. I beg to move.
Baroness Hanham
My Lords, either my noble friend Lord Wallace or I will reply to the amendments. In this case it is me.
The amendment would remove the provision for auditors to report on value for money only when they are not satisfied that the authority has made arrangements for securing value for money. This would result in every audit report containing a specific conclusion on value-for-money arrangements.
I hope that it will help the Committee if I start by setting out why the Bill provides for value-for-money conclusions to be included only where the auditor is not satisfied about the arrangements. The provision relates only to the reporting of the results of the audit. The local auditor will still be required to carry out work to confirm that the arrangements for securing that value-for-money arrangements are made. The technical standards for that work will be set out by the National Audit Office in the code of audit practice that it will produce.
The report of the auditor is a detailed and technical document. The Government are of the view that for health bodies—in this clause we are referring only to health bodies—the audit report should contain those matters that are most important to the reader. We consider them to be: the opinion on the true and fair nature of the accounts; for those bodies that are directly funded from resources provided by Parliament—which includes all bodies that are now part of the health service—to confirm that the funds have been used for authorised purposes; and any cases where arrangements to secure value for money are not appropriate. This approach would provide for greater focus and attention where value-for-money arrangements are not in place.
The provision in the Bill also aims to bring consistency for all health bodies. Currently, the audit opinions of health commissioning bodies and NHS trusts contain a specific opinion on value-for-money arrangements. The audits of foundation trusts do not, so we are taking the opportunity to bring all reporting into line and to improve the clarity of auditor reporting in the health service. I stress that the work carried out by the auditors is the same, whatever the reported opinion.
I hope that that provides greater understanding of what we are doing and that the noble Lord will withdraw his amendment. If not, I look forward to what he is going to say.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister, as ever, for her explanation. I remain somewhat bemused about why there could not be positive reporting in this area, although it is not a matter that I intend to pursue. I accept that, whatever the outcome, the nature of the work and the task in hand would be undertaken in any event.
The Minister said that the opportunity had been taken to align foundation trusts and other health bodies’ provisions, presumably, from what she said, in favour of the foundation trust formulation. Is that right?
Baroness Hanham
Yes, my Lords. At present the other parts of the health service are required to have value-for-money audit reports. Foundation trusts do not. The noble Lord is correct that it is being amalgamated under the foundation trust umbrella.
Lord McKenzie of Luton
I am grateful for that further explanation. I am bound to say that it did not give me much greater comfort. Given what has gone on with some foundation trusts—I think we will come on to them later—and how many reports there have been about the nature of their financial circumstances, they do not seem to be a good precedent on which to focus an alignment of practice. Perhaps we will pick up that issue later in our proceedings. In the mean time, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, the pre-legislative scrutiny committee reminds us that in many instances serious cases of financial or governance failure are not identified through the audit itself but are brought to the attention of the appropriate authorities by individual whistleblowers. This matter could hardly be more topical. It is vital that robust protections are available for individuals in all relevant bodies, including health bodies.
So far as whistleblowers are concerned, currently the Audit Commission is a prescribed person under the 1998 public interest disclosure provisions. Its appointed auditors are also prescribed persons. The Public Interest Disclosure Act protects from recriminations employees who make disclosures about a range of subjects. Whistleblowers can claim protection by disclosing their concerns either to an employer or, if they prefer, to another organisation authorised to receive disclosures—a prescribed person. The commission provides a confidential public interest disclosure line for employees of councils and NHS bodies where they are unable or unwilling to report internally. Once employees contact the commission, the commission alerts the relevant auditors.
The Bill makes no mention of whistleblowers, and this is an area that needs to be strengthened. We believe that, while appointed auditors should remain a prescribed person, there should also be another prescribed body which could pass on information to an auditor—for example, in cases where employees are unable to contact the auditor directly or where, as the ad hoc draft Bill committee suggested, they may not be comfortable approaching a private auditing firm that has a commercial relationship with the local body or council.
The draft Bill committee recommended that the Comptroller and Auditor-General should take on this role in the future, and that is what the amendment provides for. We may be at one with the Government on this issue and the NAO can provide a hotline for whistleblowers. If the Government are to provide this by order, what requirements will be placed on the NAO as to what it does with the information provided? The Audit Commission would currently, as I said, forward any disclosures to the relevant auditor. I beg to move.
Baroness Hanham
My Lords, I shall respond briefly, but I can also pick up some extra points that the noble Lord raised.
The Government, in response to the committee that undertook the scrutiny of the draft local audit Bill, have already indicated their intention to make the Comptroller and Auditor-General a prescribed person under the Public Interest Disclosure (Prescribed Persons) Order 1999. It is not necessary to include this in the Bill, as we intend to do it by making an amendment to the order following the closure of the Audit Commission.
On the powers of the NAO, at present it is the auditor that considers a disclosure in the context of the existing statutory powers and duties—for example, in relation to considering whether to make a public interest report on the matter. We do not think that it is necessary or appropriate to duplicate this by giving additional powers to the Comptroller and Auditor-General. This mirrors the current arrangements.
The noble Lord also asked why the Bill did not say anything about whistleblowing. We do not believe that it is necessary for the Bill to include provisions around that matter, because that is covered in other legislation. The Audit Commission and its auditors are included as prescribed persons in the Public Interest Disclosure (Prescribed Persons) Order 1999. Amendments will be made to that order to designate local auditors and the Comptroller and Auditor-General as prescribed people—that is, the people to whom whistleblowers can go. The Comptroller and Auditor-General will not necessarily have a duty to investigate those concerns as a disclosure in the context of the existing statutory powers and duties—for example, in considering whether to make a public interest report on the matter. We do not think that it is necessary or appropriate to duplicate this by giving extra powers to the Comptroller and Auditor-General, as I said.
I hope that it is clear that we are not in any way trying to reduce the role of whistleblowers or to put them under any sense of restriction from acting in such a way. There will be a very clear route concerning to whom whistleblowers can go, and they will be protected, as they are at the moment, from any retribution if they do that. I hope that that gives the noble Lord a satisfactory explanation.
Lord McKenzie of Luton
My Lords, again, I thank the Minister. I accept entirely that there is no attempt to dumb down the role of whistleblowers and that that will be fully supported. What is it that the Comptroller and Auditor-General is expected to do with information provided to it as a prescribed person which does not go to the local auditor?
