Seventh Standing Committee on Delegated Legislation |
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Rob Marris: Appendix 2 of the code of audit practice for local NHS bodies deals with general principles. Paragraph 5 states:
Is not what the hon. Gentleman was calling for in respect of risk assessment already in the general principles, certainly of the NHS code? I suspect that there would be a mirror principle in the local government code. Mr. Davey: Actually, I was asking the Minister to confirm whether that was the thrust of the codes. I am not disputing that that was in there, but I wanted to make sure that it was. Rob Marris: Have you read them? Mr. Davey: I have spent some time looking at this. The hon. Gentleman was making a separate point—that there are bodies that are not local authorities or NHS trusts that receive public money under the various statutes. Part of this process is to ensure that the external auditors of those bodies, which are often called non-departmental public bodies, are able to perform that role as they follow the public money. When, during discussion of the Government Resources and Accounts Bill—the most recent legislation in this area—we debated the reform of public audit in this Committee Room, the right hon. Member for West Dorset (Mr. Letwin) and I were trying to make sure that the National Audit Office and the Audit Commission had purview over more of those bodies. The previous Administration set up a lot of them, but they were not subject to public external audit. Partly because of the Lord Sharman commission on public audit, the Government have moved to improve that. I think that that was referred to in the document quoted, and it is most welcome. I shall move on and ask the Minister about how the code is working for the Audit Commission and local government with respect to new accountancy definitions used by the public sector, particularly in respect of resource accounting and budgeting. As the Minister says, this is a high-level document that sets out general principles of accounting. However, on the ground, when people are auditing the performance of public bodies and trying to work out whether they could use their assets better and whether they are managing their liabilities properly, they want to be assured that the accounting conventions that have been adopted and modernised recently with cross-party support are helping to produce good governance. One example will suffice to illustrate the point. The way in which a lot of public bodies—particularly local authorities, but also the NHS, the Ministry of Defence and so on—account for land, even under new resource accounting principles, is not good enough. Land holding by the public sector is not well accounted for, particularly in the balance sheets of local authorities. In some cases, it is entered not as a commercial figure but as a historical purchase price. That is total, utter nonsense, which not only under-reports what is there, but prevents public sector managers from thinking more effectively about their assets. It might seem a technical point, but I should like to know whether through the codes the Audit Commission will be able to engage with the Treasury to ensure that those definitions for resource accounting and budgeting are brought up to date and modernised. I have spoken to a number of people in different tiers of government about that issue, and there is some concern that some of the new resource accounting rules are having perverse effects, so that when land, for example, is properly valued, the difference between the previous recording on the balance sheets and the new-found, uplifted value is taken as profit—revenue—rather than just a change in the balance of the capital’s position. Apparently, the Treasury is quite keen on that, and one can understand why, because it gives it an extra bit of revenue, even though it is really about capital appreciation. I hope that the Minister, perhaps not now but in writing, will reassure me that that point has been taken on board. It is a battle that the Office of the Deputy Prime Minister, in particular, needs to win with the Treasury, and I am sure that it will get the support of the Audit Commission. I hope that the code will give it some ability in that respect. One problem with the Government Resources and Accounts Act 2000—I think that this relates to section 5—is that it gave all the power to the Treasury in setting the accounting definitions. Although the Audit Commission and others have prepared such codes independently and, as the Minister said, he is reporting the recommendations from the Audit Commission, it is still bound by Her Majesty’s Treasury’s accounting definitions. We tried, during the debates on that legislation, to ensure that the accounting definitions had some external, independent input, but unfortunately we failed. If the code is to have any effect, it is pretty important that we monitor those definitions. The devil is always in the detail. I fear that, high-level document that this is, we are on one level being spared that detail, but on another level we are not able to examine it, even though that is where the House should be going. I hope that the Minister will at least give me some reassurance and comfort on those points. 3.6 pmMr. Kilfoyle: Mr. O’Brien, I do not want, and nor would you allow me, to respond in the propaganda style of the hon. Member for Kingston and Surbiton (Mr. Davey) about Liverpool city council, but I would like to ask the Minister a couple of direct questions to enlighten me on how the powers impact on local authorities. Unfortunately, the one with which I am au fait is Liverpool city council. I put it on the record to the Minister that the city council has indeed failed with the King’s Dock project, the Fourth Grace project and the aquarium and turned down the America’s cup. All that was a loss to the council tax payers in Liverpool and, because of the partnership arrangements, there was a loss of money to other public bodies, I would like to know from the Minister how the changes in the audit regime or the guidance will pinpoint more effectively than hitherto where those losses have been made. Like him, I believe that transparency is of the essence but, as the hon. Member for Kingston and Surbiton said, the devil is in the detail. I know that much about auditing. The document is entitled
I went to section 5, which deals with
My attention was particularly caught by function 2:
