Back to Report

Oral Evidence

Taken before the DLABC

on Tuesday 27 November 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Mr Clive Betts

Meg Hillier

Mark Pawsey

Mark Reckless

Ian Swales


Examination of Witness

Witness: Tom Winsor, Her Majesty’s Chief Inspector of Constabulary, gave evidence.

Q501 Chair: Welcome, Mr Winsor. Thank you very much for agreeing to help us this morning. I am going to ask you a general question and then we will go into the specifics. Our job is to look at the Bill, as it stands, and then to see whether there are problems with or gaps in the current clauses and whether there are risks to the effective delivery of services. From your perspective, having-I hope-had a little chance to look at the Bill and from the point of view of ensuring proper accountability for police services and the new police and crime commissioners, do you see any gaps or risks in the Bill? Are there any amendments that you would have wanted to see?

Tom Winsor: Thank you, Chair. If it would assist the Committee, I will take a moment or two to explain HMIC’s role. That will then lead into the discussion of gaps and risks. Is that acceptable?

Chair: Fine.

Tom Winsor: Very briefly, HMIC was established a very long time ago in 1856, and its principal instrument is its voice. It is not a regulatory authority with the power to issue orders, write enormous cheques or take enforcement action, but it does have a voice that is listened to, and it is charged with reviewing and, in a number of respects, assessing the efficiency and effectiveness of policing. That is what we do. We have powers of inspection, including powers of entry to obtain documents and access to people, and we publish reports. That includes profiles on value for money, which we publish on our website, and there is now a new obligation that reports, rather than being given to the Home Secretary, are published directly to Parliament. They provide information in relation to a whole range of measures concerning policing. We also co-operate with other organisations and, until now, the Audit Commission on a number of important aspects concerning policing.

As you know, I have only just taken over as Chief Inspector of Constabulary. I am still making an assessment as to the resources and the performance of HMIC. I am impressed with what I find so far, but there is always room for improvement.

One of things that I intend to do that is directly relevant to your question in terms of gaps, overlaps and so on is to publish very shortly a conspicuous statement of the promise that we-HMIC-will make to the police service, the police and crime commissioners, the Home Office and the public generally on our criteria and procedures for action, explaining very precisely what it is we do, what criteria we apply. The statute says "efficiency" and "effectiveness", but what does that mean in practice and what should our procedures be?

I take very seriously, which you may know from my record as rail regulator a number of years ago, that there is a fundamental obligation on public authorities that those within their jurisdiction have a right to be treated fairly. I also take very seriously the duty to explain what it is we are doing and why we are doing it. In that respect, and under those two headings, we carry out our functions.

It would be a mistake for anyone to believe that HMIC has the obligation of micro-managing police forces. That is a matter for chief constables, and I do not think that that is seriously in doubt. So I hope that is helpful.

You mention gaps in the Bill. The scheme of the Bill, as I have been able to discern it, is to alter the structure of auditing local bodies but not to alter the standards, the nature and the purpose of auditing, which remain stable. Nevertheless, there are some gaps. There is a perfectly justified public concern that bodies subject to inspection, audit, monitoring, enforcement, regulation, etc. being held to account should not be overburdened with multiple requests from different organisations, perhaps operating according to different criteria.

Under the Police Act 1996, there is a right of veto for the Chief Inspector of Constabulary if he is satisfied that an inspection or some kind of regulatory action by another authority, including the Audit Commission, would impose an unnecessary burden on the entity being audited. He then has the power to direct that that should not proceed. That power of veto applies to the Audit Commission but, on my reading of the Bill, does not apply to the new local auditing bodies or to the National Audit Office, in so far as it chooses to do value-for-money assessment. It seems to me that that is a mechanism it would be wise to carry forward into the new regime.

Q502 Chair: Is that the main thing? Anything else, particularly with the new police and crime commissioners-I know it is really early days, but do have any observation that you think is appropriate as Government are determining and Parliament is considering legislation in this area?

Tom Winsor: As we all know, police and crime commissioners are a very new invention. We shall see how they behave. It seems to me that their need for information from the local auditing bodies, which will be appointed by the PCCs concerning their police forces, is undiminished. In fact, the PCCs will be desperate for quality information, in relation both to the accounts and finance-focused work that will be done by the auditors and to the more general inspectorate work that is done by the organisation that I lead. So I do not believe that the PCCs will have any lesser requirement for quality information-they will be desperate for it.

Q503 Chair: And what about auditing the PCCs themselves?

Tom Winsor: The PCCs have the enormous advantage of being democratically accountable.

Chair: I think we will take a deep breath at that one.

Q504 Mr Betts: Why is the power of veto you currently have with regard to the Audit Commission necessary? And can you give a couple of examples of circumstances in which you think it might be necessary for you to use it?

Tom Winsor: As I said, I have only just started, so I have no knowledge of it having been used in the past. I think that the power of veto is necessary. The statutory criteria for the power of veto are that the inspection or action by the other authority would be unduly burdensome on the body being inspected or audited.

It seems to me that the very possession of a power of veto and the strength of that power mean that it is very unlikely ever to have to be used, because the reality is that the bodies in question really have a strong need to co-operate and co-ordinate. There is also a statutory obligation on my office under the Police Act 1996 to co-operate and co-ordinate our functions with those of the Audit Commission, and therefore, it should be carried forward to the local accounting bodies as well.

Q505 Mr Betts: I can see the duty to co-operate because, clearly, there can be an overlap in work that is carried out, but the veto seems potentially to be a weapon-for want of a better word-that could relieve police forces of the same degree of action by an auditor that a local authority was subject to. If life gets difficult, they always have you to fall back on, haven’t they?

Tom Winsor: Well, that assumes that HMIC is going to be any kinder or gentler to police forces than a local auditor would be.

Q506 Mr Betts: So why give the power? That is what I do not understand.

Tom Winsor: The power has been there for a very long time.

Q507 Mr Betts: But it has never been used.

Tom Winsor: Not to my knowledge, but my knowledge on this is not perfect. I can let the Committee have a note as to whether it has been used. From what I have been able to determine, there are no circumstances in which it has been used, because the existence of it is enough, but it seems to me that it would be mistaken to assume that HMIC is going to act as the protector of a police force.

Q508 Mark Reckless: Mr Winsor, do you know when HMIC took this veto power that you describe?

Tom Winsor: I don’t know when it was put into the Police Act 1996, but it is long-established, as I understand it.

Q509 Mark Reckless: But the Audit Commission extension of powers in respect of police forces was in the 1996 Act. We agree on that, do we not?

Tom Winsor: Yes.

Q510 Mark Reckless: It is possible that the power you refer to, and describe more as a general veto, was actually brought in to the 1996 Act to guard against concerns about the new Audit Commission power subjecting the police to too many inspections.

Tom Winsor: It looks that way, because otherwise they would have given the veto power to the Audit Commission and we would have had to stand back.

Q511 Mark Reckless: So with the Audit Commission being abolished, does that not mean that the veto power for HMIC is no longer necessary?

Tom Winsor: Yes, but the Audit Commission’s functions are just being transferred to local auditors appointed by the PCC, in the case of police forces. It seems to me that if the veto power had a real, valuable purpose, which I believe it does, under the Audit Commission regime, it should also be extended to the local accounting bodies, because otherwise the problem at which it is directed-namely, unnecessarily burdensome and intrusive regulatory oversight-could not be tackled in the way that the present statutory scheme provides for.

Q512 Mark Reckless: But surely police authorities were involved in auditing their police forces before 1996.

Tom Winsor: Yes.

Q513 Mark Reckless: And that was the point when the Audit Commission was brought in, whereas your previous answer rather suggested that the audit role that has happened for local police forces, generally overseen by the police authority, is somehow part of the Audit Commission role. Was the Audit Commission not something separate that came in in 1996?

Tom Winsor: I am not sure that I follow. The power of veto was retro-fitted into the Police Act 1996 some time in the past-I do not know when. My only point is that the legislative purpose in creating the power of veto was to prevent unnecessary regulatory intrusion. Given that the audit function concerning police forces is not being diminished-it is just being transplanted to local bodies-the power of veto should still be there.

Q514 Mark Reckless: I suppose my suggestion to you is that the power of veto, which you described as a general one, was actually brought in specifically to deal with concerns expressed when the Audit Commission’s role was extended to an oversight of police forces that it previously did not have. You are now trying to keep that veto power to stop the normal local audit that went on previously with police authorities and will now be done by PCCs.

