Local Audit (Amendment of Definition of Smaller Authority) Regulations 2025

Lord Fuller Excerpts

Wednesday 3rd September 2025 Grand Committee

Lastly, ICAEW is a statutory regulator, but it is completely outside the scope of the freedom of information legislation, which means that no member of the public can question or scrutinise its operations. Does the Minister agree that that is an error which needs to be corrected? I look forward to the Minister’s reply.

[Lord Fuller (Con)]

My Lords, I declare an interest as I have, in the past few days, stepped down as the vice-chairman of the local government resources panel, which has oversight of audit and accountancy within the Local Government Association. In that guise, I have been very well acquainted with the difficulties in local government audit.

If there is a villain of the piece—I use that word advisedly—the noble Lord, Lord Porter, when he was chairman of the Local Government Association struck a wonderful deal that established the PSAA, referred to by the noble Lord, Lord Sikka. He drove down those costs and council tax payers benefited from low-cost audit for many years. With the benefit of hindsight, however, perhaps he did too good a job, because it came to pass that it was very difficult for audit practitioners to recruit the right staff at the right level, and they got behind.

We ended up in regrettable circumstances—through no fault of the noble Lord, Lord Porter, I stress—aggravated by Covid, in which a number of local authorities had failed to sign off their accounts. I cannot remember the precise details but some were four or five years old—so old, in fact, that the authorities concerned no longer existed because they had been reorganised away. I am very pleased that the previous Government, belatedly perhaps, took a grip. A line was drawn in the sand and some transitional arrangements made, and now things are much better.

However, I am very concerned that we now see the increase in the threshold. I appreciate that we need to increase the threshold value, but going from £6.5 million to £15 million is a huge increase—of 230% in one bite. That will mean that some of the smaller authorities, which hitherto have been contained within the audit regulations—I will give some examples presently—no longer will be.

I am seeking reassurance because we are establishing the definition of a smaller authority. I cannot be blind to the notion—the Minister referred to it in the earlier debate—that we have a local government devolution and reorganisation Bill in the other place; it passed Second Reading yesterday. In that circumstance, we will see a large number of smaller principal authorities, which are subject to the full audit regime, fall into the third tier of local government—that is, they will not be subject to the 5% or £5 council tax increase cap, if I may use that word.

I want to highlight the example of Salisbury City Council. It used to be a district council and a principal authority but, since the reorganisations in Wiltshire, that is no longer the case. In the past four years, it has jacked up its council tax by 44%. I note that its total precept for this year is only £6.065 million, marginally below the threshold limit to which it is subject. Its gross income is £8.64 million. Currently, it is part of the arrangement to have a full audit. Having jacked up council tax by 44% over the past four years, I think it should be. If it is increased to £15 million, however, what assurance can the local people—the long-suffering residents of Salisbury—have that the council has their best interests at heart? By contrast, the Wiltshire unitary authority, which has assumed responsibility for most of the expensive services, put its council tax up by only 4.5% last year.

I am concerned that this definition will, in due course—not today, because I am conscious that we are concerned solely with audit—be used, as we go through local government reorganisation, to give a free pass to some of the smaller city councils and larger town councils, which will inevitably will fall out of the LGR process and let them let rip. Of course, it is not just the district councils, it is the internal drainage boards. I am concerned about the case of Great Yarmouth Borough Council, which had an increase in the internal drainage board levy of 91% last year, which the council was mandated to pass on to local taxpayers. Over the past few years, it has gone up by 117%. That means that because the district council in Great Yarmouth is a principal authority, it could put its council tax up by only £5, but 91% of that was as a result of the unavoidable increase from the internal drainage board that lies within it. That meant that only 9%, just £26,000 of the increase in council tax in that historic borough—I declare an interest because my business is in that borough, but I do not pay council tax there—could be devoted to the provision and improvement of local services. We shall see a whole class of authority that would currently be within the £6.5 million but will no longer be caught if the threshold rises to £15 million.

I want to highlight the example of the Broads Authority, which is well known for its governance failings. It is well known to be a dysfunctional organisation and, in the interests of transparency, I have in the past made complaints to that body through the mishandling of certain planning matters. Its gross budget is £9.7 million. If ever an organisation needed the close scrutiny of a full audit, it is the Broads Authority and now it will be given a free pass. It will be let off from public scrutiny. This is the unintended consequence of this legislation.

