Local Audit and Accountability Bill [HL]

Lord Wills Excerpts

Monday 15th July 2013 Lords Chamber

Moved by

[Lord Wills]

18: After Clause 22, insert the following new Clause—
“Auditors right to documents and information of private contractors
(1) A local auditor has a right of access at all reasonable times to audit documents from private companies that the local authority have contracted services to during the last financial year.
(2) Local auditors only have a right of access to audit documents from private companies, under subsection (1), that relate to the service provided to the local authority by that company.
(3) A local auditor must publish any audit documents, obtained under subsection (1), as part of a local audit publication.”

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[Lord Wills]

My Lords, both amendments aim to improve transparency in the new arrangements for local government. Amendment 18 is very similar to one that I tabled in Committee, and Amendment 23, with which it is grouped, is identical to the one that I moved then. Both were resisted by the Government, and I am bringing them forward again to give Ministers the opportunity to think again about whether it is really in the best interests of the Government, let alone in the public interest, to restrict transparency in the way that continuing to resist the amendments would.

I set out the case for the amendments in Committee, so I will not repeat those arguments in detail now. However, since then, both Ministers and their officials have met me to discuss the amendments, and I should like to place on record my gratitude to them all for all the time and trouble that they took in doing that. The noble Baroness, Lady Hanham, then followed up with a letter, which, I understand, has been copied to all interested Peers, setting out in some detail the grounds of the Government’s resistance to the amendments. Again, I am very grateful to the Minister for the careful and thorough way in which she and her officials have approached these issues, and I think they are now owed the courtesy of a response to their arguments.

Their first argument is that the amendments represent an increase in transparency and would bring auditors under the Freedom of Information Act in a way that they were not under the previous regime. I regard this as an argument for the amendments, not against them.

The recent Grant Thornton report for the Care Quality Commission showed just how important transparency can be in the work of those scrutinising the delivery of public services. What the Secretary of State for Justice last week rather politely referred to as,

“a significant anomaly in the billing practices under the current contracts”,—[Official Report, Commons, 11/7/13; col. 573.]

for electronic tagging has shown how important transparency is for scrutinising the work done by private sector companies for the public sector. In the light of what has been revealed recently about such work and about what has happened in the NHS, I am baffled as to why Ministers should still be resisting increasing transparency.

However, these amendments are not only about increasing transparency; they also set out to tackle a decrease in transparency brought about by the new arrangements. The Audit Commission, which is being replaced by the provisions of the Bill, was covered by the Freedom of Information Act. My understanding is that, in addition to information that it held for its own purposes—which was of course covered by the Freedom of Information Act—some information held by auditors would also have been regarded as being held by the commission in certain circumstances; for example, when it was investigating a complaint against a specified auditor, when it was conducting a quality control of their work, or when it had required an auditor to provide information for the discharge of wider Audit Commission functions, such as making judgments on local authorities’ use of resources. In such circumstances, the information would have been deemed to have been held by the Audit Commission and so subject to the Freedom of Information Act.

These are important categories of information that cover significant areas of public interest and concern. Yet, as far as I can see, no public authority, as defined in the Freedom of Information Act, has inherited those responsibilities from the Audit Commission, so under the new regime such information will no longer be covered by the Freedom of Information Act. I think it should be. This restriction of transparency damages the public interest. These amendments seek to prevent that happening.

Next, the Government appear to believe that there are already sufficient provisions for transparency for these amendments not to be necessary. However, as I set out in Committee, the fact that local authorities themselves are covered by the Freedom of Information Act does not always provide the necessary transparency for private sector bodies carrying out public sector work. Nor does the right of electors to inspect accounts and audit documents always provide the necessary transparency, important though that right is and has been for all the years that it has existed.

The Minister will be well aware of all the information that would not be available for scrutiny by the public under this regime. Why should the citizen have to resort to the cost and trouble of going to court under the Government’s regime—as the Minister suggested in her letter—to secure rights to transparency, when such rights could be made available to them under the more accessible regime of the Freedom of Information Act?

The Government then argue that exemptions under the Freedom of Information Act, particularly regarding commercial sensitivity and audit activity, mean that little extra information would be made available under these amendments. The Minister, however, will be aware that these exemptions are subject to a public interest test. That is a relatively high hurdle to overcome, so it may mean relatively little information will become available through the means of these amendments. However, when the hurdle is overcome it means that the information that does become available is—by definition—in the public interest. I believe such information should be made available to the public. I am surprised that Ministers want to deny it to them.

Finally, we come to the nub of the Government’s arguments, which is that transparency increases cost and so increases audit fees and, ultimately, the cost to taxpayers—and that it may also restrict competition as some auditors will be deterred by the requirements of transparency from bidding for such work.

These arguments crumble as soon as they are examined in any detail. Quite apart from the fact that the Government admitted, in answering a Parliamentary Question from me on 3 July, that they have made no estimate of the cost of bringing local auditors under the Freedom of Information Act; quite apart from the fact that greater transparency can often save money by revealing fraud, corruption, incompetence and inefficiency; quite apart from the question of why anyone should want an auditor carrying out crucial scrutiny of public services who would be deterred from such work by making what they do subject to scrutiny by the public they serve; quite apart from all that, the Government's own figures suggest, as far as I have understood them, just how flimsy this argument is.