Baroness Hanham
My Lords, exactly as happens at the moment, the Audit Commission directs whistleblowers to the relevant auditor, who is the person in power to take appropriate action. Whistleblowers will continue to be able to go directly to the auditor, as I said, and we extend that to the Comptroller and Auditor-General, who will refer it back again to the local auditor to take up.
Lord McKenzie of Luton
I am grateful for that and beg leave to withdraw the amendment.
Baroness Hanham
My Lords, the Bill retains the auditor’s duty to consider whether there are any issues on which he or she should make a public interest report, and auditors will use their professional judgment to decide whether to do so, as they do now. The auditor must inform the auditor panel before issuing a public interest report.
These two amendments would change the auditors’ consideration of whether to issue a public interest report. Amendment 17B would require the auditor to inform the independent auditor panel at the same time as, rather than before, issuing a public interest report. Amendment 17C would place a duty on the National Audit Office to provide advice and support to the auditor, if asked, before and during the issue of a public interest report. The noble Lord made that very clear in his opening remarks.
I understand the intent behind these amendments but do not consider them to be necessary. First, regarding the requirement on the auditor to inform the auditor panel, I should explain that we have refined this requirement in the light of the pre-legislative scrutiny committee’s recommendations. The draft Bill required the auditor to consult the auditor panel before making a public interest report, but the Bill now requires the auditor only to inform the panel before issuing a public interest report.
As we have discussed, an auditor panel has a key role in overseeing the independence of the relationship between the auditor and the relevant authority. We believe that this requirement on the auditor to inform the panel supports the panel’s role in overseeing the independent relationship between the auditor and the audited body. We would not expect the panel to try to influence the auditor in the discharge of his or her functions or on whether to issue the report. In practice, auditors will often need or wish to discuss issues with persons within the relevant authority when investigating the matters under consideration to ensure a full understanding of the situation and to gather the evidence. I therefore do not believe that it is necessary or particularly desirable to make this change.
Secondly, on the role of the National Audit Office, the Bill already places a duty on the Comptroller and Auditor-General to produce and maintain the code of audit practice and provides a power to issue guidance in support of the code. These will support auditors to undertake their full range of functions under the Bill, including the issue of public interest reports. We do not believe that placing a duty on the National Audit Office to provide guidance is the right approach. Auditors are accountable for their actions and will exercise their professional judgment when deciding how to undertake their functions. Individual auditors will base decisions on their professional judgment, supported by their firms. This is how it operates now. The Audit Commission issues guidance but does not seek to influence the auditor’s judgment. I think it would be fair to say that the Comptroller and Auditor-General would stand behind the auditor. The guidance will be there, and I am certain that under it if the auditor wished to seek further clarification, it would be perfectly possible under this legislation for them to do so from the National Audit Office or the Comptroller and Auditor-General.
Auditors will still have a statutory duty to consider whether they need to make a public interest report. That will occur at the time of informing the panel or subsequently, and they do not need to do anything more than inform it and tell it they are going to do it, although they may discuss it if necessary. Their professional judgment will decide whether a public interest report is necessary. Nothing will change in that respect, and the Bill provides for auditors to recover reasonable costs.
Finally, the noble Lord raised foundation trusts, which appoint their own auditors but have a regulator. Monitor said to the draft Bill scrutiny committee that there is a rigorous monitoring system which detects problems early and tiered support and intervention from Monitor to help resolve problems before they escalate, so the system is different. Also, auditors have qualified accounts of foundation trusts which demonstrate that they are not reluctant to give bad news or to raise issues as necessary.
I hope that the noble Lord will be satisfied with those responses and will feel able to withdraw his amendment.
Lord McKenzie of Luton
I thank the Minister for her reply. The point that I was trying to make was that, since foundation trusts have appointed their own auditors, the lack of public interest reporting has been equated with concerns about how independent auditors are and whether they feel that they have the strength and support to issue those reports. I take the point that some of them may well have had their accounts qualified, although I do not know on what grounds. I think that it may help to put the issue in context if we could have a note on how many foundation trusts have had their accounts qualified and in what respect.
I accept entirely that the Bill as it stands is a considerable improvement on where the draft Bill was on these issues. In a sense, the amendments that I was seeking to press are relatively minor, although I suggest that they are important. The noble Baroness made reference to the importance of the auditor panel being informed before the report is issued. I am a bit unclear as to what it is then expected that the auditor panel will do. I think that in a lot of instances there will, as the Minister said, be engagement along the way before we get to the final document. However, the difference between it being done when the report is issued and before that suggests that there is a perceived role for the auditor panel before the document is finally issued. It is another hurdle, and that is what I was seeking to avoid with this amendment.
I well understand the point about the NAO and the code of practice, and that that will be the route. However, from what has been said, whether it will replicate the sort of sounding board that the Audit Commission has and currently exercises for auditors who are contemplating developing thoughts around public interest reporting, I am not sure. I do not think that I got the sense from the Minister’s reply that that more proactive engagement was expected. If it were not, that would be a loss, but perhaps the Minister will follow up on that.
Baroness Hanham
My Lords, I am sorry if I did not make it clear that the NAO, while issuing the guidance, will also be behind the auditor, who will be able to discuss issues with it and receive support. The Audit Commission will, as in the past, provide the backbone to the auditor and clarify how to go ahead. That will not change, and I think that there will be strength in that.
We have not really covered this but the noble Lord’s amendment would effectively mean that the auditor about to issue a public interest report would not have discussed it with anybody outside. He would have to issue the report to the panel and the council at the same time. The ability to go to the auditor panel and say, “This is what we are about to do, this is what we think is wrong.”, would, first, probably just give the auditor panel responsible an opportunity to know that something was coming up which it would need to be aware of. Secondly, it would possibly give the auditor the ability to discuss a particular issue with someone independent of the council. I do not think that that would in any way be a retrograde step; it would give strength to the auditor.
Lord McKenzie of Luton
I thought that I said when moving the amendment that I recognised that in many instances there would be engagement with the auditor panel or the audit committee, or whatever the final formulation might be, but that I was keen to ensure that there was not another loop in the process at the point that the auditor concluded what he or she needed to do. There might be no engagement at all. It might be an issue that affects the relationship between the auditor panel and the authority involved. It was a case of not wanting to put in an additional loop right at the end of the process without in any way restricting or precluding the opportunity of engagement along the way, which I imagine would be the norm.
