WEDNESDAY 1 MARCH 2000
_________
Members present:
Mr Andrew F Bennett, in the Chair
Mr Hilary Benn
Mr Crispin Blunt
Christine Butler
Mr John Cummings
Mrs Gwyneth Dunwoody
Mrs Louise Ellman
Mr Bill Olner
_________
EXAMINATION OF WITNESSES
RT HON HILARY ARMSTRONG, a Member of the House, (Minister for Local
Government and the Regions), MR ANDREW WHETNALL, Director, Local
Government Directorate, and MR PAUL ROWSELL, Divisional Manager,
Local Government Sponsorship Division, Department of the
Environment, Transport and the Regions, examined.
Chairman
474. May I welcome you to our final session on the Audit
Commission. I am not quite sure whether you are as tired as most of the
Members of the Committee.
(Hilary Armstrong) Fairly.
475. Could you introduce your team.
(Hilary Armstrong) Good morning, Andrew. I have here
Andrew Whetnall who is Director of Local Government in the Department and Paul
Rowsell who is Divisional Manager of Local Government Sponsorship.
476. Do you want to say a few words to us to start with or are you
happy to go straight into questions?
(Hilary Armstrong) I am more than happy just to go straight
into questions.
Mrs Ellman
477. What is the aim of the external audit regime?
(Hilary Armstrong) External audit is now well established
in the public sector. What it really is there to do is to provide that
essential link in the accountability chain from those responsible for spending
decisions to those relying on the services being funded from public funds,
very importantly, therefore, to the general public who are the ultimate
providers of these funds. Auditors in the public sector are independent of an
authority and they have a duty to check that the financial systems that an
authority is using are accurate and that the authority has set in place
adequate arrangements to ensure that its financial standing is soundly based.
It is also their responsibility to check that the body has an effective system
of internal financial control so that we know what is going on internally but
also to check that the authority has set in place adequate arrangements to
maintain proper standards of financial conduct to prevent and to detect fraud
but also to report on the scope, nature and extent of work carried out in
relation to financial aspects of the corporate governance of a council. There
are clearly stated principles which the public audit forum, of which the Audit
Commission is a member, have agreed and have published and they form the real
core of the objectives of public audit.
478. You have not mentioned an aim of improving public services,
is that part of their remit?
(Hilary Armstrong) Clearly with Best Value coming in that
is part of how the new legislation is moving in order to encourage and enable
auditors to be part of the regime to enable councils to both have examined
what they are saying they want to do through the Best Value performance plan
but also for the public then is the Best Value performance plan up to scratch,
is that dealing with the issues the public think are important and doing that
in a way that can be delivered and then have they delivered what they have
said to the public they will do? That is going to be part of public audit in
the future.
479. Do you see value for money as important, as probity?
(Hilary Armstrong) We certainly do. When I have been to the
Committee before I have talked to the Committee about how value for money is
a part of the whole regime that we are ensuring is put in place but it has
been an aspect of the Audit Commission since its inception. That is why the
Audit Commission have had national value for money studies and then have
looked to see how individual local authorities have implemented those value
for money studies in their normal day to day business.
480. How do all these things operate in your own Department?
(Hilary Armstrong) The Audit Commission is independent of
the Department and rightly so. They ought to have the ability to work
effectively with local authorities and work to Government and to other
organisations that it has a responsibility to but nonetheless they are
independent. Within the Department certainly we have places within the
Department - and both Andrew and Paul represent those - where there is a
relationship developed in terms of appointments to the Audit Commission and
in terms of developing policies that once Parliament has enacted legislation
the Audit Commission will then have responsibility for putting into practice.
So within the Department we make sure that we hear from the Audit Commission
how they intend to put into practice legislation that Parliament has agreed.
481. Who are the Audit Commission accountable to?
(Hilary Armstrong) The Audit Commission is accountable to
local councils but also they have to be sure that they put into effect what
Parliament has said.
482. Which part of local councils do you think the Audit
Commission should be accountable to in the proposed new structures?
(Hilary Armstrong) You mean once authorities have changed
their management structure?
483. Yes?
(Hilary Armstrong) They will still be accountable to both
because the whole council is responsible for policy and for budget. Both those
in the executive and those in the scrutiny panel, and however the council
organises itself, they will both have to have account. I think that the new
structures will give councils a much sharper edge in terms of how they make
sure that they know what is going on and the effect of that in the community
and how they actually keep the objectives of the council and are those
objectives being met and delivered on the ground. The new arrangements will
allow councils to take a far more active interest in that than they have been
able to in the past.
484. The question is not about the councils, it is about the Audit
Commission's role. Normally when the Audit Commission is carrying out its work
it consults with the local authority in terms of its findings, its thoughts,
factual matters. Now, under the new structure which parts of the council
should the Audit Commission be consulting with as it goes about its business?
(Hilary Armstrong) Sorry, I thought that you meant the
auditor rather than just the Audit Commission. The Commission technically is
responsible eventually to the Secretary of State through Parliament.
485. No, the Audit Commission is conducting its work in the local
authority under the new structure, as it carries out its work they normally
consult with the authorities in terms of the work they are doing and they find
certain matters they wish to clarify. Under the new structures should that
consultation be with the Cabinet, executive members, with the scrutiny
committee, with the full council, an elected mayor if there is one? Under the
proposed new arrangements which the Government is putting into force very soon
how should the Audit Commission carry out its work?