Finally, I want to get the definition of “smaller authority” on the record in the context of local government reorganisation, and ask the Minister what the Government’s intentions are. If it is contemplated that this definition of “smaller authority”—the £15 million threshold—will be used post local government reorganisation, when some of these smaller cities, such as Salisbury, or larger towns such as Scarborough or Shrewsbury, which are certainly covered by the audit now but would not be in future, is it proposed that this definition will cap them at £5 or 5%? There will have to be some reckoning. We cannot have a situation whereby only the large unitary authorities that will be formed after LGR have their council tax capped at £5 or 5%. What is the Government’s view about capping, limiting and putting the local taxpayer first from some of these much larger authorities, which will take on other responsibilities—possibly for local culture, parks and dog bins—when their current responsibilities for social care, planning, housing and homelessness are removed? We cannot have a situation where a 230% increase in threshold allows a new class of large, small authority to let rip at the expense of local taxpayers.

[Lord Shipley (LD)]

My Lords, I am grateful to the Minister for explaining the statutory instrument. I share many of the perspectives of the noble Lords, Lord Sikka and Lord Fuller. I hope the Minister, in replying, will be able to meet some of the concerns expressed. The context, as we have heard, is the abolition of the Audit Commission 10 years ago. It was supposed to save £100 million a year but it did not do that. It was supposed to make local audit more efficient and it did not do that. It has not saved money. Costs have risen substantially since 2015. The private sector was supposed to take over from the Audit Commission but it has not worked like that, because there have been nowhere near enough trained auditors. There have been, as we have heard, huge delays in the audits of English local authorities. That is the background to this draft statutory instrument.

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There are a lot of implications of that change. It may be justified on inflationary grounds—a figure close to £15 million may be about right—but it needs a little more than that. I was surprised not to find an impact assessment or any indication of what the formal guidance to local authorities will be. I hope the Minister is able to allay some of the concerns that have been expressed here.

[Lord Fuller (Con)]

As the noble Lord, Lord Shipley, was speaking, I was looking at the RPI tables from the Office for National Statistics. Had the £6.5 million been increased by inflation, it would have been £10.3 million. So we are seeing a proposed threshold that is fully 50% greater than the increase in inflation over the same period. I just wonder whether that might help the noble Lord’s argument.

[Lord Shipley (LD)]

I thank the noble Lord for that intervention. It may be that RPI is the right way of doing it. I do not know why he took RPI there and not CPI. However, the issue is: why, in fact, are the Government not going to peg the £15 million to inflation? At what point will that figure then be adjusted because inflation continues to rise? We have to have a debate about that fact, but I thank the noble Lord, Lord Fuller, for explaining the RPI figures since 2014. Clearly, it may be that £15 million is the correct figure, but I would like to know what assessment the department has made of the implications of that figure on the number of local authorities that will be taken out of the full audit requirement?

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[Lord Fuller (Con)]

I am grateful to the Minister for that important clarification, which will give local taxpayers a great degree of reassurance that this is wholly separate from the LGR process.

[Baroness Taylor of Stevenage (Lab)]

I am grateful to the noble Lord for raising the issue and giving me the opportunity to clarify that.

The noble Lord, Lord Shipley, referred to the history of the abolition of the Audit Commission. He asked me about the 2014 threshold and there being no impact assessment. I cannot answer his specific question about how many authorities are taken out of this regime, but I will reply in writing to that question.

The way that this has been developed is that we have been very responsive to stakeholder feedback following the consultation that was initiated. The view of stakeholders is that £15 million will be the appropriate threshold ahead of the Secretary of State undertaking a wider review of audit regimes to make sure that they are all fit for purpose as we enter the new local audit office regime. I hope that answers the substantive question that he asked me.

Aligning audit thresholds with inflation in the future is an important issue. We need to make sure that we do not get ourselves into the same bind that we have before of audit regimes that get out of sync with what is happening in local authorities. Subject to parliamentary approval, the local audit office will work with the department to advance a more proportionate approach and remove the sorts of cliff edges that come from purely financial threshold-based approaches. Our intent is to work with the sector and the local audit office to change that approach.

The noble Lord, Lord Jamieson, asked about progress on implementation. This is a first step. Also picking up the points made by the noble Lord, Lord Fuller, about Salisbury City Council and Lindsey Marsh Drainage Board, our engagement with the sector demonstrates that uplifting the upper threshold should be prioritised ahead of the local audit office’s establishment, particularly given the issues with the authorities that noble Lords have mentioned, because they already exceed the upper threshold and they found it impossible to get auditors to do their audit. That is the reason why this has been done ahead of that, but progress on the local audit office is going through. We know that there was a Second Reading in the other place yesterday. I hope my response to the noble Lord, Lord Sikka, on local transparency helps to answer some of the questions from the noble Lord, Lord Jamieson.