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[Lord Wallace of Saltaire]

My Lords, this has been quite a wide-ranging debate and I recognise the importance of the issue that is being raised. I thank the noble Lord, Lord Wills, for the discussion that we had the other week and for the determination with which he is pursuing this. The Government are not persuaded that these amendments serve the cause. It seems to us that the current arrangements provide the requirement for transparency in outsourcing, but I recognise the much wider issues that the noble Lord is raising, such as the growth of outsourcing over the past 25 to 30 years, the potential conflicts of interest that then arise and the rise of substantial amounts of public money that are now being spent by private contractors. The current and recent cases of alleged fraud and error that have arisen in a number of areas of outsourcing of the work programme have not been mentioned. However, noble Lords will also remember that there have been a number of worrying cases.

This has grown up over a long period, from well before this Government took office, but it is with us now and we certainly need to look at it. I promise the noble Lord, Lord Wills, that if he would like to pursue this we are open to further discussions. This is the sort of subject that is perhaps appropriate at some stage for a committee of one or other of the Chambers to look at, to see whether the current rights of freedom of information, rights of access, and challenges from electors and others are adequate, or whether there is a systemic problem that needs to be addressed by legislation.

Local authorities are covered by the Freedom of Information Act and information is directly available from the auditor through the right for local electors to ask questions and raise objections. These cover contractual arrangements with private contractors. The DCLG consulted on bringing local auditors into FOI in spring 2011, when the consultation asked whether local auditors should be brought into the FOI Act. The conclusion was that they should not be brought within the Act, because it was believed that doing so would add little to local authorities being covered in the FOI Act, and because provisions in the Bill retain,

“rights for electors to inspect the statement of accounts and audit documents, and to raise questions and objections with the local auditor”.—[Official Report, 24/6/2013; col. GC 203.]

As I said in Committee, all respondents to this question said that bringing auditors into the FOI Act would increase audit fees. I shall not repeat the argument that I presented in Committee in resisting these two amendments, but the Government’s door is not closed on this. It is a matter that affects all parties and all those in charge of local authorities, future Governments, this one and past ones.

A previous Prime Minister said that the FOI Act was the single biggest mistake that he thought he had made. We disagree with him. It is painful, but necessary. The universality of outsourcing across a range of areas means that from time to time we need to look at this overall, but we are not persuaded that on this particular occasion in this particular Bill these amendments are necessary or appropriate. With that assurance, I hope that we are open to further discussions and that the noble Lord may be willing to withdraw his amendment at this stage, recognising that the question is not therefore necessarily closed.

[Lord Wills]

My Lords, I am grateful to everyone who has contributed to what has been a valuable debate and from all sides brought to it a wealth of experience and expertise. I am grateful to the noble Lord, Lord Shipley, for his support. The noble Lord, Lord Palmer of Childs Hill, and the noble Earl, Lord Lytton, brought invaluable experience to bear on these issues, and I am grateful to them. They both made a valid point about the fact that the audit can discover problems only after the fact, and the noble Lord, Lord Palmer, asked me directly why I thought that these amendments would still be valuable in the light of that. They would be valuable for many reasons. Perhaps the most important one is that knowing what you do will be subject to public scrutiny is a powerful incentive to getting it right. If you know that what you are doing can be covered up successfully, that is more likely than anything else to ensure fraud, incompetence and inefficiency. I hope that that reassures the noble Lord, Lord Palmer. I am also grateful for the support of my noble friends on my own Front Bench.

I am particularly grateful for what the Minister said; I am grateful to him and his officials for the way that they have engaged with this issue so far. I hope that I am not wrong in detecting just the slightest imperceptible budging from their resistance to these amendments that I saw in Committee, or at least a willingness to carry on engaging with the issues. I welcome this. I also disagree with the view of the former Prime Minister on the Freedom of Information Act and agree with this Minister.

I shall withdraw the amendment today, but I hope that we can return to these issues at Third Reading. The Government have said that they are prepared to look at this again and I welcome that. Even if they do not accept these particular amendments, if they can come up with something better I am happy to discuss that with them. I also ask the Government to look at two issues between now and Third Reading, because they bear on the whole purpose. First, in his response the Minister did not really address my arguments about the inadequacies of the current regime. With all respect to him, he just repeated the arguments in the noble Baroness’s letter to me. I have said why I took issue with those arguments, and I hope that he will look at Hansard and look again at the problems that I have with the regime that is proposed.

Secondly, there is the question of cost. This has not been the time to get to grips with this, but I still think that the argument about costs is unpersuasive. The fact that a consultation produced a predictable response from the predictable vested interests is no argument for government policy to be made on that basis. So I hope that the Government will look at what the actual costs of compliance are likely to be, how much of a deterrent they are likely to be, how far those costs can be absorbed by auditors and how far they would have to be passed on.

I am happy before Third Reading to extend to the Minister and his officials the invitation that he so kindly extended to me in Committee of meeting them again, discussing these issues and seeing if there is a way that we can find some common ground. If not, we will probably have to return to the matter at Third Reading. In the mean time, I beg leave to withdraw the amendment.

Amendment 18 withdrawn.