Tom Winsor: If I implied that it was only created to stop the Audit Commission doing things, I am sorry; I did not mean to say that. It applies to a number of bodies, not just the Audit Commission. In fact, the Audit Commission is the last on the list. It applies to inspections by the Chief Inspector of Prisons, the Chief Inspector of the Crown Prosecution Service, the Chief Inspector of Probation, the Care Quality Commission and, last on the list, the Audit Commission. The Secretary of State may add, by order, additional bodies to that list.

Q515 Chair: So this is secondary legislation. Has it ever been used, that power of veto?

Tom Winsor: I don‘t know. The research that I have been looking to do so far has thrown up no instance in which it has been used, but we can find that out. I just can’t tell you now.

Q516 Mark Reckless: Mr Winsor, are you seriously suggesting that HMIC should have or should potentially exercise this power to prevent the previous regime-a police authority but now a police and crime commissioner-undertaking the audit it sees fit of its police force?

Tom Winsor: Only if the proposed action would be unduly burdensome. The idea that HMIC would conclude that a local auditor, appointed by a PCC, looking at the affairs of a police force, should back off and just not do it, that is not the case.

Q517 Mark Reckless: So why have the power?

Tom Winsor: Well, Parliament has created this power and it seems to me that the purpose of the Local Audit Bill would be to transfer largely intact the existing legislative scheme into local hands, with the same checks, balances, limitations and restrictions that previously existed. So, if it had a case before, the case for its abolition has not been made. The absence of the transfer of the power of veto from the Audit Commission regime to the new regime is probably just a mistake.

Mark Reckless: I suggest that that power was introduced as a result of concerns about the Audit Commission extending its empire into policing when there were perfectly sensible audit arrangements there already. Although you refer to these various other bodies you can veto, there is no evidence of HMIC ever having done so. With the Audit Commission being abolished, there may no longer be a requirement for this veto power, to the extent that it was brought in specifically because of the Audit Commission taking over that role.

Chair: I think it is an omission, actually. I agree with you, having read out that list. It is a thing they can do on an order; they do not have to do it in the Bill. Probably, Mark, it is a minor thing that we can draw attention to in our report.

Q518 Mark Reckless: Can I broaden the scope for questions rather than go further on that point? Mr Winsor, what is your opinion of these so-called independent auditor panels that are going to be advising or arguably constraining the PCC in his or her choice of auditor? Do you believe that they will ensure an independent audit? Are they performing a useful function?

Tom Winsor: Sorry, the quite elaborate procedure for the appointment of the auditors and the requirement to consult the local auditing panel?

Q519 Mark Reckless: Yes.

Tom Winsor: It seems to me that that is a perfectly sensible mechanism. It may be that it is an abundance of caution on the part of the architects of the legislation to ensure that the cosy local arrangements do not become unwholesome. I do not have any anxieties about that. I think that the PCC, in making his appointment of a local auditor, will have little difficulty in complying with what is largely a sensible statutory scheme.

Q520 Mark Reckless: And little difficulty in persuading the auditor panel to sign off on whatever his recommendation is?

Tom Winsor: We will have to see. In the Bill it seems to me to be a sensible mechanism.

Q521 Mark Reckless: Compared with the previous arrangement, in which a police authority had responsibility for that audit and obviously a large range of additional responsibilities in respect of its police force, we are having this independent auditor panel, whose role seems very limited. As I understand it, it appears to be separate from the police and crime panel. If it is basically just meeting to sign off the recommendation of the auditor, will it have sufficient substance genuinely to challenge a PCC where that would be necessary or appropriate?

Tom Winsor: It depends on who is on it, but it will have a majority, as I understand it, of independent members and an independent chair. I think that the statutory scheme is quite coherent, in that this will be a separate body from the police and crime panel, because it will have a separate and rather limited function, which is simply ensuring that the appointment of the local auditor is sound.

It is not an incoherent system, because, as I understand it, the scheme of the Bill is to bring local auditing more into line with the statutory scheme for companies in the private sector under the Companies Act 2006. In those circumstances, the shareholders appoint the auditors every year at the annual general meeting. I do not have any real anxieties about the PCC being tied in knots about this independent auditor panel. The PCCs do not have, under the Police Reform and Social Responsibility Act 2011, a completely free hand to trample all over the policing landscape.

Q522 Mark Reckless: So in your analogy, you would see the auditor panels as akin to the shareholders approving the management of the PCCs’ proposal for the auditor?

Tom Winsor: Yes. At the end of the day, the private sector auditing regime has been found to be perfectly robust, and there is no central body that appoints auditors for private sector companies. They can choose their auditors. This may be a subject for a further question, but at the end of the day, the auditors have their professional reputation to maintain and their professional bodies regulating them. Having been in professional practice myself for 30 years, I can tell you that your professional reputation is far more precious to you than any single client, as Arthur Andersen shows.

Q523 Ian Swales: I would like to explore the police and crime commissioner role a bit more. My area, Cleveland, is sadly a bit notorious. It is the first force to sack the chief constable for a long time, a couple of months ago. In an interesting piece of symmetry, the previous chair of the police authority was charged with perverting the course of justice on the very day of the PCC elections. A new person has been elected, who walked in on his first day, sacked the chief executive, and appointed one of his known colleagues to the job-last Monday. You have used the words "checks and balances" and the expression "cosy arrangements" in your evidence today. Locally, we are concerned about how the new arrangement is going to work.

My specific question to you is, at what point does HMIC’s work start and finish, opposite the probity of a particular police force? To what extent are you yourselves going to be involved in looking at the arrangements in one particular police force?

Tom Winsor: As I mentioned, our remit is much wider than that of local auditors, who are very much focused on finance and accounts. We are looking at efficiency and effectiveness on a much wider scale. Probity in the police force is a much wider concept than just the management of money and resources; it is the behaviour of leadership of the police force and many other factors.

Under the Police Reform and Social Responsibility Act 2011 and the statutory scheme provided for under it, the role of the Inspectorate of Constabulary in chief officer appointments has been diminished, if not extinguished, although we retain a role in the removal of chief constables. That is the scheme that Parliament has alighted upon. PCCs, with their democratic legitimacy, will be left to make these appointments and to assess the probity.

Q524 Ian Swales: Just to build on that, are you, as the inspectorate, going to look at and judge all the arrangements that are in place, for example how effectively the PCC role is working in a particular force? Or do you regard that as outside your remit?

Tom Winsor: Before the Police Reform and Social Responsibility Act came in, HMIC assessed the efficiency and effectiveness of the police authorities as well as the police forces. That has changed-we now do police forces, and the electorate will assess the efficiency and effectiveness of police and crime commissioners.

Q525 Ian Swales: What if, for example, in another nice twist, the previous chief constable was sacked for-well, there were other things, but the actual thing he was sacked for was favouring somebody in an appointment? Here we have a new PCC favouring somebody in an appointment on their very first day. I hear what you are saying about the electorate in four years’ time, but what happens for four years? Do you have any role in saying, for example, "Actually, that particular lack of transparency in an appointment is something we should be concerned about"? Or is that going to be outside your remit? If it is outside your remit, should the auditors be looking at it, or does this person have a completely free hand?

Tom Winsor: It depends on the nature of the appointment being made. It is clear that the appointment of a chief constable is subject to the new statutory scheme under the 2011 Act. In terms of the interaction between the PCC and the force, again, that statutory scheme has been established by the 2011 Act. However, if the thing complained of passes into the realm of misconduct or criminality, a different regime will apply. Clearly, if there is criminality, the person in question will face the rigours of criminal law.

Q526 Ian Swales: Let us extend it. We are bound to have a case somewhere in the country where a PCC decides that they want to sack a chief constable, maybe just because they do not like the person. At what point does the inspectorate have any say in that, or do they not? If they do not, that is fine, but we are exploring accountability and the checks and balances in the new system, because that interfaces with what we are talking about with the Audit Commission.

Tom Winsor: The first limitation on the power of the PCC to sack his or her chief constable is the statutory scheme established by the 2011 Act, which requires the inspectorate of constabulary to express an opinion and provide a report. The chief constable in question has quite an elaborate right to be heard in his own defence, and the police and crime panel are also involved, so the chief constable is not going to be subject to some arbitrary dismissal. There is also the common law right to be treated fairly. Clearly, the chief constable is entitled to be dismissed or required to resign on grounds that have substance, rather than just the personal chemistry between him and the PCC.

