Queen’s Speech

Lord Wakeham Excerpts

Thursday 9th January 2020 Lords Chamber

[Lord Wakeham (Con)]

My Lords, the last few times I have spoken in this House, I have been preceded by a bishop. I wonder if those who draw up these lists have been trying to send me a message. I enjoyed, as I always do, the speech of the right reverend Prelate the Bishop of Portsmouth. I live just outside his diocese.

I am very pleased that the Government have made clear that they intend to develop proposals for company audits and reporting. First, I should declare an interest. I am a chartered accountant and have been for so long that they do not even ask me to pay a subscription any more. I used to do audits and worked in my youth in one of the major audit companies, but that is all very long in the past.

The Government are right to develop these areas and include a stronger regulator with powers necessary to reform the sector. It is clear that there have been a series of serious financial crashes of substantial companies, in which their reported information was seriously in error. This is bad for everyone but particularly for the employees of the company, its suppliers and other creditors.

Public trust in business is essential and the Government commissioned three independent reports in 2018: the Independent Review of the Financial Reporting Council led by Sir John Kingman, the Competition and Markets Authority’s study of competition in the audit market, and the independent review into the quality and effectiveness of audits led by Sir Donald Brydon. These reports must have convinced everybody who had any doubt that the age of the audit report produced for the benefit of shareholders and required to show a true and fair view was old hat and had been for many years. Of course, shareholders are important, but so too are employees, creditors, banks, the tax authorities and many others. A redefinition of audit and its purposes is required and, as Sir Donald says, this can only be done by legislation.

However, I have one or two points which I hope the Government will take into account before proceeding with the legislation. First, it should never be forgotten that the accounts of a company are the responsibility of the directors. Auditors may miss things or not get things right, but the prime responsibility rests firmly with the directors. Steps need to be taken to bolster this. I would increase the responsibility of audit committees, and particularly the chairman of an audit committee who, in a big company, should be sufficiently experienced and qualified to bring to the attention of the directors and the auditors matters which require careful and expert consideration and judgment. These reports are very helpful and, as Sir Donald Brydon sets out, many important improvements need to be made.

However, there are one or two matters on which the Government need to be cautious. I am not fully persuaded that auditing needs to become a separate profession. Wide experience is needed if a company is to get its accounts and reporting right, but so is that experience necessary to the persons working on these matters in a company. Of course, there need to be proper rules about conflicts of interest and auditor independence is essential. I would also not want to be too prescriptive about the frequency with which auditors are required to be changed. I ask the Government to look at some of the overseas experience of this, where new auditors sometimes make mistakes in their first years which would not have been made previously. I much agree that there needs to be a fresh and wider redefinition of audit and its purpose, which covers much more than just financial statements. I very much look forward to seeing the Bill which the Government are to bring forward.

Queen’s Speech

Lord Wakeham Excerpts

Tuesday 22nd October 2019 Lords Chamber

[Lord Wakeham (Con)]

My Lords, first, I say to the right reverend Prelate how much we appreciated her speech today and on other occasions. It takes me back 25 years, to when I was Leader of the House and invited the then Archbishop of Canterbury to have dinner with me, because I thought the Bishops were very good at saying Prayers but never made much of a contribution afterwards. I felt that many of them had a lot of useful things to say, if only we could persuade them to do it. I must say that it is vastly different today, and the right reverend Prelate is a fine example of someone who has something to say worth listening to.

Tonight, I shall raise the issue of standards in our universities and say something about my concern about the associated issue of grade inflation and the awarding of degrees. There is nothing about this in the Queen’s Speech, but I think I have found out why, and I shall come to that in a minute. First, I should declare my interest. I was for 15 years chancellor of a university, and I have awarded degrees to a considerable number of noble Lords over the years. One was in his place a few minutes ago, but I cannot see any just at the moment. If I have missed someone, I am frightfully sorry.

Looking back over those years, the occasion I always remember was, during the Olympic Games, awarding an honorary degree to Roger Bannister. He had to confess that for many years his wife thought he had run four miles in one minute, and he had to explain to her that he had run only one mile in four minutes.

The issue of grade inflation is certainly not unknown to either the Government or universities. There are many published examples of the results of awarded degrees showing a marked increase in recent years. For instance, 27% of all graduates last year obtained a first-class degree, up from 16% a few years ago. There has been a big increase in the percentage of students obtaining upper degrees. One quite well-known university seems to pride itself that 50% of its graduates get first-class degrees. Standards are vital, not just for the universities but for wider society and our place in the world. Of course, students and their families are frightfully keen, but employers also want to know that the degrees potential employees hold are of value and the appropriate standard.

The position is far from being all bad. As the Minister said, four of our universities are among the 10 best in the world. Many universities are of a high standard, but some, if only a few, are letting standards down and that is of great concern. The previous Secretary of State called for an end to grade inflation and said that,

“the OfS should directly challenge institutions where they find clear evidence”,

of it. The Economic Affairs Select Committee of this House, which I had the honour of chairing some years ago, said in a recent report that it was,

“concerned that the replacement of nearly all grant funding by tuition fees, coupled with the removal of the cap on student numbers, has incentivised universities to attract prospective students onto full-time undergraduate degrees”,

when perhaps they should not be. It went to say:

“This may also explain the striking increase in grade inflation”.


Professor Buckingham, president of Universities UK and an outstanding vice-chancellor of the university of which I used to be chancellor, is clear that there is a problem. She said in her presidential address that universities are concerned to protect the value of their degrees and must take action to grip the issue of grade inflation. The consensus is clear that the increase in first and upper second-class degrees cannot be attributed entirely to students’ higher academic performance but is, in the eyes of some, a doubtful means of reputational enhancement.

I was going to say that the response of the Government to all this is not as adequate as it ought to be but, like the US cavalry, help came at the last minute. Four days before the Queen’s Speech, Universities UK issued a substantial initiative with comprehensive proposals to protect the value of degrees and to achieve transparent, consistent and fair academic values. If this is followed through, it is a very sensible way forward, so I very much welcome the initiative and look forward to being kept fully informed of its progress. It does not let the Government off the hook, but I expect the Government to keep a very watchful eye on it.