Lord True
Main Page: Lord True (Conservative - Life peer)Local Audit and Accountability Bill [HL]
Lord True Excerpts
Lord True
My Lords, I, too, declare an interest as leader of a London borough council and a member of the Leaders’ Committee of London Councils. I thank my noble friend for the way in which she introduced this legislation, and apologise to her for not being able to attend her briefing yesterday as I was present at a committee of your Lordships’ House at the same time.
I hope I do not surprise my noble friend too much by saying that this Bill is welcome in many ways. I join other noble Lords in saluting the abolition of the giant bureaucratic industry of performance assessment and so on that grew up under the Audit Commission after 1997. I do not for a moment take away from what the noble Lord, Lord Christopher, whose work I respect immensely, has said. He is right to point to the many good things that were done by the Audit Commission in the past, but that regime became overblown and it is an enormous relief to local authorities that the Government have acted to restrain it. Therefore, I very much welcome that part of the Bill.
On the other hand, as others have said, there are in the Bill some new fiddlesome interventions from the centre. I also note, with others, that the powers given by Clause 34 to the National Audit Office, if understandable in principle, have alarmed some local authority organisations. They fear that the clause leaves on the statute book mechanisms by which a central body could begin to recreate the performance assessment industry.
Having read the Bill, it seems to me that subsections (5), (6) and (9) of Clause 34 offer safeguards against that happening. No doubt, we will explore that in Committee. I also have some reservations about the absolute abolition of the provision to allow for national procurement of potential auditors. We have just heard a very powerful speech on matters of audit, and I will not follow that specific line. However, some arrangements in the Bill look very cumbersome, and I agree with the comments that have been made about how the independent panels will work. As we have just heard, there are merits in many of the existing Audit Commission arrangements. Perhaps it would have been better to enable various local regimes with due safeguards, but to leave the power to conduct national procurement in place.
On local audit and accountability, this Bill goes wider than just local authorities, as it refers to other local bodies, including some NHS bodies but not others. I shall spend a little time on that. The Bill misses an opportunity for local authorities to play a more constructive role in securing effective audit and accountability of public bodies operating in their local authority area. I will dwell specifically on the local accountability of the NHS for its use of resources. This omission from the Bill—the NHS weaves in and out of it at different stages—is a little disappointing, at a time when the Government are rightly promoting health and social services integration, a process in which my own authority has been actively engaged for some time. The Government have also acted—again, it is greatly welcomed by many authorities—to give local councils a greater role in health. I do not believe that as local authorities, health trusts and commissioning groups grow together, audit arrangements can stay apart and be handled through separate strands of legislation. There is a growing perception that parts of the NHS regard themselves as beyond reach in questions of local accountability.
I cite the example of Croydon Primary Care Trust, where, in 2011, a new management team uncovered serious financial problems. An investigation by Ernst & Young followed, which confirmed a discrepancy in the accounts of some £28 million, roughly equivalent to the cost of a new secondary school or more than a fifth of my local authority’s annual discretionary budget. Even then, when faced with such findings, the NHS represented Ernst & Young’s report in its own way to gloss over some of the realities of what had occurred. Had that taken place in a local authority, I would have been forced to consider my position. Instead, the board member within the trust who first raised concerns was eased out as a disruptive influence, and a massive black hole in the accounts was apparently covered by the stroke of a pen and the insertion of balancing items by what proved to be an unqualified person. In the private sector this would have counted as false accounting, and would have had the direst consequences for those involved. In a local authority it would unquestionably have cost the jobs, not only of the person involved but of top management, who had failed to exercise due supervisory control and had put an unqualified person in such a position.
Yet what happened in this local NHS body in response to the auditor’s report? No one initially lost their post, except the man who had wanted something done about the matter. The people involved were quietly transferred to other jobs elsewhere in the NHS. Other health trusts were told they would have to fill the gap in finance by transfers of money held centrally on their behalf, to the detriment of health resources in properly managed and more efficient areas. The six local authorities that were affected, including my own, which have the duty to safeguard the interests of local people, were understandably scandalised by such procedures.