Q527 Ian Swales: Finally, I want to explore the appointment of auditors. You used the expression "cosy local arrangements." That is often a feature of life in some parts of the country. We have heard evidence from other witnesses who say that they accept that the Audit Commission is going, but quite a number of other witnesses have asked, as Mr Reckless said, whether the new audit panels will have anything of substance to do, attract the right kind of people and be sufficiently independent. Do you have any concerns in that area, and do you feel that there is any case for saying that the national appointment of auditors should somehow continue? I know that that is not in the Bill, but are you happy with what is?

Tom Winsor: Yes, it seems to me to be a coherent regime. As I understand it, 50% or more of the local auditing work is done by private sector providers anyway. They are subject to the code of audit established under the national scheme, they are subject to the statutory requirements as to what the quality, nature and scope of the audit must be, and they are subject to their national professional rules. As I mentioned earlier, a professional services firm that chooses to disregard that is extremely unwise and will have a short life.

Q528 Ian Swales: Going back to the role of the HMIC, presumably you will not see it as part of your role to do any second guessing, or inspecting whether the arrangements, for example, of the appointment of auditors are being done with due process, probity and everything else. That would be outside your remit, presumably.

Tom Winsor: That is an interesting question. It is clearly not efficient or effective for the statutory scheme for the appointment of auditors to be violated. If information were to reach us or if we were to find information of that kind, that might well be a matter of concern for us.

Q529 Chair: Ian raises an important issue, because this is all about how the new structure will work in terms of accountability. If an allegation of poor practice in the way that the PCC executes his or her responsibilities emerges, is that something for you to look at? In the past, the Audit Commission probably would have looked at it. I am being told by an adviser that they would have done. It is interesting that Ian has come up with this at such an early stage in the development of the new regime. Are you responsible? Is the auditor responsible? Or is it just the electorate in four years’ time? This is a chief executive appointment, not a chief constable one.

Tom Winsor: In terms of the PCC going through the process for appointing the auditors, it is under the statutory scheme, which is entirely outside the remit of HMIC. We do not inspect or regulate the behaviour of the PCCs.

Q530 Chair: So nobody would look at the allegations that Ian has raised. Who would be responsible for looking at the allegations that arise out of what Ian has said about what is happening in his local area?

Tom Winsor: If the statutory scheme for the appointment of an auditor has been violated-

Q531 Chair: He wasn’t talking about an auditor. He was talking about a PCC coming in, sacking her chief executive, who is not the chief constable, and putting in place-allegedly-his-

Ian Swales: Somebody he knew. Let us put it no stronger than that. It has been reported in the press. I am not making this up. You can check it in the press.

Chair: Sorry, we have to be careful what we say.

Ian Swales: What we are indicating is that all the problems in Cleveland police arose out of whistleblowing, not auditing or inspections or whatever, and one of the themes from our pre-legislative scrutiny is to make sure that we know what the route of intelligence and whistleblowing is.

Chair: It is a bit unclear.

Ian Swales: In these big issues, it is less clear, because we do not have a national Audit Commission to go to any more in the new regime, and HMIC has a clearly defined role. What I am exploring is how it interfaces with the new arrangements that have been put in place.

Q532 Chair: Who should Ian go to?

Tom Winsor: I apologise if I misunderstood. I thought we were talking about sacking the chief constable. You are talking about sacking the chief executive.

Q533 Ian Swales: I am sorry if I confused you. I also spoke about the chief constable, but this particular real case last Monday concerns the chief executive of the police force-the PCC’s staff-who was instrumental in sorting out the corruption, which is ongoing.

Tom Winsor: It is not a matter for HMIC. We do not regulate, inspect or report upon the behaviour of PCCs.

Q534 Chair: So who is it for?

Tom Winsor: If the appointment is questionable-if, for example, it is unlawful-it is open to anybody with an interest to apply for a judicial review of that decision on the grounds of illegality. If it is irrational beyond the legal test, that could be JR-ed as well. If it is corrupt, the Prevention of Corruption Act 1958 and the common law concerning that would apply.

Q535 Mark Reckless: Surely your answer to that last question also applied to violation of the statutory scheme for the appointment of the auditor by the PCC. I think you were saying that that was a matter for the efficiency and effectiveness of the force and therefore HMIC would get involved.

Tom Winsor: Yes, but we must look at the efficiency and effectiveness of the police force, not the efficiency and effectiveness of the behaviour of the PCC. I expressed no view as to whether we ought to, but Parliament has spoken under the Police Reform and Social Responsibility Act 2011, and it is not for us to suggest that Parliament got it wrong.

Q536 Mark Reckless: You were saying that we now have a coherent system; surely, it is a matter for the police and crime panel to provide that oversight for the PCC and ultimately the electorate.

Tom Winsor: That is right.

Q537 Mark Reckless: In terms of the inspection regime-I understand if you do not have this to hand, given that your appointment is recent-we heard a suggestion just now that HMIC audited police authorities in the past. Is it not the case that the power of both HMIC and the Audit Commission to audit the police authority that is meant to be auditing the police force is relatively recent? It extends back no more than five years.

Tom Winsor: I think you are right.

Q538 Meg Hillier: I will try to ask quick-fire questions, so do not be worried about giving us short answers. First, have you been consulted by the NAO on the code of practice that will be used for auditing the police?

Tom Winsor: No, I do not think so.

Q539 Meg Hillier: You haven’t. Do you have any concerns with the code? Now is your chance to tell us.

Tom Winsor: We have not yet been consulted by them. I think that it would be appropriate for us to do so, once the Bill has a corporeal form, and we will.

Q540 Meg Hillier: So you do not have any comments on the code as such at the moment.

Tom Winsor: Correct.

Q541 Meg Hillier: Under the new regime, do you think it will be possible to do proper benchmarking across police forces, comparing performances nationally and measuring how things are going? From other witnesses, we are picking up that the loss of the Audit Commission means that the overarching work will be done very differently by the NAO, which may do only four in-depth studies a year on that comparative work.

Tom Winsor: It is of interest that HMIC does value-for-money now and has done for a very long time. The NAO really ought to have a rather limited role in that respect, given that we are already benchmarking forces. We have very significant resources of expertise to understand how police forces work. The organisation has been around for a long time. We assess their use of resources; use of procurement; staffing, which amounts to almost 80% of their costs and sometimes more; performance, in terms of detections, public satisfaction and crime rate; and efficiency. What would there be for the NAO to do, given that we do all that and have done it since 1856? I think that the answer is not very much.

Q542 Meg Hillier: That is very helpful, because, "What’s the role of the NAO?" was going to be my next question. If you look at what is happening now with auditors, one of the challenges is about how we get data that are of a common standard, so that other people can do the analysis and look at comparators, and so that the police and crime commissioners can do their own comparison work. How will you interact with auditors to ensure that that performance information is useable, useful and can indicate what is value for money for PCCs, and anyone else who might be interested in the analysis?

Tom Winsor: We publish value-for-money comparators for each police force on our website. They assess their performance according to the measures I mentioned and others and compare them with their nearest comparable force in terms of size, geographicaly, make up and so on. That work is already done.

Q543 Chair: But who collects the data to enable you to do that work?

Tom Winsor: We collect the data.

Q544 Chair: If I may say, you are actually placing an additional burden on police forces, because at the moment the data would be collected for local authorities through the Audit Commission doing their audit. You do not have a double-auditors and inspectors going in and getting a different dataset.

Tom Winsor: Correct.

Q545 Chair: And that is not very satisfactory from the point of view-

Tom Winsor: That is why the power of veto is there.

Q546 Chair: No, I think you misunderstand the question. At the moment, if the Audit Commission does a national benchmarking, value-for-money study on any aspect of local government, it is based on data that the auditors collect while doing their audit. If the auditors in the new world of the police forces are totally independent and decide their own basis for doing the audit, you will not have comparative data on which to do sensible benchmarking, which will be useful to the public and to the PCCs. I accept that you are new to the job, but it is rather worrying that you have not identified this as an issue and made appropriate representations. You should frame the audit framework so that you have the data that you need to do the VFM studies.

Tom Winsor: We will have that data because we are the primary source of information.

Q547 Chair: No, you won’t.

Q548 Meg Hillier: Who do you collect it from? Who is collecting it for you?

Tom Winsor: The Inspectorate carries out inspections of forces all the time.

Q549 Chair: You must have the data in a form that allows you to compare one force with another force.

Tom Winsor: We collect the data in the form that we find useful to make the comparisons as clearly as possible. We have statutory data-gathering powers in that respect.

Q550 Chair: But that is a duplication, Mr Winsor.

Tom Winsor: We do not get the data from the auditors. We get it from the forces who have a statutory obligation to give it to us.

