Local Audit and Accountability Bill [HL]

Lord Tope Excerpts

Wednesday 19th June 2013 Grand Committee

[Baroness Eaton]

I find it somewhat surprising that there is this perceived idea of auditors being too cosy with their client, a local authority, because all the probity and requirements of audit mean that they would be being professionally negligent if they did not do the job they are supposed to be doing. I really do not think that this is quite as much of an issue as the noble Lord, Lord Beecham, is suggesting.

[Lord Tope]

My Lords, I am struggling to understand the implications of what the noble Lord, Lord Beecham, is proposing. I think we all share his concern—I accept that it might not always be a widespread concern—that sometimes, maybe after five years, it could become too cosy. I hope we would all accept that a tendering process after five years is certainly desirable; whether it should be mandatory is something that we can debate. However, in such a tendering process, would the existing auditor be precluded from taking part in that process, or, if it was to take part in it and was clearly to submit the best value tender, would the authority then be prevented from reappointing it on that basis? That is the point I struggle to understand.

[Lord Beecham]

Perhaps I might respond before the Minister replies, since we are in Committee. My preference would be for exclusion but as a fallback, at the very least, to have a proper tendering process, as I have explained.

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[Lord McKenzie of Luton]

My Lords, the procedure for the appointment of auditors provided for in Clause 8 seems overly bureaucratic, but if that is the Government’s approach, I suppose this amendment simply adds to that bureaucracy. Amendment 14ZF would require that the term of the appointment be part of the notification. Indeed, it might specifically cover the point probed by my noble friend Lord Beecham as to whether it is a reappointment.

Amendment 14ZE would require that the appointment process be set down. Transparency on this matter is for the Government, not unreasonably, of high importance, and we agree. The process will have an impact on competition and pricing, so making the interviewing process clear, assuming there was one, and what firms were involved would be an indication of the relevant authority’s commitment to these issues. It might also provide an indication of the commitment to trying to open up the market, an indicator of whether local or regional firms have been included.

Doubtless the Minister will tell us that this amendment is unnecessary and will flow from the process set down. That is fine, but it would be good to have an idea of the Government’s expectations over these areas.

[Lord Tope]

My Lords, the noble Lord, Lord McKenzie, began by describing this process as overly bureaucratic, but then I think he went on to say that, since it is overbureaucratic, let us have an amendment that makes it even more bureaucratic. That is not the most compelling argument that I have ever heard from the noble Lord, Lord McKenzie, as I suspect he knows very well.

The amendment certainly seems to describe what is good practice and what I hope would happen in practice. I am moderately confident that that is what would happen, certainly with any good authority. Whether we need to have an even more bureaucratic process to enshrine all this in legislation, I am very doubtful, and whichever Minister is replying they will no doubt tell us that we do not want to make it too bureaucratic.

[Lord Beecham]

Perhaps I may just ask whether it would remain open to authorities to combine in placing audit contracts. The Audit Commission identified substantial savings having been made by central commissioning, and it anticipated that if extended to the remaining 30% of contracts, a significant further saving of some £400 million over five years could be made. I am not necessarily saying that that is the way to go but, under the provisions of the Bill and this whole appointment process, would it still be open for such an approach to be adopted by authorities coming together, for example, in a particular region or a particular class of authority, obviously with the support of their independent panels? Would it still be open to them to move in that direction, getting a sort of bulk purchase by agreement rather than it being imposed externally? It would be helpful to have some assurance on that.

[Lord Wallace of Saltaire]

My Lords, I am happy to give that assurance. That is entirely acceptable and to be expected within the Bill. Often small authorities in particular will find it convenient and useful to combine how they approach this matter. However, as the noble Lord has just said, this is by voluntary co-operation rather than by imposition from the centre.

I have to reprimand the noble Lord, Lord Tope, for making exactly the first point that I was going to make, thus cutting down on what I have to say.

[Lord Tope]

I have never achieved that before.