To ensure effective audit and a proper response to the comments of the auditor Ernst & Young, we set up a joint scrutiny committee to look into what had happened, suggest appropriate remedies to improve local public accountability and get a proper response to audit from this local public body. Again, what happened? There was a wall of silence and a climate of non-co-operation and cover-up. Most of the key witnesses who were invited to assist the scrutiny committee simply declined to appear. Calls came from the centre, asking the authorities involved not to rock the boat. I have to say that I was myself approached at one point by a senior NHS manager, who urged me to let the matter drop.
A devastating report finally emerged from this joint scrutiny committee, exposing in detail what had happened and taking up the original auditor’s report. It set out a range of concrete recommendations for action to prevent any recurrence, to safeguard use of public money and ensure proper public scrutiny of audit reports on local bodies within the NHS. Inevitably, lawyers acting on behalf of some of those who had previously declined to co-operate glided into the offices of those who had tried to get to the bottom of their actions to gag, or seek to gag, aspects of the report, frankly.
If the local audit and accountability of NHS and other local bodies that affect local communities is to have any meaning, there must be a place for public scrutiny. Local authorities have an obvious role in this. I shall return to this matter in Committee, and I will have to consider whether, under protection, I need to detail a little more of what I consider to be the shocking background to this case and the careless attitude to the use of NHS resources that was involved.
I hope that my noble friend may be prepared to consider amendments to strengthen the audit and the scrutiny of the response to audit role beyond the measures already in the Bill. I believe there is a role for local authorities in this. At the very least, we should find ways to ensure adoption of the joint scrutiny committee’s recommendations in order to protect local people and local authorities from what is frankly the incompetence and derogation from any sense of public responsibility that was displayed by some people in this case. NHS bodies are key local bodies, and we have the opportunity to use this Bill to strengthen their accountability to local people.
I will be brief on other matters. On publicity, I am a slight dissenter. I share the views of others that the system we have now operates relatively well, and no doubt we will review the evidence base for the proposals. However, when I took office in 2010, I abolished my own authority’s glossy newspaper. I would do the same again, as it did not in my view add much to the sum of human knowledge, so fast is the world of communications evolving. However, local authorities must communicate with local people and, increasingly, hear back from them. Increasingly, this will be done by online and web-based methods. Despite the limits on penetration, online communication is growing fast. It is a necessary instrument of dynamic, localist initiatives in which often differentiated approaches and priorities are enabled within local authority areas. Already in our own localism initiatives, for example, we so far have six separate web-based newsletters that allow two-way communication between the public and the local authority. This is a vital emerging instrument for effective and responsive governance. I will want to be assured that regulations under the Bill will not affect such communication, as it enables localist public involvement in decision-making and in no way competes with local newspapers.
Finally, on council tax referendums, here, too, I am a slight dissenter. The day after 100,000 people voted no to Heathrow expansion by a margin of three to one in a local referendum conducted by my authority and the borough of Hillingdon, you probably would not expect me to stand up to oppose the concept of local referendums—indeed, I was rather disappointed that some of the referendum proposals were dropped from the Localism Bill, as my noble friend knows. I am not all out against council tax referendums, although I perhaps rather impishly hope that my noble friend may suggest to her colleagues that they consider legislating to give central government the same duty to have regard to the results of local referendums as it imposes on us to have regard to its dictates.
I shall not today follow others—we have heard some very significant contributions—into the complex field of how to increase democratic control on precepting or levying authorities and what the Government now propose in Clause 39. However, the matter is definitely complex—I use the word advisedly—and will need close examination in Committee if local authorities that seek to behave properly are not to be penalised for the profligate actions of levying or precepting bodies, because that is effectively what often happens now. If in a referendum an overall quantum is rejected, a levying body can simply say, “Go away. We have the power to impose the levy”, and the council must not then be left having to reduce its services because of the profligacy of others.