Q551 Chair: But, Mr Winsor, then it is a duplication. You yourself have said that you want a power of veto to prevent duplication. You are duplicating what auditors do.

Tom Winsor: No, I already have that power. It is Parliament that is contemplating taking it away.

Q552 Chair: You are not answering. That is a neat point. You are not answering the issue of substance, which is that, if you demand data of the police services, the auditors demand data and it is different data sets, it is extra work for the police services that might be better spent on front-line policing.

Tom Winsor: The police service receives data requests from all sorts of sources, which is why the statutory scheme under schedule 4A of the Police Act 1996 exists. You may be aware that I carried out and reported finally in March 2012 a review of the pay and conditions of the police service, and made a number of observations in relation to efficiency.

In recommendation 49 of my final report published in March this year, I recommended that the data burden on police forces be streamlined and simplified, and that police forces and HMIC should be required to produce a template in that respect- I had no expectation that I would be the one who had to do it-a force management statement, which is an annual assessment of the condition, capacity and capability, service ability, performance and security of supply of their assets, a look forward to the demands made on the force and how they were resourcing themselves to do that.

That is information that police forces already need to have. If they are properly managed, they need to have that. If there were a national template requiring that information to be collected to a particular standard in a particular form, it will relieve the multiple data request burden that police forces presently face and also assist everyone to make valid comparisons on a like-for-like basis.

Chair: I have tried twice. Mark, very quickly, because we are running a bit late, then Richard and then Clive.

Q553 Mark Reckless: Does not this really date back to the 19th century regime of the Home Office driving its creation of modern police forces and the power of the inspectorate in terms of efficiency and effectiveness, and the dependence of the Home Office grant on that? Is the comparison with local government necessarily a helpful or appropriate one to make for the police in this area?

Tom Winsor: The 19th century regime was in strong recognition that, at that time, all policing is local. The centralisation by the Home Office-the statutory scheme that we are considering today-is being diminished. Nevertheless, it seems that there is a case for forces being encouraged and required to collect and to produce data in a common form. PCCs will want to know not just how their force is doing, but how their force is doing in comparison to the most comparable forces, which may be next door or 100 miles away. Therefore, having that information on a consistent like-for-like basis will be of some advantage to them. It will also be of advantage to the police forces in question. I am talking about streamlining and simplifying, not adding to an already heavy burden.

Q554 Mark Reckless: Can you clarify where the responsibility for setting those common standards lies?

Tom Winsor: The recommendation in my report, which I have not yet had an answer on, is that HMIC should do it.

Q555 Mr Bacon: Can you confirm that you agree with what Lord Heseltine said when he told the Committee that it is vital that there is a systematic process and common methodology for "comparing value for money and like-for-like services" across local authorities. You are saying that that approach should be available in the constabularies as well-is that right?

Tom Winsor: Yes.

Q556 Mr Bacon: I am slightly at a loss-and perhaps in disagreement with some of my colleagues-about this method becoming over-burdensome. It sounds to me that what you have said in relation to the auditors, and your role as in inspector, is rather analogous-there might be some differences-with the role of auditors in the Prison Service and HMIP, who has statutory powers including certain statutory rights of access, access to information and so on. Is that a fair comparison?

Tom Winsor: I do not know enough about the prisons regime to answer your question.

Q557 Mr Betts: Do you expect the costs of audit to rise or fall for police services as a result of these new arrangements?

Tom Winsor: We have not made an assessment, but I can give you my expectation as a former economic regulator. I would expect that the costs will fall because I think that there will be a greater degree of local audit activity. Provided that they are doing it within the national framework, they will not have the heavy burden of a national organisation ahead of them. But time will tell.

Q558 Mr Betts: So that will fall, even compared with the recent fees obtained by the Audit Commission on its latest procurement exercise. You see a substantial fall?

Tom Winsor: I am not in a position to make a projection. I would expect that the costs would not be higher, and I suspect that they will be lower.

Q559 Mr Betts: So you will have procurement costs for every individual police service as opposed to one procurement cost nationally?

Tom Winsor: I doubt very much whether procurement costs will be very high at all. As I said, I have been in professional practice for all my time, and we never charge the procurement costs to the client.

Q560 Ian Swales: Can I clarify something? When you used the words "national framework", were you referring to a purchasing framework or just the coding framework?

Tom Winsor: The coding framework.

Q561 Mr Betts: Do you have any concerns about downward pressures on quality of audit?

Tom Winsor: No, because the national code, and indeed the statute itself, specifies what the standard will be, and the rules of professional practice do so also. I would doubt whether quality will fall.

Q562 Mr Betts: Can I come back to the nature of public sector audit compared with the private sector? You said a few minutes ago-this slightly worried me-that it will all be all right because the private sector is audited according to a certain set of rules and we can do the same in the public sector. But the scope of public sector audit is fundamentally different. Do you have an appreciation of that?

Tom Winsor: Yes, I do.

Q563 Mr Betts: So why the simple comparison? You mentioned that it is all right because the private sector shareholders appoint the auditors, so it is all independent, but when you are dealing with the police and crime commissioner, you are dealing with one individual. He has not got the shareholders there; he has got to go to an audit panel for advice but, in the end, it is one person’s decision, and one person who is being audited. Where is the scope for independence in that?

Tom Winsor: The independence comes through the statutory scheme whereby the PCC must go through the local auditing panel before he can make the appointment in question. It is not solely his decision.

Q564 Mr Betts: But in the end it is his decision, having taken that advice, isn’t it?

Tom Winsor: Yes, that is right.

Q565 Mr Betts: So he is not really independent?

Tom Winsor: Well, he is independent in the sense that the statute requires him to make the decision having followed the statutory process of consulting and taking into account the advice of an independent panel. But, in the end, he must make the decision on-

Q566 Mr Betts: So it is very different to shareholders in a private company, isn’t it?

Tom Winsor: It is different in those respects, yes.

Q567 Mr Betts: Can I draw a comparison? Currently, the Audit Commission is independent, and very clearly so. If you were appointed by an election among all PCCs who are solely accountable to you, you would not be independent, would you?

Tom Winsor: Of course you would be. Your independence comes not from the source of your appointment but from what they can do to you after you have been appointed. The Committee does not have time for me to tell you about the difficulties that I had when I was an independent regulator of the railways. I was appointed by the former deputy Prime Minister, now Lord Prescott. Once he had appointed me, he and his successors, Mr Byers and Mr Darling, had no power to give me any directions at all, so much to the point that in October 2001, the Government were prepared to introduce emergency legislation to take me under direct political control.

The independence of my office was a thorn in the Government’s side. It was a barrier to their achieving their objectives, and my independence was defended successfully. There is no question but that my office was both legally and behaviourally independent, even though I had been appointed by a Minister.

Q568 Mr Betts: So is the independence of all of the auditors of police services in the future adequately protected in terms of their dismissal?

Tom Winsor: It seems to me that it is.

Q569 Mr Betts: Why do you think that?

Tom Winsor: Once they are appointed, they cannot be removed unless they violate one of the conditions in the statutory scheme or their terms of appointment. If a PCC were to try to remove auditors on grounds that deserve public criticism or that were unlawful, then he, the PCC, would be subject to severe criticism and possibly legal challenge, and the independent police and crime panel would be holding him to account.

Q570 Mark Reckless: Is there any reason to think that auditors appointed under this scheme will be any less independent than you have demonstrated through your own history as a regulator?

Tom Winsor: No.

Chair: Thank you very much indeed. Many thanks for your time.

Examination of Witness

Witness: Amyas Morse, Comptroller and Auditor General, National Audit Office, gave evidence.

Chair: This is the second time this morning.

Amyas Morse: Very nice to see you, Chair.

Q571 Chair: We meet a slightly different group of people, but we have very similar issues. We are slightly short on time because we have the Secretary of State coming, but what we are looking at is the Bill as it stands on the abolition of the Audit Commission. Our task is to see where the gaps and the risks are and what changes you would like us to recommend to Parliament. Do you think that the Bill as it is constructed gives you a model of good governance? If it does not, why not?

Amyas Morse: You will recollect, Chair, from my previous testament to the Communities and Local Government Committee that I, carefully, am neither a proponent nor an opponent of the legislation.

Chair: Neither are we.

Amyas Morse: Of course that is right. What I think is that it is workable. It is not the only workable model, but it is a workable model. The proof of the pudding will largely be in the implementation and in how we work to improve that implementation over time. I welcome the fact that the legislation and the commentary on the legislation contained the comment that there would be a post-implementation review, and that shows its sensible openness to development as we go forward, and that is very necessary. Having said that, I have a couple of comments that are worth making. The development perspective and the openness to develop is critical to ironing out everything, and we will see in a few years’ time how good the working model is.