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[Baroness Eaton]

It is not often that I agree with much of what the noble Lord, Lord McKenzie, says in this context, but I fully agree with much of what he has said about the role of the audit committee. Having chaired the audit committee of a large metropolitan authority myself, I see great value in it. The proposal for an audit panel in addition is really a sledgehammer to crack a nut. It adds again to the bureaucracy.

I have slight concerns about the requirement for a majority of independent members. I see fully the value in the noble Lord’s suggestion of an independent chairman, but it is extremely difficult in many authorities to find suitably knowledgeable and qualified people to take these roles. I know that under the old standards regime, finding suitable people to chair those bodies was quite difficult. In some cases, they had the desire to take over the world and gradually grew, like Topsy, the role of that body. If we could have independent chairmen, that would satisfy what is perceived as the body’s independence. I certainly do not see the need for an additional body in the audit panel to decide who should audit the authority. There are many checks and balances already within local authorities on probity issues, as I said earlier, so this is an unnecessarily bureaucratic step. The audit committee could happily perform that role.

[Lord Tope]

My Lords, the noble Lord, Lord McKenzie, has raised a very important and useful issue. We will discuss in relation to a later amendment the actual composition of a committee or panel and the number of independent members on it. I would guess that most principal authorities have an audit committee. I do not know, but it had not occurred to me that they would not until now. In many cases, as in my own authority and as that of my noble friend Lord Palmer of Child’s Hill, that committee is chaired by a member of the opposition. That is very much not the same as an independent chairman. Nevertheless, it is a good practice that is followed by many authorities. In my case, it is a Liberal Democrat authority, while in my noble friend Lord Palmer’s case it is a Conservative-controlled authority. It is therefore a useful extension to have a panel or committee chaired by an independent member.

There is room now for further discussion and consideration about whether we really need to have completely separate and independent auditor panels, as proposed in the Bill, or whether there is some way of meeting that through the existing audit committees and amending that practice. Rather than reinventing something that in most cases is working quite well in practice, I would rather see us adapting it. It can certainly be adapted without too much difficulty to meet the Government’s requirements through the Bill, which I think we all broadly support. We are all trying to achieve the same ends, so having poked a little fun at the noble Lord, Lord McKenzie, for the previous amendment, I thank him sincerely for raising a very important issue with this series of amendments.

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[Lord Wallace of Saltaire]

My Lords, we will move on to the question of health bodies in our discussion of further amendments, and I hope that the noble Lord will allow us to return to the issue when we deal with them.

In answer to the noble Lord, Lord True, the Bill would not prevent someone who had worked for the local authority but had finished working for the local authority more than five years ago acting as an independent member of the panel. That is certainly my reading, and I state that as the Government’s clear understanding of the position.

On the question of a close friend—I appreciate that the noble Lord, Lord Beecham, is querying this—I am told that the phrase is already in the Localism Act. It is, to some extent, a matter of perception, but we all understand, from having dealt with local authorities over a long period, that this is one of the areas where one needs to make sure that panels look independent and are assured to be independent. Where someone seems like a close friend, it is clear that we will give guidance that that sort of person ought not to be appointed to a panel in that area.

There is more on the definitions in the letter of intent that was circulated on Monday, which I hope noble Lords have seen, and there will be more in the guidance provided to local bodies. I hope that provides sufficient reassurance for the amendment to be withdrawn.

[Lord Tope]

My Lords, I am slightly confused, because the group of amendments with which we are dealing is about the relationship between audit committees and auditor panels. The noble Lord, Lord McKenzie, as the mover of the amendments, will comment on that in a moment. However, I am quite sure that we will return to this issue, if only to seek clarification about the distinction and whether the two bodies should be, or have to be, separate. My noble friend Lord Wallace seemed almost to be saying that the auditor panel could in effect be a subcommittee of the audit committee. I do not think that that was quite what he meant, but maybe it was. We still need to clarify that role.