There was one other point. If the Minister covered the issue of indemnities, I was at fault and missed it. I should be interested in the Government’s view on that issue.
Baroness Hanham
The noble Lord is right that the new framework does not replicate the Audit Commission’s indemnity scheme, which funds legal expenses faced by auditors as a result of their exercising their functions. We believe that it is appropriate for private audit companies to bear the risks and costs for any consequences resulting from the exercise of their functions, covering by definition anybody who is employed by them. Furthermore, we do not believe that this will unduly deter auditors from exercising their functions. The Audit Commission’s indemnity has very rarely been called upon.
Lord McKenzie of Luton
I understand that; we have been through that before. I can see that it would not be the norm, but if there is no ability to give indemnity on some basis, what if we have a repeat of risks of the Westminster council sort, and 14 years of litigation? I accept that we are in a different era, but on technically complex issues, will that not discourage auditors from issuing that report?
Lord Beecham
If I might add to my noble Friend’s question, will that not deter smaller firms from engaging in the tendering process?
Baroness Hanham
My Lords, I am not sure that the Westminster case is very helpful now. We are a very long way down the line. As others will know, it was not a straightforward case by any stretch of the imagination. The legal action was taken to recover the surcharge, so it was not only to do with the report, but with trying to surcharge the councillors.
If the company concerned appoints an auditor, it has to stand behind them as well. That would be the expectation of indemnity in this case. I am sure it will not be unique to a company to have to do that. With regard to small auditors, the situation would remain the same. They would presumably cover themselves for the risks.
I hope the explanation is sufficient. If not, and the noble Lord has other points that I have missed, perhaps we can pick them up by correspondence.
Lord McKenzie of Luton
I am grateful for those further points. I do not think we are a million miles apart on this; our differences are perhaps fairly narrow. I shall reflect on our discussion. In the mean time, I beg leave to withdraw Amendment 17B.
Lord McKenzie of Luton
My Lords, Clause 26 draws on Section 16 of the Audit Commission Act. This allows a local government elector for an area to make objections in respect of matters where the auditor could make a public interest report, or where the auditor could seek a declaration that an item of account is unlawful. Where objections are received, the auditor must decide whether to take action under these powers.
The purpose of the amendment is to open up some debate around the circumstances where the auditor does not need to consider an objection, circumstances which do not appear to be spelled out in the Audit Commission Act. The amendment introduces a slightly higher threshold for the auditor not to consider an objection, by adding that the auditor must have reasonable grounds for considering that exemptions apply. The Minister may say that this is implied by the current wording. We have no problem with the auditor being able to ignore frivolous or vexatious objections, or indeed an objection that has already been considered. The reason of disproportionate cost is somewhat more problematic and requires potentially more refined judgment—especially when it may involve governance issues rather than considerable sums of public money. Of course, there is a get-out clause in that these provisions cannot be used to avoid the action of an auditor who has serious concerns as to how an authority is managed. Is it envisaged that there would be guidance on this matter—part of the audit code, perhaps? Would the Minister expand on the Government’s views of the parameters of this particular provision?
Baroness Hanham
My Lords, the Bill retains the rights of local government electors to question the auditor, as the noble Lord, Lord McKenzie, has said. They can raise objections, if they think that there are matters that the auditor should report on in the public interest, or items that they think constitute unlawful expenditure. The auditor can decide not to investigate an objection—and noble Lords have mentioned the frivolous or unconstitutional—if he or she thinks that it meets certain criteria.
Amendment 17D replaces the basis for an auditor not to consider an objection from “thinks that” to “reasonable grounds for considering”. This means that an auditor would be required to meet a reasonableness test before being able to decide not to investigate an objection. Following consultation, the Government decided to modify the objection process. The Bill, therefore, gives an auditor the discretion not to consider an objection in certain circumstances—where the auditor thinks that the objection is frivolous or vexatious, or it repeats an objection previously considered. The auditor has further discretion to not consider an objection if the financial value is disproportionately small when compared to the cost of the auditor’s time in investigating the issue, as long as the auditor does not think that the objection might raise concerns about serious failures of leadership or management within the organisation.
These specific exclusions are new and we think that providing the auditor with discretion not to consider objections as outlined can help to avoid circumstances where an authority—and therefore the taxpayer—incurs significant additional costs for auditors’ time in investigating an objection which is vexatious, or for the other reasons I have mentioned. Auditors will continue to use their professional judgment in exercising this discretion, as they do now for all their functions. We believe that this amendment would add an additional burden and cost in that an auditor would need to meet a reasonableness test before deciding not to investigate an objection. The auditor’s independence and professional exercise of duties is sufficient to ensure that this will be undertaken properly.
I hope that the noble Lord will accept the explanation and withdraw his amendment.
Lord McKenzie of Luton
My Lords, I will not pursue the issue. I was with the noble Baroness until the end, when the comments about a reasonableness test being an extra burden were outlined. If it is envisaged that undertaking a reasonableness test is a significant event, then that is all the more reason to have it because, presumably, it is a meaningful process. I beg leave to withdraw.
Lord McKenzie of Luton
My Lords, this amendment concerns the declaration that an item of account is unlawful. It draws on Section 17 of the Audit Commission Act 1998, which contains similar provisions, although this Bill does not give the Secretary of State power to sanction an item of account which is contrary to law—unless it is tucked away somewhere else in the Bill, in which case perhaps the Minister would let us know. However, the Audit Commission Act does give power to the court to order a person responsible for incurring or authorising unlawful expenditure to repay it in whole or in part to the body affected. It can order that the person is disqualified from serving as a member of a local authority for a specified period. These powers seem to be missing from Clause 27, and the amendment simply seeks to rectify the omission by using the wording from Section 17. The Minister will doubtless say that it is blindingly obvious that these powers are covered elsewhere. If they are, it would be helpful to know where—and, if not, why the exclusion?
Baroness Hanham
My Lords, there is a sort of déjà vu about this amendment. The power of surcharge, as the noble Lord said, enables auditors to recover money from individuals whose actions caused losses to their councils, and was taken out in 2000. It was first introduced in the 19th century, and it is felt to be quite unnecessary in modern local government. In its 1997 report on standards in public life, the Nolan committee concluded that surcharge was an “archaic penalty”; what was archaic in 1997 is surely even more so today. Moreover, surcharge was unfair because of the technical difficulties in calculating the relevant sums, which could be well beyond the means of the individuals involved and bore no relation to people’s ability to pay. This could result in damage to families as property and assets were disposed of to pay the surcharge.