The first comment I would make is that the Government should carefully reflect on the proposals for audit panels. There is scope to build on existing audit committee arrangements. Clive Betts’s suggestion of a double lock, with the auditor’s appointment agreed by both the audit committee and the whole council, is a very sensible one-I think that that could work. I also reiterate my previous comment that there needs to be independent representation on such a body, on the audit committee making these selections. I mean independent of both elected members and officers. I still believe that that visible independent element is very critical. The Government should consider that carefully-that is my first comment.

Secondly, in my view there is a gap on whistleblowing. It seems to me that the existing arrangement of the Audit Commission should continue, of being a prescribed person under the Public Interest Disclosure Act 1988. That is relatively easily solved. If Parliament wanted me as Comptroller and Auditor General to undertake some sort of backstop role, that would be possible, but remember that I would not have any particular powers of investigation to follow that up. It did occur to me as I thought about it that it might be possible to have an arrangement that allowed me to call upon the local auditors to do some work. In other words, if I received something it might be possible to make it function that way, but there is clearly a gap at the moment which needs to be filled.

There is a suggested gap about local data. I believe that the Local Government Association approach to collating comparable local data is actually quite promising, from what we have seen of it so far, which is not a great deal-

Q572 Chair: Interrupting you, when we asked the LGA for information on the use of personal service companies by local government, its information was appallingly incomplete, to such an extent that we will have to have them back.

Amyas Morse: I am not suggesting to you that is all in place at the moment and nor am I defending it, I am simply saying that in my view there is no reason in principle why the LGA could not do that.

Q573 Chair: Does it not need statutory underpinning? The whole point, in a way, is that if you are really going to get the data the LGA is an organisation that brings together local government. I was going to ask you another question in relation to that, because you are suggesting that some of your value-for-money studies should be done in consultation with the LGA, so local government would in a sense be telling you what studies it wants rather than perhaps ones that might be in the best public interest-there is a bit of cosiness in there.

Amyas Morse: Shall I finish this question and then answer that one? Just to be clear with you on our view, we have only looked at the methodology and not what’s in it, and they are in early days yet. I just do not see it as inimical that the LGA could prepare information across the sector-there is nothing axiomatic that says that that could not work.

Going then to the question of whether we would be in the pocket, perhaps I can rely on you as a witness, Chair, but I do not think that we are in the pocket of the PAC, and we have a much closer relationship with you than we would ever have with local government. I am independent-I will be much more independent-of any relationship that we have with local government. I will consult, listen and make my own decisions. I hope that I have demonstrated at least to some members of this Committee that we are capable of doing that. I am very strongly fortified by statute to allow me to do that, and I certainly express the intention that we will do that.

Q574 Chair: Going back to the question I originally asked, it is useful to know your view on gaps, challenges and risks, which is what you gave us, but is it a model of good governance? Is the proposal a model of what you would consider to be good governance?

Amyas Morse: I think good governance can work through this model. I am sorry but I am going to say this a few times: it is all about how you make it work. You have got more than one body involved in delivering assurance. It struck me as I was preparing that of course this is what the whole of the private sector has got: audit firms, the Financial Reporting Council, which is viewed as a very powerful driver, and their professional bodies following along with professional enforcement actions on failures in standards. That works pretty efficiently so it is not like it is a particularly strange concept. It could work, but much depends on approaching it intelligently.

The other point is that one of the key parts is the Department itself, and how it sees its role. It is a key integrating part in making the governance work. If it stands back, it will not work very well, and if it is actively and energetically involved, it can work well.

Q575 Chair: In what way? Expand that a bit.

Amyas Morse: There are various issues where, if the Department is asking questions about how individual authorities are functioning, if it shows active interest in that, and if it sees published reports from auditors and picks them up and asks questions about them, that will make it efficient. If it is curious and constantly on the alert, that will send a message through the whole system. That really makes a difference, because in the end, it is the sponsoring body.

Q576 Mr Bacon: Does not what you have just described need to be done well, with information well collected and systematically processed according to a common basis so that the Department has the wherewithal to compare the different authorities that it is looking at?

Amyas Morse: Yes, that is helpful, and to the extent that the information exists at the moment, it is valuable and important, and should be preserved. I agree with that.

Q577 Ian Swales: You talked about whistleblowing, and there is an issue of what happens in the new regime if things are found not to be right. At the moment, as I understand it, the Audit Commission could expand the scope of what it does and act in the public interest in a relatively unfettered way. As I understand the new arrangements, there will be a funding issue, because the audit and its costs will be agreed. The auditors might go to an organisation and say, "You’ve no idea what we’ve found here. We’ve got a lot more work to do." How will that work. How will it function? It could result from whistleblowing as well.

Amyas Morse: Talking from my private sector experience, which is, as you know, extensive, the fee is agreed, but it is not cast in stone. If a huge amount of extra work is needed because an issue arises, the work will be done, and there will be a debate about payment.

Q578 Ian Swales: But in that environment you would expect that if the public body concerned had agreed a fee, and the professional auditors say there is more to do because they have found something or there has been a whistleblower, it would be billed for that work.

Amyas Morse: Let me put it this way. Anyone who has a statutory audit appointment has a professional duty to investigate and plumb out any issues they find, and make a full and thorough report. If they do not do so, or if they are prevented from doing so for any reason, they cannot sign off and they should not sign off a clean audit report because they have not completed a satisfactory examination. To be clear, if they found an issue that was serious and not foreseen when they started their work, they would have to do that extra work, and then I think they would quite legitimately expect to recover the cost of that work from the local authority.

Q579 Ian Swales: Do you see any risk-I do not want to cast aspersions on a profession of which both you and I are members-that that could be abused, or that firms could beef up the size of their work as a result of finding things and making the audit bigger? Do you see that being a risk?

Amyas Morse: There is always a risk like that. That is why you need a good Audit Committee. Many people round the table have experience of local government. Considering you’ve got more continuity in the elected body and working with the executive team, for the auditor to turn up and say, "I’ve just found something and I’m going to make you pay for it"-some bodies I visited felt they had a lot of work done on value for money under the previous regime, which they were not always that appreciative of. So if you put them in the position that they are the customer and they can drive back against any fees they are being given, I would have thought that that works quite well.

Q580 Ian Swales: Just a final point on this. There are various other regulatory things in the private sector. You also have audit panels in companies. Should the proposal be stronger, so that if the auditor goes into an organisation and is not happy, the audit panel themselves have more of a role at that point?

Amyas Morse: I would expect that to be the case.

Q581 Ian Swales: Is it strong enough in the Bill, do you think?

Amyas Morse: It looked that way but I’m not going to pretend I have examined it in great detail. If you said to me, "Would the auditor have power to seek audience with the audit committee?"-I am quite sure that they do have that power under the Bill-in that case, by telling them formally of issues, they are putting the members of the audit committee on warning. It would be very difficult for the audit committee to ignore those points.

Q582 Mark Reckless: How are your preparations going for taking on the code of practice?

Amyas Morse: Well, thank you. There is a degree of uncertainty about when we will be taking that up. Our plans at the moment are that the next iteration of the code will happen in 2015. We are expecting to work alongside the Audit Commission in preparing those plans. We have taken on people with Audit Commission backgrounds and other appropriate expertise to let us do that and we are confident of being in a position to do it.

Q583 Mark Reckless: How many people have you taken on in that respect?

Amyas Morse: Particularly, only a couple, but we will see as we move forward. There has been discussion about whether we would take some people from the Audit Commission and that may be appropriate.

Q584 Chair: How close will your code of practice be to the Audit Commission’s?

Amyas Morse: Quite close. I don’t think there is much wrong with their code of practice, so ours will be quite close to it.

Q585 Mark Reckless: And will the code of practice on its own be enough?

Amyas Morse: No, it won’t. Thank you for asking me that. The most important thing is not the code of practice on its own but the detailed guidance that the Audit Commission has been in the practice of giving and we certainly think we need to be in a position to give. We need that to be a feature of the Bill and the implementation of the Bill.

Q586 Chair: Have you got the powers in the Bill at present?

Amyas Morse: No, I don’t think we do and we would like to have those powers.

Q587 Chair: So it is powers, not just to establish the code but to publish guidance at regular intervals.

Amyas Morse: Yes, and to give guidance on the interpretation of the code and effect guidance to auditors who ask us for it.