The Chairman: What page is that? Mr. Kilfoyle: It is section 5 of the report, at the top of the page. The function is described in the box between paragraphs 53 and 54. I am old enough but still sensible enough to remember that, during the dark days of Thatcherism and before the Liberal Democrat party was spawned by its predecessors, I had cause to be very much involved with the then district auditor. The district auditor in Liverpool barred 49 councillors. It was a celebrated case at the time, going all the way to the House of Lords. My understanding has always been that the way in which the councillors were debarred was that the auditor determined that there had been a notional loss of £106,000. People might say that that is small beer in modern circumstances, but it led to the councillors being fined and surcharged. Does that still obtain today? Within the guidelines, will such a situation eventuate, and would it be at the behest of the outside independent auditors of the various bodies? 3.10 pmPhil Hope: We have had an interesting, if brief, debate. I hope that we can clear up some of the questions that hon. Members have asked. Although there was criticism about an apparent failure to reduce overall the burden of bureaucracy upon local government and the national health service, we have in fact achieved remarkable success in reducing it. I gave examples earlier of the amount of money that local government will not have to pay for the cost of audit. The two codes represent a £4 million saving for local government. There is tangible, financially assessed evidence of the reduction in that burden, which will directly benefit local authorities. Although not the subject of the codes, I must add that we have changed many of the regimes affecting local government, and in particular the number of plans that good and excellent councils have to produce as a result of their evaluation under the comprehensive performance assessment. The change is to give greater freedom and flexibility to local government that has shown its competence and probity. The number of inspections and the number of plans that local authorities are supposed to develop have been reduced to allow them greater freedom. The Government have introduced prudential borrowing—a new financial regime—to allow local authorities greater freedom to make decisions locally, based on their own suitably audited assessment of finances. It is wholly wrong of the hon. Member for Brentwood and Ongar to suggest that the direction is towards more bureaucracy; in fact, it is quite the opposite. We have reduced the amount of unnecessary bureaucracy that local authorities and the national health service have had to deal with. Mr. Pickles: Will the Minister give way? Phil Hope: I will give way but I have some other examples to give the hon. Gentleman. Mr. Pickles: Well, that will be good. Just to be clear, the Minister’s definition of progress is to impose £1 billion of burdens and relieve them with £4 million. That is progress, is it? Phil Hope: The hon. Gentleman plucks out a figure for the cost of inspection, which was vaguely hinted at in the James review—a figure that has no bearing whatever. We are looking forward to a debate in the House tomorrow on council tax, when we will examine the proposals of the hon. Gentleman and his party for the support of local authorities. Having served in local authorities before entering the House, many of us remember experiencing year-on-year cuts in grants to our councils. That is in stark contrast to the 33 per cent. real-terms increase in grants to local government. If we are talking about supporting and enabling local government to deliver better services to local people, we know which is clearly the better choice for the electorate. However, I shall not be lured into a debate that we should save for 24 hours’ time. Moreover, we are reducing the burden of inspection and regulation in not only local government but the national health service. The inspection concordat, published in June 2004, is a code of principles and practices for inspecting, reviewing and auditing bodies to reduce unnecessary burdens created by the inspection process in the national health service. The Healthcare Commission is leading on its implementation. Therefore, there is a number of measures there. The hon. Member for Kingston and Surbiton raised that concern. Within the NHS, there is a specific mainstream area of work tackling that particular request simply because we want to ensure that people on the front line get the resources that they need to deliver more efficient and effective services. Let me pick up on a couple of points of detail. First, it is absolutely the case that it is the auditors’ judgments that feed into the other processes. It is those judgments that allow the Audit Commission, through its comprehensive performance assessment, for example, to make judgments about the management of financial resources. That is not duplicatory; it involves gathering data that are directly helpful. The Audit Commission’s approach to the comprehensive performance assessment is designed deliberately to rationalise the burden of inspection, particularly with upper-tier councils being joined, for example, with the Ofsted joint area reviews of children’s services. Those are just one or two examples of where we have identified concerns, responded to the Local Government Association and others when they have brought them to our attention, and taken swift action to remove the difficulty. The hon. Member for Kingston and Surbiton raised a number of questions about the general direction of travel. Where are we going with the codes? Are we moving towards a different kind of regime, which he would like to see? I think that I used the phrase “strategic regulation” in my opening remarks. That is exactly the direction that the codes take. I can put on the record the assurances that he wants on that front. The codes are about a risk-based, proportionate approach to auditing that tailors the level and the scope of the audit to local circumstances. That ensures that we make best use of scarce resources for audits and it also rewards good performance by authorities that consequently change their accounting procedures accordingly. I want to make it clear that the codes and the commission do not actually prescribe the accounting standards. That relates to the point that the hon. Gentleman was making about how the substance of accountancy is achieved. That is not a matter for me. It is not even a matter for the Audit Commission. It is a matter for the accountancy profession and independent standard-setting bodies that prescribe good accounting. That