My confusion started when my noble friend went on to reply to Amendment 14BBA, which is not only in the name of the noble Earl, Lord Lytton, but in mine. That amendment has not been moved yet, so I am not quite sure whether we are dealing with it. If we are, and for the sake of preventing us from dealing with it later on—if and when it ever gets moved—perhaps I might say that the noble Earl is vastly more expert than me on the case of small bodies, such as parish councils and the like. However, the amendment comes from the Local Government Association, which represents primarily the larger authorities that do have these concerns. Personally, I have no great problem with majority independent members, but the LGA is concerned about it on a number of grounds.

First, the LGA quite rightly makes the point about the professional integrity of auditors, which the noble Baroness, Lady Eaton, has already made, as has the noble Lord, Lord True, and others, and which I think we all accept. They are already fully regulated, quite rightly and properly, and therefore the perception of independence is, in a sense, already covered to a considerable extent by the regulation.

Secondly, there is the rather more important, practical problem of whether in some areas it will be possible to find a significant number of truly independent people. That does not mean somebody elected to the council as being independent of a political party; it means somebody who is truly independent of the council in a way that is defined in the schedule. In some areas, it may not be possible to find sufficient people of relevant experience. That does not mean that they have a professional qualification necessarily, but that they have relevant experience and are also able and willing to put in the necessary time to serve on this. That may be less of a concern in some London boroughs that many of us know. However, I can well see that in more rural areas or smaller district councils, it may well be quite a significant difficulty. That is part of the concern that the LGA was raising and which we need to include in this debate, whichever amendment we are debating at this moment.

[Lord Palmer of Childs Hill]

Since we are not sure which amendment it is, perhaps the Committee will forgive me if I say just a word, having come in late on this section. I hope it will. I want to pick up on what the noble Lord, Lord Beecham, said about close friends. I feel that whatever legislation these Houses of Parliament pass should not be capable of ridicule. That must surely be paramount in people’s minds. Can one imagine the situation in which people vehemently deny that they are a close friend: “I am not a close friend, let me on it.”? It is quite nonsense. The idea of having to justify not being a close friend is capable of being ridiculed.

We are not putting these words into the Bill; we are trying to say that the relationship of someone in this position should not be such that they could influence the person on the panel. Imagine a court trying to decide whether this person was a close friend when they were denying it. Mr Saatchi and his wife might have problems saying whether they were close friends, given that he put his hands around her throat—he has been cautioned, so I think I can say that. It really is a worry. As I say, I understand what the Bill is trying to do and it is absolutely right to do so. However, to pick up on what the noble Lord, Lord Beecham, has said, the words are unfortunate.

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[Lord Palmer of Childs Hill]

My Lords, perhaps I can come back on that because I am probably the only person in your Lordships’ House who is a chairman of an audit committee. The present situation in many audit committees, of which mine is one, where the chairman is a member of an opposition party, which I am, gives an incredible independence. You are not part of the ruling party and when we were in power we did the same the other way round.

As the noble Lord mentioned, we already have two independent members, which is very good. However, the trouble is that if you appoint an independent chairman or chairwoman of the committee, that person could well have a political affiliation. Therefore, when the controlling party in that local authority was looking for an independent chair of that committee or panel, not unnaturally it would look to people whom they know or know of. The current situation where the person is of an opposition party, where that is relevant, seems to get over that point because that person is not a close political friend. I just wanted to pick up that point from my personal experience as something to think about that when we are considering this point.

[Lord Tope]

My Lords, I think that we are trying to achieve the same thing here and therefore further discussion will be helpful. I pick up on the Minister’s example of an auditor panel that has two independent members, in the terms defined thus far, and a member from the audit commission. Whether they are friends by any definition, they could easily be members of the same political party. In a slightly different context, we said earlier that all of us are concerned that that should not happen in terms of elected members, with a majority party having a majority on the committee or sometimes even all the places on the committee. If we are talking about a small auditor panel, with the three members suggested, it is possible—this is not in the realms of fantasy in some areas of the country—that all three could be members of a political party. That does not necessarily imply a conspiracy or corruption; that is merely how it is in that area.

Thanks to the noble Lord, Lord True, we have moved to an area to which we may have to give greater thought if we are to achieve the objectives we all share.