Q588 Mr Bacon: What are the dangers if the draft Bill isn’t amended so that you do have the power to issue supplementary guidance?

Amyas Morse: The danger is that the code itself is at quite a high level and it is capable of too much flexibility of interpretation on its own. If I were an auditor I would be uncomfortable with the level of guidance proposed in the draft Bill without detailed guidance to go alongside it.

Q589 Mark Reckless: What would be the status of this detailed guidance?

Amyas Morse: It needs to be obligatory on the auditors to pay attention to it. Does that mean it should be in the legislation? It might be possible that it could be done under an order rather than through the legislation itself.

Q590 Meg Hillier: We have had quite a lot of discussion with witnesses about the role of the NAO in taking value-for-money studies forward-quite different and quite strong opinions have been expressed about this. First, do you think that the Local Government Association should be the lead authority for the improvement agenda in future? Do you think that in the draft Bill there needs to be any redrafting to make it very clear what the NAO is going to be responsible for and what the LGA is going to be responsible for? They are bidding for that work in their evidence to us.

Amyas Morse: I am not sure that I think we need anything in the draft Bill on this. I think what we mainly need is to have a close working relationship with the LGA, and we intend that we will do that. My view of it is that I think there is nothing wrong at all with LGA being seen in the role of encouraging and driving improvement. But, clearly, if we are finding something contradictory in our value-for-money work, we need to talk to them about that and make sure that they are not on different pages.

Q591 Meg Hillier: The chief executive of the LGA talked about a reference panel. Is that set up?

Amyas Morse: We have a reference panel now, as part of our development of our relationship with local government. We keep that in place and we get considerable guidance on our approach from it.

Q592 Meg Hillier: In that arrangement, you talk about developing a relationship, and so on. Who do you think should have the final say on what a value-for-money study should look like and what it should look into?

Amyas Morse: I should.

Meg Hillier: Okay.

Amyas Morse: That is absolutely, otherwise-

Q593 Meg Hillier: Do you think the draft Bill needs to be clearer on that?

Amyas Morse: I had not regarded it as unclear, I have to be honest.

Q594 Meg Hillier: Okay, that is fine.

How many VFM studies you think the NAO could do in a year? We are hearing about three, four and six. People are saying different things. What do you envisage? And what resources do you think the NAO might need, additionally to what you already have, to do that?

Amyas Morse: Well, right now we have in what I will call the devolved and local space about six studies going on. That is our planning assumption. We need that with the relatively modest resources we have already requested, which was roughly a 10% uplift in resource. If it becomes obvious that we need to do more, we are perfectly happy to do more, but I have to say that I think that-what I do not want to do is to have scope creep, where we start covering areas that were not envisaged originally. I think that would be concerning to people in local government.

In terms of what I will broadly call national study territory, which is where you look across and you draw significant lessons across local government-for example, one study we have planned for before the 2013 recess will be on local economic growth-if we find that it became obvious that we should be doing studies at a higher rate, we are perfectly capable of going to the TPAC and requesting funding to do that. This is a starting position that we have taken, and I am more than happy to be adaptable to it, seeing what need there is.

Q595 Meg Hillier: One interesting thing that has come up in evidence is that the NAO’s not commenting on policy-it follows the money-might limit what your VFM studies could do. I wonder whether you have any comments on that. I suppose, in a sense, it is about what would be different between the NAO study and the Audit Commission studies, and whether that is a good thing or a bad thing.

Amyas Morse: Okay, I think our studies will be quite similar to some Audit Commission studies-those which tended to look across the sector more broadly-and that is our intent. That is where we intend our focus primarily to be. What I do not see and am not thinking of, is following the money into seeking access into individual bodies to make examinations of our own. I do not think that would be welcomed by the sector and it is certainly not what we have in mind.

Q596 Meg Hillier: We talked about the financial resources. Again, there has been a suggestion that you could bring on board experts within the Audit Commission to help you develop this strand of work. Do you think you have the right people in the NAO to do the sort of work that you are going to be taking on? Are they adaptable or do you think you need to be looking at that kind of approach?

Amyas Morse: The place I can see us having active discussions about bringing people on board-I am not going to commit to it at this point-is, as I have already said, in the code space. That is the main financial audit activity that is going to be different and it is not clear to me that I need any more people other than in setting the code of audit.

Chair: We just had evidence from Her Majesty’s Inspectorate of Constabulary. Interestingly enough, his view is you should lay off them: they will do it all, and there is no role for the NAO there. I think that is fair to say.

Mr Betts: It would be burdensome, I think he said.

Chair: You would be burdensome.

Q597 Meg Hillier: On health, as well, we have heard interesting things. It is an interesting new landscape. Does the NAO think it has any role in health, as well? Maybe you could wrap the two answers together.

Amyas Morse: That is quite right. I am going to be quite robust here: I think we should be looking at constabulary and health. I know it will not be welcome to the inspectorate of constabulary, but we have done a considerable amount of collaborative work with them. We work well with them, and we provided quite a lot of input. Therefore I think that having an overview of what is happening in policing, more broadly, and working alongside that body, would actually be quite valuable. There is a lot of money going through there. As far as health is concerned, it is a gap and we would like to have a clear mandate on that.

Q598 Meg Hillier: That brings me to a more general point about data. We have talked about the code and so on. We heard quite clearly from Tom Winsor from the HMIC about what data are collected and how comparable they are-we had an interesting discussion on that. The danger is that you are going to have different auditors going into different sectors: you are going to have different bodies doing different bits of audit, if you have HMIC and yourselves looking at the police. Who is going to make sure that the data that are collected and provided by local authorities in whatever sector are in a form that is comparable between them and maybe even across sectors? What role do you think you have in that?

Amyas Morse: I will answer that in two ways. First of all, our financial audit guidance sets out certain categories of accounts that have to be described consistently, and there have to be consistent accounting policies. So we are not talking about that. What we are talking about is more the subject of comparative figures of performance. My view on that is that, yes, you are quite right that the less comparable and the less consistent the information is, the lower its quality. However, having said that, it always costs money to have information at very high levels of quality. We have found that at PAC, with the studies we have done on openness of information, where we have said, "If you want to have very high quality information, please be aware that it comes at a cost." You have to be constantly improving the data-cleansing that and so forth-if it is going to be at that level. So whoever produces it, if you are going to have very high quality comparative information it will cost money. The question is just what level of precision would be needed in order to provide meaningful comparisons between authorities or bodies that may or may not be fully comparable. It may be that what you need is at quite a high level. We would be happy to have that discussion in our relationship with the LGA; if they ask us, we would be happy to advise them.

Q599 Meg Hillier: But with all those sectors-the LGA, health, the police and so on-do you think the NAO has a role in making sure that that data are collected at that level?

Amyas Morse: No, I don’t.

Q600 Mark Reckless: Do you think that HMIC should have a statutory veto power over NAO activity in the policing arena?

Amyas Morse: I am sorry, but I have not even considered that. I wish I had listened to the testimony. No, I don’t.

Mark Reckless: To recap briefly, Tom Winsor, who has of course been recently appointed, referred to what he described as a general veto power. He had a long list of bodies, I think including the NAO, where he would veto activity.

Chair: And the Audit Commission was in there.

Q601 Mark Reckless: My understanding was that this veto power had been brought in when the Audit Commission extended its empire to policing in 1996, because of concerns about the Audit Commission. However, I think he was suggesting that he would want a general power to veto activity by any other regulator, including the NAO, if he felt it was going to be duplicatory.

Amyas Morse: Let me be clear: I am not a regulator. I would not be trying to compete in regulation at all.

Q602 Mark Reckless: He also said he was not a regulator.

Amyas Morse: All I would be doing is looking at value for money. The note that I have been passed says "Definitely push back on this": how fortunate that it confirms what I am already intending to do. Thank you for that; we work as a seamless team.

My view is that they just need to relax a bit and assume that if someone is examining them on the basis of evidence, as we do, that will not be prejudicial. Shining light on issues of productivity, efficiency and effectiveness are not, in my view, likely to be damaging activities. I really cannot buy that as a general proposition. Therefore, the idea that it was possible for every audit examination or value for money examination that might be made to be subject to satisfying someone that they think that that is okay is very limiting. Should we be asked to do it, I would not be in favour of that.

Q603 Mark Reckless: But are there not legitimate concerns, particularly in the field of policing, that there are a lot of different bodies-be they regulators or otherwise-who can come in and examine what they are up to and make recommendations?