could be to do with resource accounting and the new thinking—well, it is not so new any more: it has been around for 100 years. That is reflected in the codes and the behaviour of the auditors, who are subject to those codes of practice. I can say to him that the direction of travel is towards strategic, proportionate, risk-based auditing, but is also about using the best practices, as laid down by the auditing bodies themselves, for how to go about that process. Mr. Davey: The Minister is quite right that the Accounting Standards Board and others from the private sector advise the Government and have a role in statute, but the Government Resources and Accounts Act is clear. It states—I think in section 5—that Her Majesty’s Treasury sets the definitions that are used, with advice from outside. The concern of the Liberal Democrats, which was shared by the Conservative spokesman at the time, the right hon. Member for West Dorset, was that, because the accounting definitions that are used in the public sector were under the control of the Treasury, they could be changed. I know for a fact that leading public bodies, for example, English Partnerships, are actively engaged in discussion of definitions with the Treasury. That is significant and I was trying to probe the Minister on that point. Phil Hope: I understand that point. The hon. Gentleman will forgive me, but that really is not a matter for the codes of practice before us. Those discussions do go on. Those are matters for a discussion on correct standards between various parts of the Government and the profession. Those codes describe the approach that auditors must take. They are not a matter for us. The question that he raises is part of an interesting debate, which must be continued, but it is not a matter for this Committee. There is a more general point, parallel to that one, relating to the work that is under way on the future for local government as a whole. The hon. Gentleman will know that we published a document as part of “local:vision” on a 10-year vision for local government. We published subsidiary documents on neighbourhood governance and leadership. In the near future, we hope to publish a document on performance management frameworks for local authorities that will consider how audit, inspection and review are used together to deliver both the performance changes that we wanted and a continued reduction in the burden of audit, inspection and review on local government. In terms of local government, as opposed to accountancy standards on the part of the profession and the negotiations with the Treasury, work is under way. I hope that we can put into the public domain some of our thinking on that as part of the overall 10-year vision for the future of local government in the years ahead. Mr. Pickles: Will the Minister give way? Phil Hope: I hope that the hon. Gentleman is about to say how he is going to guarantee the future of local government in the years ahead, given that he is going cut £35 billion of spending. Mr. Pickles: The Minister is getting too excited. All will be revealed tomorrow. Does he understand that in many ways what he just said is contradictory to his brushing aside my initial question about the number of hospital inspections, which was 102? What he said about the relationship between audit, inspection, avoiding duplication and trying to get general agreements was quite right. Has he now had time to form a judgment, in line with the guidelines, about how the inspection number could be reduced? Phil Hope: I referred earlier to the inspection concordat, which I reminded hon. Members was published in June 2004, on exactly the issue that the hon. Gentleman has raised. I shall provide a little more detail about it, as I did not go into the detail then. The themes of the concordat between various statutory bodies and the national health service include joint inspections by the regulatory bodies, which is a way of reducing the number of visits that hospitals may receive; less data collection—I think that the hon. Gentleman mentioned better sharing of data between inspectorates to minimise duplication of data gathering and sharing—and the publication in advance of a better schedule of visits, to avoid inspection overkill. There are many such items, although I will not go into the detail now, for tackling exactly the problem that the hon. Gentleman mentioned. We have not overlooked the matter. We are actively dealing with it to ensure that the NHS spends every penny as well as it can. The hon. Member for Kingston and Surbiton made his point about following the public pound very well. The code and the Act provide for auditors to do exactly as he described—follow the public pound into other public bodies, including the voluntary sector and other private sector partners, where the audit risk justifies pursuing it, so that we can ensure that the money is well spent. My hon. Friend the Member for Liverpool, Walton is right to raise his concerns. I understand the history that he described and its relevance to the current situation in Liverpool and perhaps elsewhere. As he said, section 5 of the code that is before the Committee today outlines specific powers. They include the duty to comply with the right of local electors to raise questions and objections relating to the accounts; the power of the auditor to apply to the court for a declaration that an item of the account is contrary to law; and the power to consider whether to issue an advisory notice or to make an application for a judicial review. My hon. Friend will be pleased to know, in particular, that the codes provide for a much sharper focus on value for money, linking the comprehensive performance assessment and auditors’ specific powers to report publicly any concerns that they have about management of value for money in particular projects. That part of the process can now be put under way. I think that we can be assured that where it is appropriate there is a mechanism for the auditor to deal with exactly such issues as my hon. Friend raised. It would then be for the electorate or the courts to deal with the matter as he described. We have had a thoroughgoing debate. The codes are an important addition to the mechanism for ensuring effective delivery of local government services and the audit of effective, efficient and economic delivery of public services. Question put and agreed to. Resolved,
LOCAL NHS BODIES (2005) Resolved,
Committee rose at twenty-four minutes past Three o’clock. |
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