(Hilary Armstrong) Do you mean the auditor, the district
audit?
486. I mean both.
(Hilary Armstrong) You mean the value for money studies as
well as the audit.
487. Both of these in conducting the work you have designated at
the beginning, probity, value for money, improvement of local authority
services. Under the new structures which part of the council should be
consulting to see that the Commission in whatever form carries out its work?
Is it the scrutiny committee or the cabinet or the chief executive with the
elected mayor, how will it work under the proposed new structures?
(Hilary Armstrong) I simply can repeat what I have said,
the whole Council will at some stage be part of the consultation and the
relationship. There will be something that the officers will be responsible
for within a council for specific aspects of information. If an auditor wants
to go back and check on a decision then it will be the responsibility of the
person or the group that took the decision to account for that. If they are
looking at how has the Best Value performance plan been implemented and what
has been its impact then they may well want to consult with those involved in
scrutiny as well as those who have responsibility within the authority for the
actual delivery of the service. They may well want to be involved with
scrutiny too to find out what their view is of the outcome of the particular
area that they are looking at. The inspectorate will, I imagine, certainly
want to have access to whoever is appropriate in the particular aspect that
they are looking at.
Chairman
488. We are trying to find out who is appropriate.
(Hilary Armstrong) Andrew, it is bound to be different
people in different circumstances and depending what the concern is. If the
concern is that there has not been effective involvement of the public and
consultation with the public when the council said it was going to be doing
that, then, of course, they will want to go and talk to the scrutiny panel
but, also, I suspect they would want to talk to the executive. At the moment,
if you are on a council, very often it is just the chief executive.
Occasionally, it will be the leader. Certainly, when I was on a council, I
had no involvement and had no understanding of what District Audit was doing.
I think now that councils expect to know what District Audit is doing and they
ought to expect to know that. I hope the new structures will help them to be
more accountable than they have been in the past.
Christine Butler
489. How do you feel about the internal structures of the Audit
Commission?
(Hilary Armstrong) We are interested in the outcomes of the
Audit Commission and what they actually do. Of course, they have to achieve
value for money within the organisation. They have to organise themselves in
order to meet the outcomes that we, in a sense through legislation, have set
down and the expectations that we have set down; and that those are reflected
in what we say, through our Public Service Agreements, about what we expect
from local government. So how they actually organise internally really is a
matter for the Commission but we do expect them, in however they organise, to
make sure that they support District Audit and make sure that the District
Audit is, as far as possible, delivering a consistent form of audit.
490. Why I asked that is that there are five-yearly reviews of the
Commission.
(Hilary Armstrong) That is right. I was going to get to
that.
491. The DETR takes that on board. Phase 1 has already been
completed and was with you over a year ago but phase 2, I think, is actually
reported or should be reporting now. That has been done by the Aston Business
School at the University of Birmingham. I wondered if you could indicate how
their findings are going.
(Hilary Armstrong) I was going to try and not use
abbreviations but we do rely on the FMPR, (the Fundamental Performance Review
or whatever it is), in order to be clear that what we are asking the Audit
Commission is how they are using the money and how they are organising
themselves. That is always done in two stages. It is a process which is used
for all non-governmental public bodies, so it is a process that is well known.
There is a scoping exercise first and then there is a process whereby we put
out to tender the inspection of the auditors.
Chairman
492. We have got down in front of us more-or-less the process.
What we are after is whether you can share with us any of the outcomes.
(Hilary Armstrong) I have not yet seen the report so I do
not know what is in the report, but I understand that others in the Department
have had discussions with the School of Public Policy at Birmingham and the
people who are undertaking the FMPR. Overall, they have found the Audit
Commission to be a well-managed organisation, providing important benefits at
a reasonable cost. They have been impressed with the high quality of members
and staff of the Commission and their success in achieving the organisation's
objectives. I understand that they are likely to recommend that further
exploration be given to issues to do with incentives and with procurement
mechanisms, but given the major changes currently under way at the Commission
these should not be attempted for two years. So they are going to make some
recommendations for looking at procurement of audit, but they are saying they
want us to wait until we have sorted out the other things.
Christine Butler
493. The procurement area is very important. We look forward to
more detail on that as soon as it can be made available. Looking at the mixed
market, as you probably realise, there is a lot of concern not only about
Citizen's Charters but how they relate to Best Value in themselves and whether
the local authorities have a fair chance of achieving what they would like to
achieve under the present regime. Do you think that the private firm share
of the external audit market should be increased?
(Hilary Armstrong) I think that is a very difficult one.
There are some people in local government who would like that. Others are
very happy about that suggestion. Clearly that is what the FMPR has been
looking at. We await their ideas. We do know that some of the private sector
companies pulled out in the last year because they were not satisfied that
they were getting sufficient return on the fees that we allow. Government
does cap what can be charged really. I think that the balance has always been
- at least since the system was introduced - about 70/30. It is currently at
about that level. I think it is useful that you do have that sort of balance
in order to make sure that there is a real push; to make sure that everyone
knows that there are alternatives if a particular form of audit is not coming
up to scratch. We have to keep the balance so that we get the market working,
but we also make sure that we keep the fees at a level that can be handled.
494. Having said that, do you think there is justification for a
move towards a 50/50, so that local authorities who have to put out to tender
have more choice?
