Earl of Lytton
Main Page: Earl of Lytton (Crossbench - Excepted Hereditary)Local Audit and Accountability Bill [HL]
Earl of Lytton Excerpts
The Earl of Lytton
The Earl of Lytton
My Lords, as this is the first time on which I have spoken in Committee, I should declare my interests, particularly that I am president of the National Association of Local Councils, the parent body of parish and town councils. I am a vice-president-in-waiting of the LGA, if that is the correct term for the particular interregnum that I am in at the moment. I should declare one other interest in that one of my children works as an accountant for one of the big four accountancy firms, but they work on something that I think is called transaction services rather than audit.
I thank the Minister for arranging at short notice last week a meeting, which was extremely helpful in refining some things. I am sorry if, in a sense, I am going over old territory in order to get things on the record. I am also aware that I am in the presence of very great experience, not only of audit but of local government management at senior level. I certainly cannot claim to hold a candle to any of that.
For the purpose of this group, in speaking to Amendment 12A, I shall speak also to Amendments 13A and 13B, and 14A to 14C. My intention is to probe further the Government’s intentions. I accept that a sector with 9,500 parishes spending £500 million a year in aggregate requires oversight, and I do not quibble with the coalition’s intention to abolish the Audit Commission. However, unlike large charities with many branches, or for that matter small charities with a freestanding existence, this sector is hallmarked by thousands of autonomous and often very small councils, a large number of which are in this first tier of local government and benefit at the moment from economies of scale in procuring their audit and other routine tasks.
If the individual right is equated with an individual duty for a separate audit appointment, that does not sit entirely easily with the general geometry of the sector, especially as around 80% of them have come together voluntarily to form the individual members of the national association. Doing things together non-politically and collaboratively is a large part of how parish and town councils try to operate. I was heartened by the Minister’s earlier comments about the freedom of collective and individual audit appointment, although we may need to tease that out a little further to determine precisely how it will work.
A requirement for audit scrutiny of some sort, tailored to the risks and proportional to the gravity of the council undertakings, is common ground. The question is how we enshrine that in legislation and ensure that all those entrusted with public money are held to account to the degree necessary. In nearly every case, parish and town councils are quantifiably different from the scale of principal authorities. At one end of the scale there is a town council with 78,000 electors and a very substantial annual income, but that is not typical of the sector. One of the issues that we sometimes have is that the parish and town council sector is so diverse in terms of the size and complexity of what they do that it makes it very difficult to legislate in a cohesive way for all of them.
The proposal seems to provide for three tiers of regime, if I can call it that: namely, an exemption for those with a turnover of under £25,000, an intermediate stage requiring a limited assurance audit for authorities with a turnover under £6.5 million, and those above that which will face the full audit arrangements. According to my information, all parish and town councils, with one or two exceptions, will fall into the sub-£6.5 million turnover bracket, so we are dealing mainly with the cut-off point between total and partial exemption. So far as I know, 65% will be exempted altogether—they fall under the £25,000 threshold—and that leaves about 3,300 parish and town councils that will be caught. That is not a significant amount, particularly if the sector grows as the localism agenda envisages. That means that at the margin, at the break point, there will be a certain amount of toing and froing in the transition, to which I will refer later.
I flagged up at Second Reading the requirement for an audit panel to have a majority of independent members. What measures does the Minister think will be possible or practical to prevent it becoming the tail that wags the dog in small councils that none the less might have a turnover of more than £25,000? My amendments seek to explore these issues through the device of amending the suite of criteria governing the Secretary of State’s jurisdiction.
I was interested by the comment made in the previous group of amendments about a fair representation of the state of accounts. As a simpleton and non-accountant I had taken this for granted, I must admit, but there it is.
The purpose of Amendment 12A is simply to clarify that the Secretary of State may, in considering the application of the requirement, also exempt an authority. It is not clear whether there will be a facility to exempt once it had been caught. This would apply at or around the break point of £25,000. I say this because £25,000 is less than half of the cost of a qualified full-time clerk, which tells us something about what we are dealing with. I am concerned that the bar is set a little too low here, and perhaps that ought to be looked at.
I am mindful of barriers to the progression and growth of parishes, particularly when the threshold represents a significant cost or administrative impediment or is seen to do so. The Secretary of State should be able to develop more sophisticated criteria and not simply apply a numbers threshold by automatic application. I ask the Minister whether that point might be looked at further with a view to seeing whether it really works.
Amendment 13A describes some of the criteria that might apply. The key words here are “onerous or disproportionate”, which are intended to be the guiding sentiment. However, I accept that they are relative rather than absolute terms, and for that reason I am not sure that I will not get the answer from the Minister that naturally flows—that the matter is indeterminate. However, for the same reasons that I mentioned about the tail wagging the dog, I ask the Minister whether anything can be done about that.
Amendment 13B seeks to drill down what we mean by “turnover” and whether it is right to take a single year’s figure or, as my amendment suggests, an average. I can think of a situation where one year’s figures are skewed by a single, one-off event that could be for reasons wholly unrelated to an authority’s normal income, such as a developer contribution towards something or other. It would help to avoid councils flipping in and out of the requirements if we had an average, as my amendment suggests, spread over three years. However, there may be technical objections to this.
Amendment 14A is a paving amendment for Amendment 14B and follows the same principle of the Secretary of State’s discretion on amendments. Amendment 14C is consequential in ensuring that any exemption carries through into the consideration of any question of failure to appoint an auditor.
The National Association of Local Councils and the LGA are in agreement that the ability for local councils, where it is appropriate and cost effective, to jointly commission audit services on a national basis makes a good deal of sense.
I understand what the Minister said earlier about this not being, in a sense, a rerun of the Audit Commission. I can recognise that, as the whole idea is to bring in an element of competition and not to have a monocultural approach. However, the potential economies of scale, savings and cost could be significant. It may well be that the Audit Commission itself lacked competition to ameliorate its charges, but that does not avoid the principle of giving value for money for taxpayers. That is all that I have to say on this. I beg to move.
The Earl of Lytton
My Lords, I am very grateful to the Minister for her extensive reply and for setting that out for the record. Clearly, these are probing amendments. Picking up on a comment made by the noble Lord, Lord McKenzie, about his Amendment 14 when he said that it raises a boring accountancy point, when my daughter learnt that I was involved with something called the Local Audit and Accountability Bill, she e-mailed me saying, “That’s a really nerdy subject”, so we have been warned.
I quite accept what the noble Baroness said: that the whole thing is reviewable, particularly in relation to Clause 5. I also take the point about the electorate size not being material, it is about the financial activity that is going on. I hear in particular what she says about the auditor panel not being required where smaller bodies have opted in to the sector-led scheme.
The definition of independent in terms of members of the audit panel still slightly escapes me. I know what it means to me, coming from the sector of your Lordships’ House that I do, but I am not sure that I entirely understand what it means here, but we will leave that for another day.
I am extremely grateful to the noble Baroness. As ever, she has answered many of my questions with great courtesy, including telling me that some of them are not strictly relevant because they are unnecessary. I take that in the spirit in which it is intended. I beg leave to withdraw the amendment and shall not be pressing my other amendments in the group.