I note that this amendment offers no protection to those who act in the belief that the expenditure that they were authorising was lawful, meaning that, as it stands, the amendment might result in councillors or officials having to make a substantial payment as a result of a decision that they make in good faith. Following the abolition of surcharge, the Standards Board regime was introduced to prevent personal misconduct by councillors in office. Unfortunately, the Standards Board regime became a vehicle for petty and malicious complaints so, in 2012, we abolished it and put in place new arrangements for the conduct of councillors. These new arrangements include tough new rules to prevent genuine, wilful corruption, with councillors having to be transparent about their pecuniary interests. The auditor can himself, or after a concern has been expressed, raise the issue of a public interest report, as we have just discussed. We have backed up these rules with a criminal penalty for the wilful disregard of pecuniary interests, giving the courts the power to impose a fine of up to £5,000 and to disqualify a guilty councillor from office.
Surcharge is archaic but, what is more, it is unnecessary. I hope, with my reassurance and a reminder of things as they stand, the noble Lord will withdraw his amendment.
Lord McKenzie of Luton
My Lords, I think that I had better move swiftly on. I am grateful for that explanation and a bit of a history lesson, and I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, in moving the amendment, I shall speak also to Amendment 17FA. I have now noticed that the point that it seeks to cover is, I think, dealt with in Clause 7(7). Clause 27 is concerned with advisory notices and who can issue them. Under Clause 7(7) it seems clear that, in the case of joint appointments, it can be done jointly or by either one of the joint auditors, which was the point that I sought to cover. The same point comes up with regard to who can make an application for judicial review, although I notice that, in Clause 30, the reference is to the Senior Courts Act 1981. The Audit Commission Act, unless it has been amended since, makes reference to the Supreme Court Act 1981. I ask for confirmation on those points and beg to move.
Baroness Hanham
My Lords, the noble Lord is correct that Clause 7 dealt with this. However, I think he has a winner coming, because the amendment has raised concerns about its exact correctness. We will ask parliamentary counsel to have a look at this before the next stage. We will probably, or may, return to it and I will advise the noble Lord, in which case, which way. It clearly needs a tweak. I hope the noble Lord will be happy that he has moved us in one direction and will be willing to withdraw the amendment, although, as I say, I think we will be looking at it again at the next stage.
Lord McKenzie of Luton
I am grateful to the Minister. I knew there was some reason why I moved this amendment. Can the Minister deal with the point about the reference to the Senior Courts Act and the Supreme Court Act? What is the difference there? Something has happened along the way, I guess, to make each of those separate expressions meaningful in its context. It may be that the Ministers would wish to write on that, unless there is a meaningful note from the Box
Baroness Hanham
My Lords, I will certainly write, but I also think we will check. That seems to be the first thing to do. The noble Lord has raised yet another interesting point on this amendment and, if I may, we will come back on both those aspects.
Lord McKenzie of Luton
My Lords, this is a probing amendment concerning advisory notices. It would appear that this regime has replaced the prohibition order regime contained in the Audit Commission Act 1998, but with some key differences. Advisory notices can be served if an auditor considers an authority is about to make a decision that would be unlawful or lead to unlawful expenditure. Under the advisory notice regime, the decision or course of action would be unlawful unless the authority, having reflected, considers it appropriate to proceed. This would appear to contrast with the prohibition order procedure, whereby, unless the order revokes it, the action or decision remains unlawful subject to an appeal to the High Court. Is that correct? Presumably, the risk of proceeding when faced with an advisory notice is that the order would seek a determination from the court that the expenditure involved is unlawful, so the onus has been switched from the local authority to the auditor. Can the Government explain this changed approach?
Our specific amendment was to delete the protection given to auditors from any loss of damage alleged to have been caused by the issuing of the advisory notice, which was issued in good faith. This mirrors the protection given in respect of prohibition notices and raises the question of who is to suffer the loss if there is one. Obviously, this is not without its importance given the difficult financial times that local government is in.
Can the Minister also take the opportunity to spell out for us the difference of treatment of health service bodies where the duty of the auditor is just to refer equivalent circumstances to the Secretary of State and the National Health Service Commissioning Board? What follows from this? I beg to move.
Baroness Hanham
My Lords, my note is rather short; it is getting briefer by the minute. The Government think it is important to retain this exemption in order to support the auditor’s ability to undertake the important function according to their professional judgment without fear of facing a damages claim, which, even were it not upheld, would be costly and time-consuming to defend.
Auditors generally report on things that have happened, their opinions on the accounts and the issue of public interest reports, and apply to the court for a declaration that there has been unlawful expenditure. The power to issue an advisory notice is forward-looking, seeking to prevent the authority taking some action that could be unlawful. It is possible, therefore, that auditors will have to act quickly and action may be based on partial evidence. The limitation of liability is to give the auditor some protection to enable them to use their professional judgment. We think it would be right to continue the protection.
With regard to the noble Lord’s questions, the Audit Commission Act includes advisory notices. No major changes have been made to the power to issue an advisory notice. It is still there. This mirrors existing provisions under which the auditor can issue an advisory notice if he thinks that the authority or an officer has undertaken or is about to undertake an unlawful action: a decision on carrying unlawful expenditure, unlawful action or entering an unlawful item of account. There are detailed requirements about the contents of the advisory notice and how it should be served. Within seven days of issuing an advisory notice—this may be something that requires quick action—the local authority is going to have to serve a statement of its reasons for putting forward the advisory notice.
The noble Lord asked me about the difference from the health service. I think I may be able to answer that question—it would seem that I will be writing to the noble Lord to clarify this point on health service bodies, except that I can tell that him that the clause contains the current requirement for local authorities. An equivalent requirement for health bodies has not existed previously and is not required because the governance arrangements for health bodies are different. Health bodies are consolidated into the accounts of the Department of Health and are covered by the requirements of Managing Public Money issued by Her Majesty’s Treasury. As such, they are accountable to Parliament for their expenditure, not to local people. The difference between the two is in the process. Under those circumstances, I may not need to say that I will write to the noble Lord on health service bodies. He will tell me whether he thinks I have answered his question and the others. I hope that I have given him a satisfactory explanation.