(Hilary Armstrong) Local authorities do not, at the moment,
choose their own auditors. That is done by the Audit Commission. That is one
of the basic principles that the Public Audit Forum have established.
495. I was looking at the Best Value regime when that kicks in.
They do have that option then, do they not? Sorry, putting services out to
tender. A lot of them were saying - not all - but there was a view that if
we are moving more towards a 50/50 that would be better. Now, that might be
something that the private firms would be wishing to have, and not maybe
something that would be feasible in your opinion. I just wondered what your
opinion was.
(Hilary Armstrong) There has been out-sourcing of services
for some time in local government. There always has to be a relationship then
between an individual firm's auditors and the District Audit or the public
audit. Again, that is very important. As I say, I do not have a fixed view
on what proportion. I think it works reasonably well at the moment. I would
be reluctant to do anything which significantly increased the fees for public
audit. The balance, at the moment, helps to keep the fees at what I think is
a bearable cost. I would not like it to go higher.
Mr Olner
496. Many council leaders would agree with that!
(Hilary Armstrong) I know. I would not like to push that
up.
Chairman
497. South Devon, particularly, were claiming that for small local
authorities it was fairly high.
(Hilary Armstrong) All I would say about that is that South
Devon said this to you before they had seen what was agreed in terms of audit.
The Audit Commission took the decision at the end but we pushed them extremely
hard to make sure that the charges would not be overburdensome. As
authorities are seeing what they would actually pay, as opposed as to what
they thought in the beginning, it is beginning to make more sense. It is
still very comparable with what you would be paying in the private sector.
498. So you think we will get a letter from South Devon saying,
"thank you very much"?
(Hilary Armstrong) I am sure not. Never, ever!
Mr Benn
499. As you will be aware, the Audit Commission and auditors have
traditionally steered clear of expressing any view about the amount of
resource going into a service. Could you tell us whether you think that
position is going to be sustainable as we move into inspection. In other
words, if as a result of inspection a view was formed that one of the reasons
a service was not up to scratch was because not enough money was being spent
on it, would you expect the inspection process to comment on that?
(Hilary Armstrong) I would expect the inspection service to
identify that the council is organising its finances and organising its
services in ways that it was getting the very best out of the money that they
had for the service that is being given. I do not think it will move to:
"This service is not getting enough money." What it may move to is: "This
council is not organising its money effectively in ways that mean this service
is getting a fair crack of the whip, in terms of the way the council is
organising its whole service."
500. It involves saying: "You need to spend a bit less on that in
order to spend a bit more on something else"?
(Hilary Armstrong) I think it would involve them saying:
"You have to look at how in a corporate way you organise your budget, and you
keep hold of what that budget is doing." Certainly, as I have been doing the
job over the last two and a half years, what I have seen from auditors'
reports, and from comment from the Audit Commission, has really been much more
around that: around that value for money and around if a council has ended up
with real problems in a service at the end of the year, how would it actually
organise that from the beginning, and what controls had it had to signal when
it was getting into trouble on a service? Some of the joint inspections have
already thrown up very clear ways, which have helped authorities to see where
they have not been using their money in the most effective way. That has been
a very helpful part of the joint inspections between the Audit Commission and
SSI or OFSTED or whatever.
501. Just turning to a different aspect of inspection, do you
think there is a risk, as the Audit Commission begins to play a role in
possibly determining which local authority service is subject to intervention,
that this might damage its reputation for independence? In other words, they
are being asked to stray into political territory.
(Hilary Armstrong) I do not think the Secretary of State
will ever get out of having to accept the full responsibility for that. It
would not be up to the Audit Commission to say whether intervention takes
place. That will be and will remain a political issue. We will have to take
the rap for that too.
Chairman
502. But in the playground the school nark often gets hammered
rather more than the teacher when something results in a nark reporting
action.
(Hilary Armstrong) Well, we have very good policies on
bullying these days! Of course, it is a serious issue. At the beginning, the
Audit Commission was seen in exactly that light when it was first set up. I
suspect, that if we go back to the early debates, you and I were saying
precisely that in the early days of the Audit Commission. But, actually, the
Audit Commission has built up a reputation for fair evaluation of evidence.
That is very much what it has to continue to do. The inspectorate, I believe
- and I know they have now got out their own first publication, which you will
have seen, and it is called Seeing is Believing - that gives us a very clear
view of that important principle, which is being upheld, in how inspection
will be taken forward. I know that there is a determination there, and among
folk like me, that the Audit Commission does things in a way that can be
justified because it is based on evidence. We will have to take the political
decisions based on that evidence. I know that will all be open to challenge
too. It is important not just that Secretaries of State have got that
evidence. It is important that that evidence is open and available to the
public so that they can know that decisions are being taken in a fair manner.
Mr Benn
503. A number of witnesses have put to us that there appears to be
an anomaly, on the one hand, between the Government's wish to encourage the
Audit Commission to comment on the performance of local authorities; but, on
the other, when it comes to the performance of central government the National
Audit Office are told: thus far and no further. Do you think that is a fair
criticism and, if so, how would you justify to local government the stance
which the Government is taking?
