Lord Christopher
Main Page: Lord Christopher (Labour - Life peer)Local Audit and Accountability Bill [HL]
Lord Christopher Excerpts
Lord Christopher
My Lords, I first declare a specific interest. For six years I was one of the commissioners of the Audit Commission. I found that a very rewarding and learning experience. We are approaching this whole matter with some risk. It is worth recording that the commission was set up by Lady Thatcher, who only a few weeks ago was said farewell to and regarded by very many as the finest Prime Minister that Britain has had since Winston Churchill. I am not going to argue about that, but that was the feeling. The Bill that proposed setting up the Audit Commission was put through Parliament by the now noble Lord, Lord Heseltine, a man held in high regard and called back to serve only recently to advise the Government on how to advance business. He made a report on this not that long ago.
The second controller of the Audit Commission was Sir Howard Davies, who only last week was called in by the Government to produce a report on what should happen to London airways. The Audit Commission did not involve people of minor importance or minor ability. We are now seeking to get rid of it. It is worth quoting something that the noble Lord, Lord Heseltine, said at the time, which was that he saw this,
“in the mainstream of the Government’s economic policy.”
I thought efficiency and cost-effectiveness were in the mainstream of the present Government’s policy, but I do not believe that is going to be the effect of this Bill.
The chairman of the commission under whom I served was Sir David Cooksey, one of Britain’s most successful and efficient businessmen. However some people may have seen the commission, it was certainly not what I have heard described. It was a catholic bank of people drawn from a number of walks of life—local government, central government and the opposition. Over that period, I very rarely, if ever, sensed that one’s political views mattered in the context of the issue on the table. The objective was invariably: there is a problem, what is the best solution? Now we are looking at a proposal that will effectively move it to the status of a profession. With respect to the noble Earl, Lord Lytton, whose views I find most interesting and helpful, even the president of the organisation that runs accountancy indicated that it was in dire need of some reform. He expressed the reasons why.
I wonder why this is being done. I have been what I would call an outside insider in local government for a number of years. I have never had a phone call, a letter or a representation from a member of a local council—county or district—to say, “Please get the Audit Commission off my back”. As for citizens, I have never heard anyone complain to me, “I feel deprived and lonely because I do not have close access to the auditors”. What people are complaining most about in this context are potholes and planning applications. They are little concerned about structures, as is demonstrated by the poor turnout at elections for local authorities.
The coalition is demolishing a very successful professional asset of this country. It has been a source for the map which local government was holding to operate with true cost-effectiveness, and it has worked extraordinarily well. The idea suggested here, and by the Secretary of State from time to time, is that it has outgrown itself. It could easily have been restricted economically had that road been chosen.
Most people sense that this is a bone-dry issue, but it was not and is not. Perhaps I may cheer up your Lordships with a couple of cases that I saw dealt with—rare perhaps, but underneath will still lie the deep anxieties of auditors. One is from Labour and one is from the Conservatives, so I am not being selective. The Labour example was the somewhat left-wing authority of Hammersmith and Fulham which, towards the end of the 1980s, had what one might describe as an interest rate swaps crisis. It had massive exposure to interest rate swaps, all on one side of the market, relying on high interest rates when they were falling. The borrowing was £308 million, and it was distributed worldwide at the time. Who assisted in clearing it up? The Audit Commission. How, under the Bill, could such a case be dealt with?
The Conservative example, which most people will remember, is the Dame Shirley Porter scandal. She was the chairman of Westminster Council. At the time, in 1987, it owned 23,000 council homes; 10,000 people were on the housing list; and 9,800 homes were designated as being for sale. The proposal was to ship out of Westminster enough people to allow it to select the people who would replace them in their council houses. I pay tribute to John Magill, the accountant, who kept his nerve throughout that extremely difficult case, which went on for several years. I can see the box files of evidence now; they were yards long. The commission stood its ground; the accountant stood his ground. I am sorry that the noble Lord, Lord Pannick, has left the Chamber. It was towards the end of the operation when, wondering whether we were right, the council decided to get independent advice on our judgment to appeal at the end of the day. In his absence, I thank the noble Lord, Lord Pannick, for giving us the advice needed to allow us to keep our nerve. The sum involved was £12 million. It would have been a very serious problem for any local auditor to deal with and hold their ground with that potential bill facing them.