Amyas Morse: To be honest, this is part and parcel of my everyday work. I go to Departments and arm’s length bodies to propose a study, and they might have a good reason why it is not right to do it at the time. First we think about that; then we discuss what we are going to do; then when we have the findings, we meet them-we are happy to meet them several times-to talk about whether our findings and facts are fair; and only then do we publish a Report.

So we go through a pretty extensive clearance process to be sure that we do not have arguments, although we do have arguments, about facts in front of the PAC. We are accustomed to operating in a way that is quite meticulous, as regards taking account of those who are being examined, to make sure that the facts we record are accurate?

Q604 Mark Reckless: To what extent would the NAO expect to expand or otherwise its role in the policing arena, if I can ask specifically about that?

Amyas Morse: We have done work in the policing arena. We have done work on a number of initiatives that were accessible to us in the policing arena, and we have done it in exactly the same way-by and with considerable consultation and full clearance.

Q605 Mark Reckless: Will there be more or less of that in future do you believe?

Amyas Morse: That depends if we are invited to do the work, but if we are, there will clearly be more of it, but it will all be done in the same way. We have no interest in having a dogfight in front of any Committee or otherwise about whether the facts on which we have based our judgments are inaccurate. We want to have accurate facts and to make a judgment that is likely to be persuasive to the audited body to do things differently and improve, if possible, its efficiency and effectiveness. That is our goal.

Q606 Mr Betts: You said "if we are invited". Should you have the power to do it if you want to do it, as opposed to having to be invited?

Amyas Morse: I would like to have the power to do it if I want to.

Q607 Mr Betts: For both health and police?

Amyas Morse: Yes.

Q608 Mark Reckless: You used the phrase "efficiency and effectiveness" in respect of policing.

Amyas Morse: That is part of my statutory charge.

Q609 Mark Reckless: But is it not specifically the statutory duty of HMIC in respect of policing?

Amyas Morse: I will not see my efficiency and effectiveness as being on policing practices-obviously not, as I am not an expert in that area.

Q610 Ian Swales: On the question about the independence of auditors, there was a nuance from the previous witness that I must admit I had not picked up. That is that in the policing area-I do not how many other areas this belongs to-the audit panel has an advisory power in terms of the police and crime commissioner, rather than the power of appointment. Does that concern you, and do you have any other concerns about the appointment process, the independence of auditors and whether that needs tightening up?

Amyas Morse: There are a number of choices about the precise method of appointment, but to be really credible it must always contain an element of clear, demonstrable independence, both in terms of the membership of such a body and in terms of process. As I indicated earlier, I think you could have a panel if that is acceptable and you could have the audit committee, as I suggested the Government should consider, but in each case you have to have clarity about the fact that the appointment is without fear or favour.

Q611 Ian Swales: As so often, you have to test these things by imagining their going wrong. Let us just suppose that in a police authority there was a cosy arrangement about who was on the audit panel, and that even then the police and crime commissioner failed to take its recommendation and appointed somebody that they just fancied appointing, or fired the previous auditors because they were getting too close to some problems. What is the route by which we ought to ensure that that kind of thing does not happen? I know there is the whole democratic bit behind that, but what should happen organisationally to ensure that we do not get into those problems?

Amyas Morse: There is a difficulty in that there are jurisdictional limitations, but it is possible to see a general principle there that you espouse. Then you look at where it does not seem to be being met and progressively campaign to get that principle adopted. Talking practical politics, that is what I think.

Q612 Ian Swales: But we are looking at a Bill here. Is there something we can write into it?

Amyas Morse: Yes, there may well be.

Q613 Mr Betts: In terms of the authorities that might get into difficulties of whatever kind, whether simply through bad management arrangements or financial difficulties, currently the Audit Commission will largely be the body that picks that up and flags it to the Secretary of State. The Secretary of State has powers under the Bill to intervene as a last resort. How far will the work that you do in looking at value for money and other studies across local authorities potentially provide evidence that you would be able to use to flag up to the Secretary of State difficulties that are occurring in particular authorities?

Amyas Morse: If it is sufficiently serious to be picked up in our study, we will liaise with the Department. Therefore, it will have knowledge of our findings.

Q614 Mr Betts: So there is a direct link: if you find something, you pass it on?

Amyas Morse: Yes.

Q615 Mr Betts: Just to come on to the other examples, because we always talk about them in these cases, let us address the Westminster case. Unfortunately, the public interest report on Westminster was a very high profile and unusual case, and it has not been replicated elsewhere in quite that form, but you are always going to have procedures in place to ensure that if it does happen again it can be properly dealt with. In that case, it was not simply the auditor who pursued it; the auditor was very much supported, backed and underwritten by the Audit Commission. How would public interest operate in a similar situation under the Bill with no Audit Commission to back up the auditor?

Amyas Morse: I would like to say that we could support it, and if it is possible, we would.

Q616 Mr Betts: Would you need a power to do that specifically?

Amyas Morse: There is just one comment I would make-

Q617 Chair: What are you being told to say?

Amyas Morse: No, it is in my notes already. I was simply going to say this: at the moment, one way in which the Audit Commission supports public interest reporting is by giving indemnity to the auditors. When it does that, it is really only giving the indemnity of the Government. It is not only doing that, but it is effectively giving indemnity on behalf of the sponsoring Department. On a comparable basis, the indemnity in my view should be given by DCLG.

Q618 Mr Bacon: And not by the independent National Audit Office?

Amyas Morse: No.

Q619 Mr Betts: Does that mean that DCLG has to have people who can look at the issue and take that decision?

Amyas Morse: If I was giving indemnity, I would expect to be told when such an indemnity was likely to be called.

Q620 Chair: I have to say hang on to that for a minute. That is an interesting idea, and I want to explore it a little. This is an auditor going in and saying, as they did in Westminster, "There is misuse of public money." It is very difficult to get a Department that does not have auditing skills-it has lots of other skills-to agree to indemnify.

Amyas Morse: I do not think so. This is not really a question of auditing skills; it is a question of insurance, if I can put it that way. Take the Westminster case, if you like. That turned out to be a case with enormous costs and an enormous amount of activity. If you said to auditors, "I want you to take that yourself, and good luck with it," they would naturally want to know whether they would be indemnified in the event that they took it. The Department can perfectly well give that indemnity.

Q621 Mr Betts: But the Department would then be giving a blank cheque to every auditor.

Amyas Morse: No, it does not have to be a blank cheque. You can put together an indemnity that is intelligent.

Q622 Mr Betts: Where does the intelligence come from? I suggest that that intelligence might come from yourselves.

Amyas Morse: That is possible.

Q623 Mr Betts: So it could well be underwritten by the Department, but on advice from the National Audit Office?

Amyas Morse: Yes, that is possible. I would not have any fundamental objection to that.

Q624 Mr Betts: Would you need the power to do that?

Amyas Morse: Pass. I do not know the answer to that.

Q625 Mr Betts: I think you are getting a nod from behind.

Amyas Morse: All right. Excellent. That is good. Obviously the answer is yes.

Q626 Chair: If we go back a little while, you said that a lot of this depends on how it’s going to be implemented, and I think that’s true. What we are trying to do is belt and brace it a bit in the legislation, so that not too much is left to chance. One of the things you talked about was the importance of DCLG being an intelligent eye on what is happening in local government, to be able to intervene there. We are seeing the Secretary of State after you, but I am not sure that that is his take on it. If it isn’t, how do you think that his permanent secretary, as accounting officer, will be able to sign off the accounts to your satisfaction, in terms of accounting officer responsibility for the expenditure authorised through that Department?

Amyas Morse: The accounting officer, at the moment, to the extent that he takes assurance from auditors in local government, obtains assurance from them, and that is part of the assurance he gets. In some part they are private sector, reporting to the Audit Commission, but he will receive that assurance from local government, supported by audit opinions, and that will enable him to rely on the report. I am sorry; I am probably not saying that clearly enough, but it is a pretty straightforward process. What is in the accounts of local government is assured by the auditor.

Q627 Chair: So he will have to have a capability won’t he, which presumably the Audit Commission currently has, to do a little tick against the audits of all the local authorities and other bodies?

Amyas Morse: He doesn’t have to assess, he simply relies on them. He simply gets told that they are cleared audit reports and that he can place reliance on them. I don’t think that requires great expertise.

Q628 Chair: And that’s enough is it?

Amyas Morse: Yes it is.

Q629 Mark Pawsey: I am just looking at the evidence you gave to the CLG Committee 18 months ago, when you said that you were fascinated by trying to improve the efficiency of what happens in the public sector. With the passage of time, are you any more confident that we can continue to improve the efficiency of what happens in the public sector?