(Hilary Armstrong) I notice that my colleague, Andrew
Smith, yesterday announced that there will be a new review of audit nationally
and that we do want to update that. I think there is some valuable work going
on between the National Audit Office and the Audit Commission. I always think
that we should be prepared to learn from local government and learn from what
works well. I am sure that the review of audit, of the public sector more
widely, will take those things into account.
Mr Cummings
504. The Audit Commission has recently indicated that it is
committed to establishing a mixed economy for the inspection of Best Value.
Do you support the creation of a mixed supply for the inspection of Best
Value?
(Hilary Armstrong) I do because I think that inspection is
very important. I think that it is a very good way of enabling services to
look again at themselves and for politicians and councillors to have an
external light shone on the things that sometimes, even as a council, it is
quite difficult to get information about. That will be very helpful. I
therefore think that the inspectorate has to be up to the mark and that
enabling a mixed economy in the inspectorate will help to do that. If we are
saying that the public sector has to be open to competition, then the
inspection service should be too.
505. When do you expect this to happen?
(Hilary Armstrong) They are currently putting their
proposals into action now. As I say, they produced their first publication
last week on how they intend to carry out inspections. This gives a very
clear indication that it is not just going to be people from the centre who
will be going to do the inspections. They will be involving people from local
government and other areas of the public sector too. That is very important.
506. But if this function of the Audit Commission is to be
externalised, what is the purpose of the Audit Commission recruiting large
numbers of inspectors at the present time?
(Hilary Armstrong) I do not see it as being totally
externalised. I do see it as their being a bit like District Audit. That
some are very clearly within the remit of the Audit Commission and some are
actually working to the guidelines and so on of the Audit Commission and the
Chief Inspector but doing that from an external group.
Mr Olner
507. Given that the LGA cannot agree on the Standard Spending
Assessment formula, do you think the Audit Commission ought to be advising the
new Minister on how to make that more equitable in the future?
(Hilary Armstrong) We have give them enough problems
without dragging them into that one!
Chairman
508. You have solved that one.
(Hilary Armstrong) No, no. We have a review going on at
the moment, as you know, Bill, and we are dragging the LGA into discussions
on the review. We hope to produce a Green Paper in the summer on that.
Mr Olner
509. But should not the Audit Commission be having some input?
They are very good at measuring outputs but the inputs vary widely from each
local authority, based on the amount of government revenue support they get.
Should they not be commenting on that?
(Hilary Armstrong) They do comment on it in terms of: are
people delivering their outputs and are they getting value for money for the
money they are spending? As I say, I think it is up to government, along with
local government, to find a system of distribution of finance which supports
what we are asking local government to do.
510. There is a great deal of uncertainty amongst councils as to
whether they will be reimbursed properly for the extra Best Value audit and
inspection costs from the Revenue Support Grant. Can you explain to the
Committee what provision you have made to make sure those local authorities
are not put to any additional expense for the Best Value audit.
(Hilary Armstrong) We estimate that the regime this year,
Best Value audit and inspection, will cost about 40 million this year. So we
took account of that in the local government settlement. Through the
settlement, through SSAs we put in an additional œ24 million to cover audit
fees and half the cost of inspection. We have also given the Commission œ16
million in grant aid so that they can meet the rest of the cost of inspections
and the costs of setting up the inspection service.
Chairman
511. When you say "this year", could I just be clear which year
you mean.
(Hilary Armstrong) From April 2000, because that is when
the new regime of audit and inspection will come in, and that is when the
expenses will start from; so we put the money into that first year to the tune
of œ40 million. We pushed the Commission hard to make sure that the burden
of fees was spread more fairly among groups. I always accept that small
districts, a small level increase for them is a high percentage of increase
because their budgets are so much lower. We wanted that to be taken account
of. So we did try to make sure that we covered the new costs in there, but
we do think that it is important that this cost is split between the local
authorities themselves paying for some of it and getting that reimbursed
through central government grant, (although not directly, of course), and some
of that coming through the Audit Commission.
Mr Olner
512. How transparent will those costs be when the Audit Commission
finalises those fees in 2000?
(Hilary Armstrong) It will be very transparent. There is
out now a consultation document - I can never work out when things are in
consultation and when they have got through their consultation - but there is
a consultation document out now and I know authorities are responding to that.
There is a clear logic in the consultation document.
Chairman
513. So when I get the council tax bill, I will actually be able
to see in that list of how that money is spent, how much will be going for
audit?
(Hilary Armstrong) I am afraid that will be up to your
local authority. They could put that on if they wished to.
Mr Olner
514. May I continue this is a little bit further. There are an
awful lot of inspectorates about. Nobody is quarrelling about the probity in
public service but we have OFSTED, Social Services Inspectorate, Mental Health
Act Commission, etcetera. There is a whole plethora which local authorities
have to deal with. Is there not a case for having one public standards
inspectorate?
(Hilary Armstrong) I thought about that very seriously when
we were talking about all of this. It would have needed huge legislative
changes because there are Acts of Parliament which have set up the Social
Services Inspectorate, the Police Inspectorate, the Fire Inspectorate, OFSTED,
and so on. So we would have to have done much more legislation but that was
not the only reason. I think the real challenge for the next few years is
going to be how we, on the one hand, keep clear focus on the outcomes in a
particular service but also, at the same time, get the benefits from
cross-cutting working.
Mrs Dunwoody
515. How are you going to do that?
(Hilary Armstrong) That is why I think the current format
is more likely to deliver that than bringing them into one inspectorate.