Lord McKenzie of Luton
Indeed, the Minister has given me satisfactory explanations. It appears that my copy of the Audit Commission Act is not quite up to date because it certainly has references to prohibition orders. I imagine that, somewhere along the way, that was adjusted to advisory notices.
Baroness Hanham
My Lords, we will check the matter the noble Lord has raised. I will write to him about that. He will tell me whether he is happy about the health services bodies, in which case, I will not need to write to him.
Lord McKenzie of Luton
I can exempt the Minister from writing on health service bodies. I am happy with the explanation and to receive a note on the broader drafting point. I beg leave to withdraw the amendment.
Local Audit and Accountability Bill [HL]
Baroness Hanham Excerpts(11 years, 5 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Palmer of Childs Hill
My Lords, I will speak to these amendments, although sitting next to me is my noble friend Lord Tope, in whose name Amendment 14ZA stands. I hope the noble Lord, Lord McKenzie, will confirm that we have already dealt with the collaborative basis and the fact of buying centrally. Even I was a late adherent to this, but I think we agree that in one form or another that is the way to go forward, however it can be arranged, although there were numerous alternatives. As the noble Earl, Lord Lytton, has said, there are going to be significant savings, which is something that we cannot ignore.
I have one question about a sentence in Amendment 14ZA on the appointment of a new auditor, or the re-appointment of an existing auditor, to,
“audit its accounts for a financial year not later than 31 December in the preceding financial year”.
Both the Bill and the amendment say that that appointment should be made not later than 31 December in the preceding year. I cannot work this out in practical terms. Let us say that KPMG is the auditor of a local authority or group of local authorities; it has not finished its accounts and the accounts will not be signed off until, at the earliest, the end of January the following year. That company could be under notice, according to the amendments, that it may not be, or could not be, the auditor for the ensuing year. While KMPG is finishing off its audit—the accounts will not have been finished and signed off by the relevant person in the local authority, who in my local authority is me, so I am told; I have done it three years in a row—a new auditor, PricewaterhouseCoopers, perhaps, will have been appointed.
I worry about how that will affect the mindset of the auditor who is being replaced. Enshrining within the Bill that the auditor has to be appointed by 31 December within that year will cause moral, and sometimes practical, difficulties. Perhaps the Minister will take this issue back and consider whether the wording should be “could be appointed by 31 December” or “as soon as possible by that date”. I worry how the changeover, if there be a changeover, will affect the performance of the outgoing auditor.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, I thank both noble Lords for these amendments, which take up the points that we made on Monday about the possibility of a centralised audit process for both larger and smaller authorities. As I understand it, the larger authorities will be run, more or less, by the LGA and the smaller authorities by the NALC. I made it quite clear that we were content to have discussions with the LGA and the NALC, to whom we are talking already, on the strict understanding that there could not be, in either case, mandatory schemes. The amendments brought forward today by the noble Lord, Lord McKenzie, and the noble Earl, Lord Lytton, are flexible enough to take account of that. As I said on Monday, we are willing to continue the discussions that are already taking place. I am sure that we can come back to this issue at a later stage if anyone feels that they are not going in the right direction.
Amendment 14BZA would specifically exclude bodies that opted into such an arrangement from the need to have an auditor panel. We agree with that. If there is a centralised system it is plainly not sensible for those who are being helped by it to have their own audit panel. However, it is essential that if they are appointing their own auditor, independently or in conjunction perhaps, with another authority, they have to have an audit panel. We have discussed the make-up of an audit panel and its independent membership, and they would be required to do that.
The noble Lord, Lord Palmer, raised the question of the date of appointment of auditors. The reason behind the auditor needing to be appointed by 31 December is to ensure that if for some reason the local authority fails to make an appointment, there is time for the Secretary of State in particular to take action under Clause 12, which allows him either to direct a body to appoint or make an appointment on behalf of the authority. We will discuss this later, but it will certainly apply to health authorities, and I understand that the situation is similar in local authorities. I hear very clearly what the noble Lord says about the auditors possibly lacking the enthusiasm to carry on if they are about to be replaced, but I think the audit bodies are pretty professional, and they would need to continue.
We will discuss the appointment of auditors when we reach the amendments that are a couple of groups further on, but I think those are the main points that have been raised. As I said, I hope that we shall be able to return to this matter at the next stage with some further ideas on how the centralised but not mandatory system might work.
I hope that with those explanations, and if I have covered the points that were made, the noble Lord will withdraw his amendment.
Lord Beecham
Perhaps I might respond before the Minister replies, since we are in Committee. My preference would be for exclusion but as a fallback, at the very least, to have a proper tendering process, as I have explained.
Baroness Hanham
My Lords, I thank the noble Lord, Lord Beecham, for raising this interesting point, but I am bound to say that I have the same scepticism about this as the noble Baroness, Lady Eaton, and my noble friend Lord Tope. It is scepticism about whether it is necessary.
The Bill currently requires local authorities or local bodies to make a new appointment every five years, as the noble Lord said. In most cases, this will require them to go through a full EU tendering process. We expect that most authorities would have that as a requirement, if not in their code of procedure then in their code of conduct. They will also have to go through the process with the independent auditor panel, which will have to manage the tendering process so that it is both independent and transparent. The independent auditor panel will also look regularly at the quality of the audit from the auditors currently doing the job. If they are not doing the job, it will not recommend that they are allowed to proceed. The Financial Reporting Council has ethical standards as well, and will require that key audit staff are rotated on a regular basis. The Government believe that the requirements for a maximum five-year term and the rotation of key staff provide sufficient assurances, along with the other measures on auditor appointment and removal, to safeguard auditor independence and the local bodies’ independence of view in taking on their auditors.
I know that there have been wider discussions about, for example, a recent Competition Commission report on the need for mandatory auditor rotation. However, we understand that the evidence that mandatory rotation supports improved auditor independence and auditor quality is inconclusive. Bearing in mind what my noble friend Lord Tope and the noble Baroness, Lady Eaton, said, sometimes there is benefit in the continuation of an auditor, not on a cosy basis but because of the mere fact that, particularly with bigger authorities, you have somebody who understands the processes and what has been happening during the past five years. In any event, I think it would be wrong to exclude them from being able to tender, to bring down the barricade and say, “No, you can’t do that”.