With these riders, I add my voice to those who have welcomed the basic core of the Bill. I support the abolition of the Audit Commission and the bureaucracy that went with it, hearing the reservations that have been expressed by some, and thank my noble friend for bringing the Bill forward.
Baroness Hanham
That was a lucky hit.
We have had a long debate on three matters within one Bill. That was most unusual. Usually we have many more and we have managed to spend nearly two hours on these three matters. Noble Lords have raised a number of points and clearly we will come back to all of them. I hope that the noble Lords who spoke today will take part in Committee, because sometimes there is a tendency for people to come and deliver their thoughts but not carry them forward in Committee. I hope as many noble Lords as possible will do that.
I have no doubt that the noble Lords, Lord McKenzie and Lord Beecham, will be in their seats in Committee, and we will pick up many of the remarks and comments that have been made about the detail of what happens with the abolition of the Audit Commission. I did not get a sense of any great exasperation—except perhaps from the noble Lord, Lord Christopher—that the Audit Commission was coming to the end of its days. However, I understand that there are questions to be asked about how the process will go forward to ensure that local government has in place a proper system and that the integrity of the process of auditing is maintained.
I have sheaves of answers to questions and I do not want to go through all of them. Because of the time, everybody will want to go. I will deal with just one or two areas. The question was raised about the training and supervision of auditors. The noble Lord, Lord McKenzie, raised this point. Recognised supervisory bodies are being put into place and they will lay down the rules and the training that must be implicit in auditors applying to do work for local authorities. We can discuss this further, but we can be sure that there is an understanding that auditors must first understand local government finance, apart from anything else; that seems pretty basic. They will also have to be independent from the authority. This point was made by the noble Lord, Lord Palmer. There should be absolutely clear independence between the audit committee and the auditors. I think we shall be able to satisfy the noble Lord that this is what will happen.
A number of noble Lords raised the question of whether just four companies would bid for this audit. I said in my opening remarks that we expected considerably more than those four. Thirteen fulfilled the pre-qualification when it was put out. With the expectation that local authorities will seek auditors independently, or perhaps come together in a small cohort, there will be a requirement for more local auditors who are smaller companies. They will have to be properly qualified and be able to do their job, and while the suggestion is that for safety’s sake everybody will go for the big four, I hope and believe that there is an opening for others to take part.
The noble Lord, Lord McKenzie, asked about the difference between the auditor panel and audit committees. The noble Lord, Lord Palmer, was also interested in this aspect. The audit committees were clearly the supervisory committees of the councils’ own accounts and finance; they were in-house. The auditor panel will be there to ensure that auditors are selected and chosen properly against proper backgrounds. They will also be there to ensure that the external auditors carry out their role.
It is important to take a step away and have independent members in the majority. These committees do not have to be big. I should think that most authorities would be able to find two or three people who will fulfil the role of being independent and who have some idea of what it is all about. It is not unusual for local authorities to have to find independent members; they do it for standards boards and other things, and many of them have them on their pension fund committees as well. It is not beyond the wit of local authorities to find suitable people to sit on these committees to ensure the integrity of what is being done.
The internal audit is not in the Bill because it deals only with external audit arrangements. The requirements for local authorities to maintain effective internal audit has been included in the accounts regulations since 1974. A point was made by the noble Lord, Lord Palmer, who is obviously very experienced, and he will recognise that that is the situation. The regulations are made under the Audit Commission Act but we intend that those regulations made under Clause 31 will make similar provision in the future. The requirement for health service bodies to maintain the internal audit is dealt with separately under the National Health Service Acts.
The noble Lord, Lord McKenzie, asked about the national fraud investigation and what will happen when the Audit Commission is abolished. A final decision has not been made on where it will be placed but it is extremely important that it carries on the work that it is doing, so we will consider it very carefully. I am sure that we can discuss that.