OFSTED will look just at the objectives for schools but when there is a joint
inspection between OFSTED and the Audit Commission - or even OFSTED, the Audit
Commission, and the Social Services Inspectorate - what you are then getting
is more cross-cutting and looking at value for money in a way that OFSTED on
its own has not had the experience or the expertise of delivering. What we
have done is set up an Inspectorate Forum. Also, Ministers from the
Departments meet around inspection and intervention. We have now formed a
ministerial group so that we are working alongside the Inspectorate Forum.
All of the inspectorates come together and they will manage - I think in a way
which has not been effectively done in the past - when authorities will get
inspections, and how the whole plethora of inspectorates actually work
effectively together.
Mr Olner
516. But surely we have to work to streamlining these things. For
instance, in Warwickshire the Fire Service is very badly funded by the
Standard Spending Assessment, yet if you want a licence by the Home Office to
come up to a certain standard it is absolutely impossible to do that with the
money that you allow them to have, so surely there is room for some
streamlining and more focus.
(Hilary Armstrong) Again, yesterday I met with the Minister
from the Home Office, who has responsibility for the Fire Service, and we met
with an authority to talk about exactly this. You cannot put everything into
one and just hope it is going to work better.
Mrs Dunwoody
517. But does not that mean that you have to have, at a much more
basic level, an exchange of useful information?
(Hilary Armstrong) Absolutely.
518. It is wrong to use anecdotes but I will give you an example.
My committee was looking at a particular computer system, which was directly
related to safety in the maritime field. A member of another service,
watching that on television, rang me and said that the Home Office
Inspectorate had not only installed this particular system, but knew it did
not work, and it was recorded in the inspectorate information. So one part
of Whitehall had tried a system and found it wanting, and another part of
Whitehall was about to begin installing it.
(Hilary Armstrong) I agree with you entirely, Gwyneth.
519. So how, at that very basic level, do you make sure that the
information is passed right the way across the system?
(Hilary Armstrong) The first thing to do is to make sure
that people talk to each other and people share information. At the moment,
there is no compunction upon them to do that. One of the real strengths of
the Audit Commission in recent months and over the last couple of years has
been to make sure that inspectors are talking to each other, that there is a
better flow of information, and we have brought people together into this
Inspectorate Forum. If stories like that come up in the future, that will be
because people are simply not co-operating. At least we will have a system
to deal with that. The essence is that we have to get people - and everyone
we are talking about are people, people with their own ideas and "We tell each
other things when we want to" and all the rest of it - but what we have to do
is to establish better relationships, bring people together, and get that
working more effectively. Almost all of the inspectorates have been now going
for a lot of years. I find it incredible that it has taken Best Value to
bring them together and to push on Best Value to get them to co-operate more
effectively. I do not say we are there yet, by any stretch of the
imagination, but what there is is a determination to get there, and to make
sure there is much more effective sharing of information and co-operation and
planning with local government, so that they are able to deal with the
inspectorate in a more effective way too.
Mr Blunt
520. Are you committed to reducing the burden of Best Value
inspection in time?
(Hilary Armstrong) If you look at the booklet that was
published last week, you will see that there has been a very strong attempt
to get a good balance. We have to be clear that there are going to be
occasions when there will be spec. inspections, because we all know that it
is possible in any organisation so to organise things that if you know an
inspectorate is coming on a particular day you can make sure they see the good
things. So we know that there will have to be speculative inspections
occasionally, but they will come very much from looking to make sure that the
information that you have about an authority has been looked at effectively,
and that from that information you can pick up where there are problems which
you need to go into. So the inspectorate is really going to be based much
more on picking up where clearly from the indicators, from the evidence, that
there are problems, and concentrating on those. Therefore, the better an
authority is doing, the fewer inspections they will be having. But, as I
said, that does not mean to say they can then say: "Oh, we are in the top 10
per cent in this service so it means we will never get an inspection." We
will have to make sure they do get inspections. But the nature of the
inspection will be able to be different once we have that much better quality
of information about what is actually going on.
521. I do not think you have quite answered my question. Are you
determined to reduce the burden of Best Value inspection over time? I
understand where you are coming from and from where you are starting.
(Hilary Armstrong) What I am saying is that the better an
authority does, the more the burden of inspection will be lifted on them. Am
I committing, in the three years I am working to, to reduce the number of
inspections? No. I think we have a lot of work to do before we can say the
inspection is not going to be.
522. So you do not agree with the Local Government Association who
say: "As Best Value develops the authority will develop a capacity for self-
improvement over time."
(Hilary Armstrong) Yes. That is what I said. I said that
as authorities improve, so they will lessen the level of inspection.
Chairman
523. You are not expecting them to improve significantly over the
three-year time period kicking in?
(Hilary Armstrong) For me to make a commitment to this
Committee, that the numbers of inspections will reduce in a period, we will
not have got through the first period of Best Value for five years. It will
take five years.
Mr Blunt
524. So you do not anticipate that in that five-year period local
authorities are going to get better and conduct their self-assessments?
(Hilary Armstrong) I hope they will do. I am working on it
and all of our local government agenda is to drive up standards, improve
standards across the board. As that happens, so the need for the heavy end
of inspection will diminish. For authorities that are doing well it will
diminish quicker.