There is sufficient professional involvement to ensure that auditors are not reappointed where they are unsuitable, where they have not done the job properly or where the local body thinks that they could do with a change of auditor and makes that clear. I do not think we need to make it mandatory that they cannot go beyond five years; that would be too draconian. I am satisfied that we have the processes in place to ensure that a full appointments system takes place every five years. If the current auditors were seen to be the most successful, they should be able to be reappointed.
I hope that that explanation will satisfy the noble Lord, Lord Beecham, and that he will be able to withdraw the amendment.
Lord Beecham
My Lords, as the noble Baroness knows, I am not easily satisfied, and I am not completely satisfied by her reply, although I am grateful. In particular, there is still an issue about market share and the domination by large firms, which I fear will not be addressed by allowing the system outlined in the Bill. However, having heard the debate, of course I beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, this amendment touches on something that my noble friend began to address in an earlier debate. It addresses paragraph 3 of Schedule 4, and the making of regulations about a health service bodies auditor panel. These regulations would enable the Secretary of State to determine whether any of the members of the health service bodies auditor panel must be independent and, if so, what proportion must be independent, as well as the definition of independent.
A health service body means a clinical commissioning group and special trustees for a hospital. These powers are subject to the negative procedure. The amendment would require there to be consultation with representatives of health service bodies before regulations are produced. This seems to be a significant paragraph to be dealt with by the negative procedure, particularly given the prescriptive nature of the constitution of auditor panels for other relevant authorities.
The Explanatory Note to the Bill, to which I referred earlier, states:
“The intention is that these panels will be the existing audit committees of health service bodies which will meet the independence requirements of best practice for central government audit committees”.
I took the opportunity to raise this in advance with the Bill team, and I had a helpful reply, which I have not had a chance to get my mind fully around yet. Perhaps the Minister might take the opportunity to put something on the record. If I understand the position, it is accepted that the audit committees of health service bodies, as currently constituted, which they are required to have under legislation, will serve as the auditor panels. In a sense, we have achieved for health service bodies what we have been seeking to achieve for local authorities. Therefore, it should not be too great a step to complete the journey. I should be grateful if the Minister would put something on the record generally about why there is this differentiation between health service bodies and local authorities. I beg to move.
Baroness Hanham
My Lords, the direct answer to the noble Lord is that there are different arrangements in the various bits of legislation. As he has said, the clinical commissioning groups have governance arrangements that say that their audit committees can carry out this duty. That is how it has been set up in the health service. The composition of the clinical commissioning groups and local authorities’ arrangements are different. I want to make it clear that where local authorities have audit committees with independent members on them, it is possible for them to appoint the panel from the audit committee as long as they use the independent members. The arrangements are not and do not have to be totally different from those available as regards the health service.
I have pages of response to a question that the noble Lord has not asked. Is he reasonably happy that I have addressed the amendment? If not, I will give him the reams of pages that I have in response.
Lord McKenzie of Luton
Will the noble Baroness remind me of the question which I have not asked?
Baroness Hanham
I am tempted but I will not rise to that. If the noble Lord does not know what question he has not asked, I am not about to tell him what he might have asked.
Lord McKenzie of Luton
I shall ponder that response but I think that I would hang on to the basic point. It seems to me that the regulations that will flow from this provision will be, as has been said, a creation of the audit committees as the auditor panels. There will be only one body for health service bodies, which, in a sense, is the clarification that I was seeking as to what would flow from the broad powers set out in that paragraph. Obviously, there is a broader issue to which we will return about why that cannot be replicated for local authorities.
I am struggling to remember the question that I should have asked. Perhaps in the interim, I should beg leave to withdraw the amendment.
Lord McKenzie of Luton
My Lords, I shall speak also to the other amendments in this group. The amendment would remove the requirement on the auditor panel to advise on the maintenance of an independent relationship with the local auditor. Indeed, it makes it discretionary. When I prepared for this debate, I could not for the life of me immediately recall why we tabled it. Obviously, the circumstances where a relevant authority ends up with an auditor panel and an audit committee, as we have discussed, would give rise to overlap and confusion, and possibly conflicting advice.
However, on reflection, we tabled it as a probe to establish a definition of “an independent relationship”. The Bill defines who is independent in establishing eligibility to serve on an audit panel and/or committee, but this definition does not appear to help in defining the parameters of an independent relationship between the relevant authority and its auditor. Is it proposed that guidance will be available, or is it expected that audit panels or audit committees will work that out for themselves? This issue is of particular relevance to the provision of other services by audit firms and how this is to be managed.
Amendment 14BJ would make a minor wording adjustment to advice related to liability limitation agreements. By referring to proposals for an authority to enter into such an agreement, it implies not that the proposal must have originated from the relevant authority but that it is more likely to have come from the audit firm.
Amendment 14BK would remove subsection (7), which seems superfluous. If subsection (6) requires the panel to advise on proposals for liability limitation agreements, why must there be the extra stricture for it to respond to requests for advice? It is not clear to me. I beg to move.
Baroness Hanham
My Lords, perhaps I may first deal with the description of “independent” which, I understand, will be a matter of consultation. There will be consultation on what “independent” means in health bodies and how it should be defined. We all need to be clear about what “independent” means, a point raised by the noble Lord, Lord Palmer, and others. This is in relation to health bodies, not local government bodies, but that consultation will be carried out. I hope that that is helpful.
On the main question about the auditor panel’s duty to advise on a proposal for an audit authority to enter into a liability limitation agreement, Amendment 14BJ would require that the panel should advise where there is a proposal for the authority to enter into such an agreement, rather than a proposal by the authority to do so. Amendment 14BK would remove the requirement that a panel must give advice on such a proposal if the authority asks for it. Amendment 14BE would require that an auditor panel “may” advise on auditor independence whereas the Bill currently states that a panel “must” advise on it.
The intention behind the amendments, to remind the noble Lord, relates to separate amendments that we had proposed to allow for a central body to appoint auditors on behalf of any relevant authority which had opted in to this structure. Where such arrangements applied, it would not be necessary for—I am sorry, something seems to have gone seriously wrong with my notes.
I will reply on the basis of the independent relationship but I am afraid that I am going to have to ask the noble Lord to come back on Report on this so that can I fulfil his right to a proper reply.
As to advising on the maintenance of the independent relationship, it is important that the panel maintains an ongoing oversight of the auditor’s relationship with the relevant local body. As in the company sector, this might include, for example, an annual assessment of the independence and objectivity of the auditor and setting policies for the provision of non-audit services.