The noble Lord, Lord Tope, asked why the opportunity to broaden the scope of the audit was not taken. We understand that the audit of public funds needs a broader scope than the audit of companies. After consultation we decided that the same scope of the audit provides a good balance between maintaining the high quality of audit and audit fees. The noble Lord, Lord Palmer, again with his experience, suggested that auditors will be reluctant to criticise that appointment for fear of not being reappointed. They have statutory duties to consider whether they need to make public interest reports; so they cannot be so biased in favour of the local authority that they do not do that. Local people have a right to appeal and they will have to deal with that as well. I do not think that they will be in a position to be reluctant; it will be part of their duties to ensure that they take those up.
We have dealt with the big four. The noble Lords, Lord Tope and Lord True, and the noble Baroness, Lady Eaton, asked how we would prevent mission creep in the National Audit Office’s role and said that it should not undertake studies that are not required. The National Audit Office already does studies on government spending. We expect it to add no more than about six to that, which will include local government on a wider scale rather than individual local authorities.
I shall turn to the other two areas on which we received some comments. On levying by external authorities, there are examples where those levies are a very substantial part of the council tax bill. Often, very little consideration is given by those bodies to what those levels are. It is important that they are taken account of.
On the question of retrospection and whether anything this year will be taken into account for next year, no decision has been taken at all about referendums yet. The principles for 2014 will be set out by the Secretary of State later on when he has taken into account all relevant factors, including the position of levies, in due course.
The issue of the principles that might trigger council referendums has long since passed; it was dealt with in previous legislation.
The noble Lord, Lord McKenzie, asked about levies and city deals, particularly with Manchester. Again, the Secretary of State can take account of this when he is looking at the principles that might trigger a referendum, but we intend that local people should have a say before any excessive bills are imposed upon them—in other words, with a referendum.
On publicity, there have been a number of triggers. One of them is that there has been pressure on the local press from local authority newspapers; the other is that some of them have been overtly political. There are examples of where local government publications are still within the political area, and also where they are being issued so often that they are becoming a pressure on the local press. We all agree that the local press is a very important part of being able to inform local people of what is going on, and what the councils are doing. It is worth pointing out that taking action about these papers was not only in the coalition agreement but was a pledge in the general manifestos of both the coalition partners. There is a publicity code already, as noble Lords know, and it will just be a question of giving the Secretary of State powers of direction where he thinks there is an overenthusiasm on the part of local authorities undertaking these publications.
The noble Earl, Lord Lytton, described the direction requiring compliance with the code as being nebulous. I am sure that we will have an opportunity to discuss that further in due course.
Finally, the noble Lord, Lord Tope, asked about statutory notices. We are aware of the burden that placing statutory notices in newspapers has on local authorities. The Secretary of State has stated that,
“in the internet age … commercial newspapers should expect that over time there will be less state advertising”.—[Official Report, Commons, Seventh Delegated Legislation Committee, 23/3/11; col. 18.]
That would imply that they can be carried out in other ways.
I know we are going to come back to many of these points. Noble Lords must forgive me if I have not specifically picked up any of the points that they have made. If they think that it would be helpful to have a reply before we go into Committee where I have not answered them I will make sure that happens. Otherwise, I look forward—
Lord True
Before my noble friend sits down, she has not responded—I understand why and I do not complain about it—to the gravamen of my speech, which related to the ability of certain local bodies, in this case, an NHS body, to evade accountability and proper response to a report from an auditor. Will she undertake to hold discussions about that before Committee?
Baroness Hanham
My Lords, I certainly will. I apologise to my noble friend. It would perhaps be better if we discussed that before we take it on. The noble Earl, Lord Lytton, asked me whether we could discuss the audit for small authorities. Of course, I am delighted to do that as well; we will make arrangements for that, once we have all had a good Recess and time to put these things behind us for a day or two.