525. Is there not a basic problem here about the democratic
accountability of local authorities and their ability to manage their own
affairs freely and, indeed, to some extent, to make their own mistakes? You
are here establishing a system where they will have this Best Value audit and
all the rest of it, that will enable them to have access, to be able to
identify where their problems are, and where they can improve their services;
but if central government and Parliament combined keep imposing inspection
regimes and everything else on them, it takes away from local authorities (in
a sense) virtually any decision-making capacity of any significance at all.
(Hilary Armstrong) I just totally disagree with you on
that, Crispin. I think that is a misunderstanding of how inspection works and
what the effect is. I did work in the public sector and so was subject to
inspection myself. I did find it a very useful way of sounding out with
external people whether what I thought we were achieving was actually real;
how that compared with other areas; how it compared with other institutions
of the same nature. The inspectors do not come in and say: "You should do
things this and that way." They come in and say: "Look, that there really is
not working. You need to think about that. What are you going to do about
that?" Very much the Best Value regime does drive authorities but it drives
authorities to take responsibility for their own aspects. Also, through the
scrutiny regime in local authorities, the authority will be able to take hold
in ways they have never been able to before. How is it actually working for
the citizen out there and engaging the citizen in that debate? The ability
to compare and contrast how other authorities are doing things or what other
authorities are doing is a very important part of how you actually improve and
change your practice.
526. I accept all of that, but in a sense the question is why
cannot local authorities do that for themselves. They have a self-interest
in doing that and benchmarking their own performance and checking their own
performance. Is there not a cycle to this in a sense? You got to a stage in
the 1970s and 1980s where there was poor practice across wide parts of the
country in local authorities and gradually central government has put more and
more inspection on top of them to drive up standards and everything else.
Surely there is now more self-awareness and in a sense what should follow on
is that the best value inspection regime and audit regime moves out of the way
as better practice comes on board. Should there not be the aim and the
determination to achieve that?
(Hilary Armstrong) There was an Her Majesty's Inspectorate
established in the 1948 Education Act for education and we have never tried
to get rid of it. In fact, it has now been changed and modified fairly
significantly. I think that external inspection can help you with your
internal thinking through and determination to get improvement year-on-year.
I hope we get to the stage where that is how it is perceived, but I think
there will always be a need for that external look at what you are doing and
I think that citizens welcome that because it gives them a different view and
frequently they think, "The council keeps telling me they are doing well on
this. I would like some external validation." I think that is legitimate.
527. Can I ask you about another area of inspectorate, that is the
Housing Inspectorate. With the amount of local authority housing that is
being transferred to registered social landlords and housing corporations to
housing associations is there a future for the Audit Commission's Housing
Inspectorate?
(Hilary Armstrong) Yes, there certainly is. Local
authorities have got far more responsibility for housing than simply being a
landlord. How housing in an area works, whether there is affordable housing
for those who want to come and buy, whether there is the sort of housing that
the top executives of a new company locating in your area will want to live
in, all of that is part of a housing and a planning authority's responsibility
to make sure is there. The landlord's responsibility is additional. Even if
all of the transfers that are being thought about at the moment were to go
through you would still have the vast majority of social housing still in the
council sector. Even as a landlord there is going to be a long-term
responsibility, but there is a responsibility over and above simply being a
landlord on housing authorities and the Housing Inspectorate will have the
responsibility to look to that too.
528. So you do not accept that there is any case to merge the
inspection and regulation frameworks into the housing corporation and the
Housing Inspectorate?
(Hilary Armstrong) The housing corporation are looking
very carefully at best value and sort of mirroring it along the road. I do
not think we are at that stage yet, but I am somebody who never says never and
it may well be something that people would want to come back to at a future
stage.
Chairman
529. You are saying that the local authority will still be
inspected as far as its overall housing policy is concerned and it will also
be inspected as far as the houses that it owns itself are concerned, but one
of the key issues for many local authorities is the fact that social housing
which is now in housing association ownership is becoming ghettoised because
they have such high rents that only people on benefits are likely to move into
them. That must be a sorry situation that exists in many local authority
areas. How does someone address that coming from the audit side of it,
because they will have the responsibility to look at the local authority's
strategy but not the social housing which is in the housing corporation's
purview as far as audits are concerned?
(Hilary Armstrong) As you know, the housing corporation at
this stage is not within the scope of the best value regime. The housing
corporation does have responsibility for regulating the sector and they will
have responsibility for the same sort of regime as would pertain to council
housing. The whole issue of level of rents, of the availability of housing
and all of that is an area that the authority has to take an interest in even
if they do not have direct responsibility for it.
Mrs Dunwoody
530. How can they control it if it is something they have not got
direct responsibility for? I am very impressed that we should have this clear
view, but I think what we need to know is - since we are talking about audit,
we are not talking about impressions, we have heard this morning about the
need to establish clear lines - how to estimate the difference in best value
and good practice and bad practice. How can a local authority be held from
an audit point of view to have responsibilities in an area where they have no
direct say?
(Hilary Armstrong) They cannot in terms of whether those
houses are being effectively managed and whether they are getting the rents
in for them and so on because that has to be the responsibility of the housing
corporation and the housing corporation has a very clear statutory
responsibility for regulation in that area and Parliament has given them that.
