Local Audit and Accountability Bill [HL]

Lord Shipley Excerpts

Wednesday 22nd May 2013 Lords Chamber

[Lord Shipley]

My Lords, I declare my interest as a vice-president of the Local Government Association. I have found this a very helpful debate. It has identified all the key issues that we need to examine in Committee and I look forward to doing that.

I agree with the main thrust of the Bill in terms of audit. It was right to abolish the Audit Commission and the complex inspection regime that it had created. Probity and soundness in council finances can be assured without the overly centralised machinery of the Audit Commission, which acted as regulator, commissioner and provider of services as well as the setter of its own fees. Councils should be accountable to their electors rather than to the centrally imposed target culture which the Audit Commission introduced and which took so much officer and member time to deal with. However, in abolishing the Audit Commission, we have to ensure that the public interest in what councils do is safeguarded. With a few amendments, this Bill can do that.

When I was a board member of One North East, the regional development agency, and a member of its audit committee, I found it hard to understand why the RDA was audited by the National Audit Office whereas my council was audited by the Audit Commission. I never felt that two national auditing organisations were needed. I felt that savings could be made and the public interest secured more cheaply. It is no surprise to me that there have been large savings of 40% in recent audit procurement exercises—savings that councils can redirect into services.

So I welcome the new role of the National Audit Office. It will prepare the code of audit practice and undertake some thematic studies to be driven primarily by value for money and I welcome that. It must beware of mission creep, trying to do too much and spreading itself too thinly. It must also beware of simply identifying problems rather than solutions. The Audit Commission was excellent at financial audit and sometimes good in value-for-money studies, although too rigid in its tick-box inspection regime, but it was much poorer, at least in my experience, in devising solutions. Time and again we would be criticised for a problem that we already knew about and understood—an example is health inequalities—but it was rare to get a clear statement on actions needed or budgets required to deliver solutions. I hope that the National Audit Office does not fall into the same trap of thinking it has been useful when really it has not. But I doubt it will, because the change to the NAO undertaking thematic studies is the right approach.

Might I offer to the Minister some ideas as to what the NAO might look at in its early days? It could examine the benefits or otherwise of unitary councils or perhaps the potential for increasing local procurement. Here we have a proposal for audit to be procured more locally, but actually there is potential for greater local procurement and improving the relationship of local suppliers with their local council. Might it also look at the impact of the living wage in those places and on those councils where it has been adopted with an assessment of its potential for wider application?

Like other noble Lords, I understand the concerns about the local public audit section of the Bill for the Chartered Institute of Public Finance and Accountancy. I am surprised that these have been made both at the public consultation stage and in evidence to the Pre-legislative Scrutiny Committee but none of it has been acted on. I am keen to hear from the Minister why that is. Maybe we should be looking at this specific issue very carefully, as other noble Lords have said, in Committee.

Public auditing needs to be conducted in the public interest. Put another way, private sector auditing primarily concerns providing an audit opinion on financial statements. Public sector auditing requires something more in terms of propriety, probity and value for money. I have come to the conclusion, particularly from listening to this debate, that we have to be very clear on this matter during the passage of the Bill.

A separate issue has arisen in the course of the debate, which was raised by CIPFA, and that is the auditor panels. I agree that where audit committees already exist, it might be sensible to build on those rather than establishing separate auditor panels. I hope that we can look very carefully in Committee at audit committees, where they exist, and auditor panels. But above all, we have to maintain two things. First, we must maintain the independence of the audit structures away from any suggestion of party political influence or control. That takes us to the issue of independence. Audit committees and auditor panels have to have a majority of independent people externally appointed through robust mechanisms to make sure that the right people, who will be working in the public interest, are appointed to those posts.

The second need is to ensure real competition in the provision of audit services. Again there has been discussion in the House about that and about how it can be done. I am encouraged to hear that many more than the big four audit companies will be involved in auditing local councils. Competition keeps costs down. I hope that we will see regular changes in auditors by a specific authority, too, to ensure that things never get too cosy. We must have a discussion on local as opposed to national procurement and I hope that we will do that effectively in Committee.

Can I mention briefly the publicity code, referred to in Clause 38? It is not a problem for me that there is to be a statutory code. Here I support the Government. The reason is simple. The Government do not publish newspapers, and nor should local councils. It is one thing for councils to publish information; it is absolutely right that they should, be it on the web, or be it a quarterly or bi-monthly publication. I have no difficulty with that. I do have a difficulty with weekly newspapers, which run the risk of being seen as propaganda. If we want a free press it has to be free of any suggestion of party-political influence. I see a weekly newspaper as a step too far. It is likely, inevitably, to verge on the propagandist.

There is an important issue around the notices, however. Requiring councils to advertise them in local newspapers can be expensive, at around £40 million a year. I am not sure that that is as cost-effective as it might be and conceivably it is outside the requirements for the National Audit Office to deliver value for money. Councils should be free to devise their own solutions to this. There are many ways in which it could be done, not just on the web but in regular reports to ward committees, and so on. There are things that can be done to reach a wider audience.

Finally, on referendums, my position differs from that of the Government. I have never liked the power given to the Secretary of State to cap council tax rises and order a referendum over an arbitrary figure selected in Whitehall. There are four reasons.

First, it is against the principles of localism. Secondly, accountability is better done through the election of councillors at local elections. Thirdly, the Government do not hold referendums when they increase taxation. When VAT was increased two or three years ago there was no national referendum on it. It is unclear to me why it should be thought that referendums are right when local councils increase council tax. Fourthly, council tax levels can differ widely, something we do not talk enough about. Levels in neighbouring councils, whether you compare at band D or compare the average amount paid in a council area, can vary by several hundred pounds. If one council decides to raise a bit more money to protect essential services, such as libraries, swimming pools or local facilities, or to provide a decent standard of adult social care, why should it have to hold a referendum to do so?

The Bill could make things worse. I am not clear why Clause 39 is needed at all. I have major problems over the issue of levies. What is being proposed as regards levies counting as part of the Secretary of State’s decision about the maximum council tax rise is not acceptable. I believe that it will have to be amended in Committee. It certainly cannot be retrospective but, more than that, even if a referendum decides that an increase should not be permitted for a levying body, a local council would be left picking up the bill for it. In doing so the council would therefore have to cut services. I do not think that this is acceptable. I am starting to wonder whether Clause 39 is needed at all in the Bill and hope that we will explore that too in Committee.