The noble Lord asked about limited liability agreements. I ask him to raise the issue again. I shall certainly write to give him an answer. I apologise.
Lord McKenzie of Luton
I would simply urge the Minister to give some encouragement to the noble Lord, Lord True, who has raised a very important point, as he did at earlier stages in our deliberations. I hope that the Minister can help him at least a bit.
Baroness Hanham
My Lords, I thank my noble friend for having introduced this amendment because it opens up the relationship that exists between local authorities and health authorities, particularly in relation to what is required of scrutiny. As my noble friend has said, the primary care trusts and the clinical commissioning groups have now come into being, while the local authorities still have a health scrutiny role since that changeover. If I may, I will refer to the duties in the health scrutiny regulations as I go through what I have got to say.
Failure to comply with a duty under the health regulations will place the relevant body in breach of its statutory duty and render it at risk of a legal challenge. The regulations provide that the local authority can require attendance of a member or employee of a relevant health service provider or commissioner to answer such questions as appear to the authority to be necessary for discharging its health scrutiny functions. It is the duty of that member or employee to comply. The regulations also require a health service commissioner or provider to provide a local authority with such information about the planning, provision and operation of health services in the area of the authority as the authority reasonably requires in order to discharge its health scrutiny functions. To focus particularly on attendance, if a local authority was to require the attendance of members of a clinical commissioning group, it could do so under the health scrutiny regulations.
On employers’ actions, we would expect employers to take the appropriate steps to ensure that the relevant member or employee complied with the local authority’s requirements. It would be highly unlikely that an NHS body, as a public authority, would refuse to take action to ensure that its members or employees complied with a request from a local authority. I think that these provisions are part and parcel of the health service legislation which recently passed through Parliament. The emphasis put on this since the noble Lord’s problem arose may have changed.
Any refusal would not be in line with the duty of co-operation that applies as between the National Health Service and local authorities. Section 82 of the National Health Service Act 2006 imposes a duty of co-operation between National Health Service bodies and local authorities and requires them, in exercising their respective functions, to co-operate with one another in order to secure and advance the health and welfare of the people of England and Wales.
As regards the attendance of particular individuals, identification of the appropriate member or employee to attend may depend on the type of scrutiny review being undertaken and its aims. To take a theoretical case, where the local authority has required attendance of a particular individual—let us say the accountable officer of a clinical commissioning group—and it is not practical for that individual to attend, or if that individual is not the most suitable person to attend, we would expect the clinical commissioning group to suggest another relevant individual. In such situations, both the local authority and the commissioning group or provider, as the case may be, will be expected to co-operate with each other to agree on a suitable person for attendance and, in doing so, to act reasonably.
Therefore, in the interpretation of the health scrutiny regulations and on the basis of the duty of co-operation contained in the National Health Service Act 2006, there are existing principles that guide how the National Health Service and local authorities conduct themselves in relation to the discharge of the local authority’s health scrutiny function.
We share my noble friend’s desire to ensure that everything works as it should in the future and, although we feel that the duties and powers already in place are correct, we believe that we can take further action to ensure that the responsibilities on NHS organisations and local authorities are clear. We shall shortly be publishing updated guidance to support the health scrutiny regulations and to emphasise these responsibilities. If my noble friend would find it helpful, I know that the Department of Health would be happy to work with him on the development of this guidance.
I appreciate that this was very much an individual case to which my noble friend brought our attention, but it flows widely across the health scrutiny role. I hope that I have reassured my noble friend that there are requirements on people to come, that the health authority can require them to come and that they are truly expected to appear. I know that that was not the situation that he described but the regulations are there. If my noble friend is willing to give his experience and help to the Department of Health, I know that it will be very willing to take it up. With that, I hope that he may feel that he has enough to enable him to withdraw the amendment.
Baroness Hanham
My Lords, this goes back to what we were discussing when we were talking about local authorities. If the clinical commissioning group has not appointed an auditor by December and has no reasonable expectation of employing one by the end of March, the Commissioning Board will have to notify the Secretary of State and he, NHS England or the commissioning group will have to ensure that an auditor is appointed. There is no question that the clinical commissioning group should not have an auditor in place at the beginning of the financial year.
Lord Palmer of Childs Hill
Perhaps I may ask the Minister for clarification. The Bill states:
“by the end of 25 March in the financial year preceding the financial year to which the accounts to be audited relate”.
So, if the relevant year is to 31 December 2012, as I understand it, the auditor will have to be in place by 25 March 2011 because that is the financial year preceding the financial year to which the accounts to be audited relate. Is that right? I would have thought it should be in the financial year to which the accounts to be audited relate, not the preceding year. This is bringing the date incredibly far forward and I wonder whether I have misunderstood it. Perhaps my noble friend the Minister can elucidate.
Baroness Hanham
My Lords, I have misled the Committee, for which I apologise. As the noble Lord said, it is the preceding year. If the clinical commissioning group fails to appoint an auditor in the preceding year at the end of March, the Commissioning Board will have to notify the Secretary of State. This gives time for an auditor to put in place the provisions for the following year. The Secretary of State has to be notified by the commissioning board by 25 March that the clinical commissioning group has failed to appoint an auditor. The provisions are intended to ensure that a clinical commissioning group has a local auditor in place in a way that is consistent with their respective roles. I agree with the noble Lord that nine months seems a long time to get someone in place.
Lord McKenzie of Luton
I thank the Minister. I am going to have to read the record on that. The potential discrepancy that I was probing was the difference between using the 25 March and the financial year preceding it. As I understand it, if the financial year ends 31 December 2014, it would be the 25 March 2013 that would count. However, the difference is between the 25 March for the clinical commissioning groups and 31 December for the relevant authority’s appointment date. Why is it 31 December in the preceding year for the relevant authority and 25 March for clinical commissioning groups? I am happy to receive a follow-up letter if that is easier. I beg leave to withdraw the amendment.
Baroness Hanham
My Lords, perhaps I can pick up the questions as I go along. However, it would probably be helpful if I gave the justification for the clause and then we could look at the impact.
As in the companies sector, auditors appointed under the Bill will, by agreement with the audited authority, be able to limit the extent of their liability to the body in relation to negligence or breach of duty or trust. This clause gives the Secretary of State powers to place restrictions on such agreements to ensure that they are reasonable and proportionate.