531. So what will they be audited on?
(Hilary Armstrong) The auditor will be responsible for how
the housing department is fulfilling its functions and part of its functions
is to make sure that housing associations are working effectively together and
with the public housing. Basically, they will be responsible for whatever the
housing authority says it has responsibility for. They will be responsible
for making sure that they fulfil that responsibility.
532. So the authority will be audited on what it says it has
responsibility for and if it says it has no responsibility there will not be
a problem with the audit?
(Hilary Armstrong) It cannot say it does not have
responsibility for things that it has statutory responsibility for, clearly,
on anything.
533. So it is not going to be audited on what it says is its
responsibility, it is going to be audited on its statutory responsibilities,
is it?
(Hilary Armstrong) Plus whatever it has agreed in its best
value performance plan that it wants to accept responsibility for with its
public.
534. I am sure that is terribly clear. I must study the text very
carefully.
(Hilary Armstrong) That is what we started off by saying,
that best value performance plans are being drawn up now. They are being
drawn up in consultation with the public and they will be published on the 1st
April.
535. That sounds like a rather suitable date.
(Hilary Armstrong) Fine.
Chairman
536. What worries me is that a local authority may be reluctant to
say that it is going to try and influence housing associations on rent levels
which would be very desirable to reduce the ghettoisation which is taking
place. If it says it is going to try and do that and fails it could be
criticised by the Audit Commission. If it says that it is not going to try
and interfere and influence those rent levels then it would not be criticised.
(Hilary Armstrong) It would be the responsibility of the
authority in my view to work effectively with housing associations to tackle
where they have got houses that, for example, nobody wants to go and live in,
where they have got houses where people cannot afford to go and live in and
they would be responsible for working with the housing associations to draw
up a strategy to deal with that. They could not influence the rents. The
rents are far more liable to be where they are because of central government
policy than they are local government policy and I accept that and I do not
want to say that local government should accept responsibility for that. For
example, in our policy action team report on unpopular housing and housing in
low demand we gave some good examples of how local authorities can work with
housing associations because even if they have their own stock they are still
likely to have housing association stock within the area that they have
responsibility for and then they need to be working with that housing
association in a strategy to help sort out the problems. It is in the
interests of the housing association to do that and if the housing association
does not do that they will then fall foul of the regulations from the housing
corporation anyway.
Chairman: It is the problem of two different inspectorates. I think we
need to move on.
Mrs Ellman
537. Who should assess the effectiveness of the inspectorates? Do
you think that job is being done now?
(Hilary Armstrong) Legislation says how each of the
inspectorates will be assessed and for the best value inspectorate clearly the
Audit Commission have got a very important responsibility. They do not have
responsibility for Ofsted or for SSI or the Fire Inspectorate or whatever, but
they will have a responsibility to make sure that the inspectorate is
inspecting in accordance with the guidance and that there is consistency and
quality in the inspections.
538. Are you satisfied with the current arrangements?
(Hilary Armstrong) They have not started yet. I am
satisfied with the preparation.
539. You put a great deal of store on the impact of inspection on
improving local authority services. Do you not feel there should be a more
coherent approach to evaluating the impact of the various inspectorates?
(Hilary Armstrong) I only put value on the inspectorate
alongside everything else.
540. So although you think inspectorates are very important in
relation to improving standards of service you do not put a high value on
assessing whether those inspectorates are actually delivering that goal?
(Hilary Armstrong) Yes I do. I was simply trying to deal
with the first part of your question which was that we put a value on
inspectorates as part of a regime for improving services, but essentially that
lies with the individual local authority. I do put a high value on assessing
and making sure that the inspectorate is doing what we expect of it and that
is part of the remit to the Audit Commission and I will expect them to be
reporting on that both to local government and to central government.
541. Do you agree with the suggestion there should be a new Select
Committee to evaluate the work of the Audit Commission?
(Hilary Armstrong) I think that that has constitutional
problems which in a sense Crispin has already alluded to which is that we have
to make sure that we get the balance right between accountability to
Parliament and accountability to local government and you are here talking
about inspectorates of local government and is Parliament the right place
constitutionally for that reporting and I think that that is an interesting
constitutional question. I think we are trying to make sure that local
government sees that it has a status outside of Parliament and separate from
Parliament and I would want to be sure that that was not being compromised by
having the inspectorates and the reports reporting to Parliament.
542. Does that mean that you value the views of local government
on the significance of inspections?
(Hilary Armstrong) I value them enormously.
543. How would you relate that to your own views?
(Hilary Armstrong) We continually work together, that is
not to say that we both say the same things, to understand where we are coming
from and to get a regime that both meets the objectives of local government
and of central government.
544. You attach a great deal of importance to the value of
external scrutiny and inspection to local government. Would you welcome the
same degree of scrutiny and inspection to your own Department?
(Hilary Armstrong) I am perfectly relaxed about that. I
have already said that I welcome what Andrew Smith has said about improving
and changing the audit of public bodies other than local government.
Mr Benn
545. Should local authorities be required to make their annual
audit letter publicly available?
(Hilary Armstrong) I think that this is quite a difficult
one. I think a local authority that is in touch with its public would want
to make sure that that happened. I must say that I am quite surprised at how
few councillors know what is in a management letter. The position at the
moment is that where there is a public interest the auditor can insist that
the information is shared publicly and that he/she can could do that either
through a public interest report or through specified aspects of the
management letter. In some senses management letters are very much about
internal management issues and are not the sort of information that the public
are looking for, but on the other hand I do think they should be much more
widely available.