Parliament is proceeding with the Bill on very limited knowledge. The Minister has already told me in answer to a Written Question, and I am sure she will repeat it, that Parliament knew exactly what our intentions were and what we were about. What I contest is that Parliament has been given information of a nature that would materially assist it in arriving at a sensible conclusion. There has been a pre-emption of Parliament here in a way that may just get through on the basis that it has been told what we are about, but it has certainly missed out on vital information. This would be a rather interesting case for the Public Accounts Committee to look at in the context of the House of Lords Constitution Committee’s report on this matter, published recently. At the heart of that is that a Bill should receive, if one wants to pre-empt it, a demonstrably successful Second Reading in the House of Commons. We have a Second Reading here, with hardly a massive audience, on the eve of a bank holiday. I wonder whether that was a sensible arrangement.
What is important is the detail underneath the words used. I would like to have a look at some of that. I am conscious of the clock but it is important that this comes out. The impact assessment is quite a thick document. You need to be a nerd, and certainly very knowledgeable, to work your way through it, and at the end of it you do not always understand it. As I say, the net benefit over 10 years of this operation will be £1.28 billion. It is refined a bit: £731 million over five years, 2012-17. I imagine that the dates will need to be revised. Annually, that is about £182 million. It is not at all clear to me how these figures were calculated. The Government have very much based the figures on the outsourcing—perhaps not quite the word—of audit.
The Audit Commission—reduced, incidentally, from nearly 1,000 to 70 staff—has made a calculation comparing local choice with the current procurement process. Its view is that the arrangements we have now would, in fact, save the public purse just over £200 million over a five-year period. The alternative is very much higher costs of audit. This paper has not been published. It would be interesting if the noble Baroness could put a copy in the Library.
In 2011, her department appointed FTI Consulting Ltd to,
“provide expert research and advice on the transfer to the private sector of the Audit Commission’s in-house audit practice”.
I quote from the report:
“Conventional economic theory states, that, all other things equal, competition leads to lower prices”.
This is the argument.
“Under a single buyer, however, there are lower prices than under a competitive market”.
I do not think that Parliament has been told that that is the advice the Government had.
I move now to the issue of value for money. It is not clear to me whether any value for money studies are actually in the paper. I have to say that they have been rather derided by some of the statements made by the Government. I will give the House some examples of these value for money studies. I cannot find the damned things, but there are five studies that have been carried out over the past few years that show very clearly that, given the amount of money that is available, if local authorities follow through on the recommendations they can save considerable sums of money. The studies show that the potential savings are over £1 billion. I know that the Government say it is the intention that these should be carried out, but fewer in number and by someone else. I question whether there is any possibility whatever of savings of that magnitude being produced by someone else in any reasonable time period. In my judgment, that simply is not possible.
Where does this all this leave me? It was clear from day one, when this issue was first in Appendix 7 to a Bill whose name I forget, but it was the first Bill to lay waste to the quangos, that whoever was responsible for it did not comprehend at all that they needed primary legislation to get rid of the Audit Commission. That is why we have waited for so long—it must be a year, I suppose—for this Bill to come forward. It is clear to me even now that the real value of the Audit Commission is either not appreciated by the Government or not acknowledged for reasons that I do not understand. I cannot see how their figures can possibly balance over a reasonable span of time.
In my view, notwithstanding what my noble friend Lord McKenzie said, this is a bad, unnecessary and reckless Bill. Indeed, I believe that the whole operation is a folly that the country will regret.
Lord Christopher
I advise the noble Lord, Lord Palmer, and the House that 70% of audits being outsourced —if that is the word—has been the case for a long time; it is not a sudden decision. Secondly, I apologise for possibly misleading the House: the £1 billion saving I mentioned in relation to the value-for-money studies was actually £2 billion, and the £1 billion has been raised under the fraud initiative.