The decision to allow liability limitation agreements in the companies sector was made following extensive consultation. Such agreements aim to ensure that auditors are not held liable for consequences beyond their control and responsibility. Under the joint and several liability principle in UK law, auditors may be held liable for damages beyond that for which they are directly responsible. The Financial Reporting Council has welcomed provision for such agreements.
Clause 14 mirrors the Companies Act 2006 by providing that any such “liability limitation agreement” must comply with certain conditions. The purpose of this clause is to ensure that the agreements do not unreasonably limit the auditor’s liability and are entered into transparently. Without such a provision, there would be no limits on an auditor limiting their liability and nothing to stop them removing all liability completely. As I said, it is right that auditors are held responsible for their actions in a fair way.
Subsection (2) requires that:
“A liability limitation agreement must comply with regulations made by the Secretary of State”.
Such regulations may address the duration of an agreement or the amount to which it may limit the auditor’s liability, or require it to contain, or not contain, certain provisions. Under subsection (5), regulations may provide that any limited liability agreement not complying with regulations is void or has effect only in so far as it complies with them. In the interests of transparency, subsection (6) allows the Secretary of State to make regulations requiring the disclosure of any such agreement. Subsection (7) excludes compliant agreements from wider provisions in the Unfair Contract Terms Act 1977, which set out similar but more general provision and conditions around limitation of liability.
With regard to the amounts of money involved, perhaps I may write to the noble Lord. I think that the amounts are very small but I will provide them to the noble Lord. As the Bill proceeds, there will be further details on the various matters that have been raised. We will, as with all new legislation, be undertaking a review of monitoring to see what the situation is.
With regard to the point raised by the noble Lord, Lord Palmer, about who should pick up the liability, the Bill includes provisions that enable auditors to recover the costs of their time in exercising their functions from the body being audited. It does not replicate the Audit Commission’s indemnity scheme, which covers the costs of auditors taking or defending legal action. We believe that it is appropriate for private companies to bear the risks and costs of that. We do not believe that it would unduly deter auditors from exercising their functions. The Audit Commission has rarely indemnified its suppliers. On the noble Lord’s question as to whether the Government should pick up liability, the answer would be no. With that, I urge that the clause remains part of the Bill.
Lord McKenzie of Luton
My Lords, I am grateful to the Minister for that response. I think that we understand a bit better that the regulations will broadly follow the Companies Acts requirements and what flows from that. I found her response confusing in some respects. We are talking about something that is not beyond the control of the auditors. These arrangements are predicated on a breach in respect of any negligence, default, breach of duty or breach of trust occurring in the course of the audit of accounts, so it is a failure of an audit firm which triggers them. The noble Lord, Lord Palmer, raised a very important point. If there is a breach or damages and if that is not to be visited on the auditor, or what is to be visited on them is restricted, who bears the cost of the rest? I do not think we understand that from the Minister’s response.
I thought that the public policy issue about this was partly to do with making sure that another big four company did not go under. The ramifications of those four big beasts going down to three would be significant over a whole range of areas, as we learnt from the demise of Arthur Andersen because of Enron. I thought that a key point was to make it easier for smaller firms to enter the market because their risks were, in a sense, capped. There is no great evidence to suggest that that has happened in the private sector. We do not yet know whether it will happen in the public sector, but if it does not, that raises the question: why have these agreements in the first place? All they do is to protect audit firms. Why? These are sophisticated organisations. They have excellent training programmes, generally recruit very good staff and have been around the block a few times. If they mess up, should they not bear the consequences? If not, the question of the noble Lord, Lord Palmer, is absolutely right: who should? Part of the rationale may be that it would produce downward pressure on audit fees, but that is difficult to justify, particularly if the use of the commission’s indemnity was pretty restricted.
We may return to that issue, perhaps in terms of a sunset clause, if these things are to continue. I hope that the same arrangements as in the private sector, where I think they have to be annual contracts, will persist in the public sector in so far as they are used at all. I hope that guidance is given to firms when faced with such a request from their auditors as to how they should respond. We have probably taken this as far as we can this afternoon, but for us it is an outstanding issue to which, one way or another, we will wish to return.
Lord True
My Lords, the noble Lord makes an extremely important point which in certain circumstances could touch on issues of public accountability, although referred to on another matter. It may well be that he could be satisfied in that Clause 16(3)(d), at the top of page 12, allows a regulation-making power in relation to,
“the role of the relevant authority’s auditor panel or … supervisory body”.
On this issue of a right of audience, or a right to make representations, my noble friend might well be able in discussion to consider including the point which the noble Lord has raised. It is a significant one and he is right to refer to Companies Act procedures. Perhaps it could be clarified whether it is potentially encompassed in that area, which might help some of us on the Committee.
Baroness Hanham
My Lords, Amendment 14E would add to the regulation-making powers under Clause 16(1)(b), which relate to the circumstances of an auditor being removed, as the noble Lord said, by a local public body before their term of office expires. It would enable regulations giving local auditors the right to make representations to the authority’s auditor panel or to the auditors’ “recognised supervisory body” in those circumstances. The noble Lord asked what would happen if it was the Audit Commission; as we have already said, that commission will have an interim body between it being abolished in 2015 and when this changes. That will be a responsible transfer, which is the main thing.
We are sympathetic to the intention of this amendment, which is to ensure proper scrutiny of the removal of an auditor. However, as the noble Lord suspected, we consider this amendment to be unnecessary. Subsection (3)(c) already provides a regulation-making power about,
“the steps that may be taken by the local auditor in connection with the local auditor’s removal from that office”.
As set out in our consultation paper on the draft Bill last year, we intend by regulations to enable the auditor to respond to a relevant authority’s notice of intention to remove them, with that response to be considered by the relevant authority’s auditor panel. So the auditor panel now has a role in overseeing that in an independent way.
The auditor panel would then be required to advise the authority on the proposal to remove the auditor. In light of the auditor’s response, we intend that the authority’s final decision to remove the auditor would be subject to that advice. As with appointment, we intend that where a body does not follow the audit panel’s advice it would need to publish the reasons for not doing so. We also intend to require that the recognised supervisory body is notified of a removal. Therefore, we do not consider that it is necessary to include this additional wording in the Bill. We think that there are enough safeguards in it. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.