Chairman
546. Should not the public be able to decide whether they are what
they are looking for?
(Hilary Armstrong) Yes.
Mr Benn
547. Given the fact that the vast majority of local authorities do
that, is there not a case for saying they all ought to do this?
(Hilary Armstrong) That is certainly something we ought to
look at.
548. Turning to the Audit Commission's national report and local
authority reports, do you think they should be made available on the Internet?
(Hilary Armstrong) Yes, I think they are now. I certainly
think the national ones are. I am a bit worried about the amount of
information that does get on those national web sites quite honestly because
it takes a long time to get through them all. I do think they ought to be and
I certainly think that as local government is developing more one-stop shops,
more interactive activity in libraries and so on so they should be publishing
as much information as possible and that is part of what the reorganisation
of local government is about, so that local people have got access to the
information that they want. They can have access now, but there are some
disgraceful examples of authorities insisting that somebody hand writes the
report or whatever in order to get their copy of it. They can look at it in
a locked room and they are not allowed to photograph it. I think that sort
of thing is nonsense and we should look beyond that.
Mr Olner
549. Could I ask whether you perceive there to be a difference
between the annual audit letter that drops on the chief executive's table
delivered by the Audit Commission to that done by a private company?
(Hilary Armstrong) No.
550. You do not perceive there to be any difference at all?
(Hilary Armstrong) There ought not to be a difference.
There is a clear code that both relate to and the whole idea is that, whether
it is done by a private company or by district audit, the quality and the
standard is consistent.
551. But that was not the evidence we were given by David Davis
because he was saying, particularly about local health authorities, that there
is a world of difference between how the Audit Commission report and how there
is a cosy relationship between some of those trusts and their private
auditors.
(Hilary Armstrong) I do not have responsibility,
thankfully, for health authorities, but the practice ought not to be different
and certainly I think that is what the Audit Commission seek to achieve.
Chairman
552. I want to take you on to one other issue. Traditionally
individuals have been able to ask the district auditor to investigate. I get
the impression that there is quite a lot of dissatisfaction and I am never
quite certain when people write to me whether it is the really awkward
individual who is taking up a great deal of the Audit Commission's time or the
auditor's time on a personal peccadillo or whether it is really something that
is much more serious.
(Hilary Armstrong) I think that most people have that
problem. What happens in terms of referral to the auditor also should be
taken into context in terms of the changes that we are making in the Bill that
is currently going through the House on ethics and standards. What we are
trying to do in terms of financial probity and all other forms of probity is
to get a regime which can make reasonable judgments about how far a particular
complaint should be investigated so that people do feel it has been taken
seriously and that vexatious people who simply want to complain, whatever the
issue is, do not take up an inordinate amount of the authority's time.
Christine Butler
553. Could I ask one question about the different nature. Lord
Rogers' Task Force report pointed at the lack of good co-ordination, what we
would call a cross-cutting approach, in some of other inner city areas in
particular. There have been articles in the press recently saying that we
need a more holistic approach, which amounts to the same thing. What could
you do to encourage audits to take a keener interest in joined-up thinking at
local government level?
(Hilary Armstrong) I think we are doing that. We are
doing that through changing the structure in local government so that we move
away from the traditional committee structure and look much more at both
executive and scrutiny and policy activities which encourage cross-thinking
through the legislation. The last Bill and the current Bill enables councils
to work in a more cross-cutting way and therefore enables auditors to look at
what they are doing in different ways. If the legislation says that a council
has to do things in a particular way and that that has to be contained within
the activity of a committee or the council they are not able to look at if
they are doing joint working with a health authority or with a police
authority in that way. The way we have changed the legislation to enable
councils to do that and are changing legislation to enable councils to enter
into partnerships and the way in which we are reorganizing through Best Value
the audit service and the inspectorate means that they will be able to inspect
and to talk to and question authorities about how they are approaching
cross-cutting issues and partnership working in a way that they have not been
able to before.
Mr Blunt
554. Minister, you explained to us how that when you were a
councillor you were unaware of some of the audit functions going on in the
local authority on which you were a councillor and I confess, having arrived
on this Committee this morning, that a lot of this morning has been a voyage
of discovery for me about the activities of the Audit Commission. Do you
think it is a problem that the public in general and local communities in
particular are unaware of the existence and impact of the Audit Commission and
of the external auditor?
(Hilary Armstrong) I think it is a huge problem that
councillors do not know about it and I think the position is very different
now. It is certainly different in the authority I served on now than it was
when I served on it. I think that the public needs to have sufficient
information and access so that they can find out what is happening in their
area. I do not think we should expect all of the public to have lots of
information about how every bit of the whole thing works. However, if they
want to find that out it should be easy for them to find that out. I think
the key thing is that the public have robust information about what is
happening in their council and they can find out more if they want to find out
and who they can ask questions of if they want to ask questions. I think if
we flood them with the structures too much then they will miss finding out
what they really want to find out about and so there has got to be a balance,
but everything should be available to them if they want to find it. The
information that is going to them and is landing on their doormats should be
the sort of information that they are looking for and councillors should be
finding that out in the consultations that they are doing.
Chairman
555. On that hopeful note can I thank you very much.
(Hilary Armstrong) Thank you very much.