Amyas Morse: I am not only fascinated, I am passionate about it, and I think we have achieved a lot in the past 18 months; there is a lot more to achieve. I give an example alongside what we are talking about, which is making sure that the contracting out of services works to deliver full public value. We have a role to play in helping to drive that, so that it doesn’t happen against contracting out, but we make sure that Departments and those who are receiving a service really receive the full value they should receive.

Q630 Mark Pawsey: But are you more positive about the effect of the changes now than you were then? Have you still got reservations?

Amyas Morse: What I am very clear about is that we do effect change, yes. The Public Accounts Committee effects change and the National Audit Office effects change. I am sometimes surprised by the effect we have, but we clearly do have a significant effect.

Q631 Mark Pawsey: But I am asking you about the move with what has happened over the past 18 months, now that we know more and things are working themselves up. Are you more confident about the ability to do that, and to do it more effectively, or are we in the same place, or less well-off?

Amyas Morse: I think I am more confident because I am more confident about my ability and the ability of the PAC to combine to have a considerable improving effect, because I have seen it happen.

Q632 Chair: I have one very final question because we have the Secretary of State outside. Where should the national fraud initiative be housed?

Amyas Morse: Well, not with us. I am a strong supporter of the national fraud initiative-let me be very clear, on the record-however, I see the control of fraud as an executive function and not the function of an independent auditor. Although I am supportive and I wish it well and want to see it in a good place, I don’t think the place is with us, for that reason.

Chair: Good. Thank you very much indeed.

Examination of Witnesses

Witnesses: Right Hon Eric Pickles MP, Secretary of State for Communities and Local Government, and Brandon Lewis MP, Parliamentary Under-Secretary of State, Department for Communities and Local Government, gave evidence.

Q633 Chair: Welcome, and thank you. You are our last witnesses before we write our report, so we have saved the best till last. No doubt you will have been told about some of the issues that have been raised during our consideration of the Bill. We very much see our role as looking at the legislation you have placed before us, and seeing whether there are gaps and risks, so we have kept ourselves very much focused on that task.

Eric Pickles: It is entirely your fault, because you were so persuasive in getting me to do it this way. Otherwise, I might have-

Chair: I hope we will get a better Bill out of it.

Eric Pickles: I am sure we will.

Q634 Chair: Let me start by asking you some questions that everybody has raised, on auditor appointment. I do not think you have had any support from any of our witnesses for the proposals on independent audit panels in the draft legislation. We have had a number of alternative suggestions, but people find that they are an unnecessary layer of bureaucracy, that it will be difficult to fill the panels, that they will not necessarily add value, and that they will not deal with some of the problems that will arise out of potential costs of procurement by the localisation of auditor appointment. I wondered whether you had reflected on the proposals since they were included in the draft Bill, and whether you had any thoughts on that at all.

Eric Pickles: I have. I am afraid I cannot be helpful in winding up controversy, because I thought that a number of the points made were entirely reasonable. There are a number of solutions. I notice that small authorities have looked at creating a set by which they would do the appointments, so we would have a number of independent people to do that. I see some suggestion that some of the larger authorities are thinking in those ways. I have seen some suggestions that authorities could merge together-go out together to find these independent persons. I thought that the points made were entirely reasonable. I looked, in terms of what you would like to recommend, but again, I hope I do not sound-

Q635 Chair: You are open to ideas. I am less close to the local government scene than Clive Betts and Mark Pawsey are, as members of the Communities and Local Government Committee, but what was of interest to me was that probably the most favoured solution was a small, central capacity to carry on taking advantage of the economies of scale and eking out best value from the private auditors by bulk purchasing.

Eric Pickles: I have absolutely no problem, but in terms of the appointment of the panels, the independent element does need to be there. I think local authorities need the assurance about the appointment of an independent person, plus in terms of getting best value, I think I saw that two of the chief executives, in their evidence to you, seemed to be very willing to share good practice. I have no problems with giving local authorities that flexibility.

Q636 Chair: Good. Well, it looks as if our recommendations might in some little way improve the Bill. Let me ask you something else. We have just had a discussion with the NAO, and Amyas Morse took the view that if this is to work, there still has to be intelligent and strong vigilance by the Department on the audits of individual local authorities. I wondered what your view was. I know you very much want to decentralise and localise it all. What I heard from him was in the interest of your permanent secretary as accounting officer to us at the PAC down the line, and you are interested in ensuring value for money. There has to be a stronger capability within DCLG, to Brandon Lewis, and from Brandon to you, to satisfy the public and satisfy Parliament that there is both probity and value.

Eric Pickles: Obviously, I have not had the advantage of hearing the CAG’s evidence, and I will clearly look at it carefully. In the Bill, it is envisaged that it is going to be put together by trying to ensure that you have roughly the same kind of regime, both in company auditing and in public auditing. Clearly, we look to the National Audit Office to put together a code of audit practice, but we look to the Financial Reporting Council, plus the professional bodies, to ensure the ethics and the like.

Q637 Chair: What role do you see CLG playing to satisfy you about the accounting office role?

Eric Pickles: Very much one of last resort.

Q638 Chair: Assuring Parliament that money has been properly spent, and that value for money is provided. In the end, your permanent secretary has got to sign it off.

Eric Pickles: In terms of the probity of individual authorities, that remains a matter for the district auditor. The auditors themselves would be responsible for that. If we felt things-

Q639 Chair: There isn’t a district auditor, is there?

Eric Pickles: I beg your pardon. Old habits die hard. In terms of dealing with audit generally, if there was a problem, it would be very much like things are being dealt with now. For example, the Audit Commission did not play a very significant role in dealing with the problems in Doncaster, but the LGA did.

Q640 Chair: Let us take the Westminster example. I am not trying to be partisan, but in that instance the auditor did play a very important role. One has to always look at the exceptions to make sure that the framework is right. In that instance, if my memory serves me right, about £2 million of fees were spent in looking at certain aspects of the housing policies in Westminster. That was underwritten by the Audit Commission. In the new world-I just want to put this to you because you will not have heard it-the NAO came forward with a rather sensible suggestion, I thought, which was that the underwriting could lie with your Department on the advice of the NAO.

Eric Pickles: Forgive me, Mrs Hodge, for suggesting that you might be mildly confused-I hesitate to say that. The problem, if you will recall, in Westminster was not the audit fees, which were paid without any problem. It related to the court fees and the surcharge. That was where the big controversy lay. The only circumstances where that would take place would be if a private individual took the auditor to court. There is no instance, and I have looked into this-

Q641 Chair: I am not up to date so I may have this wrong, but surely if the auditor of a local authority decided to do a report in the public interest, which then led the auditor to take action in court-I accept that a lot of the fees are racked up during the court process-that would all be underwritten by the Audit Commission. If we do not have the Audit Commission, somebody has to underwrite the auditor in taking appropriate action.

Eric Pickles: I am pretty certain that I am correct, because I have looked into all 14 public interest cases. In every single one, the audit fees were paid. There were special and unusual circumstances in the Westminster case and the pursuit of Shirley Porter, but that did relate to the surcharge.

Q642 Chair: But that was underwritten by the Audit Commission. The risk on the costs of pursuing the council was underwritten by the Audit Commission.

Eric Pickles: I think what I am really saying is that I cannot imagine circumstances where Westminster would be repeated, because clearly the surcharge has now gone. But if there were particular circumstances that the Committee might think-there might be some circumstances where the auditor might not get their fees-I would be very willing to look carefully at that.

Q643 Mr Betts: As a follow-up, in the end, it is important that the auditor’s costs are provided for in some form. There has to be a clear understanding that there is a mechanism for that to happen in all circumstances.

Eric Pickles: There is no problem at all with the audit fees.

Q644 Mr Betts: Extra costs that come from public interest reports.

Eric Pickles: I am not convinced that the Bill does not cover that.

Q645 Mr Betts: We have to make sure that it does one way or another.

Eric Pickles: Mr Betts and Mrs Hodge, you are very reasonable people and have enormous expertise on that. I shall get my very clever people either to prove you wrong or to issue a grovelling apology.

Q646 Mr Betts: There is a slight additional point on the role that the Audit Commission played in that particular circumstance. They gave advice and reassurance to an auditor who was a bit out there on their own in a very high-profile case. I just wonder whether there is some necessity for some fall-back power for the National Audit Office to be able to exercise that sort of role and give guidance and advice to an auditor in a very difficult case such as that one were it to be repeated.

Eric Pickles: Of course the auditor would be able to rely on the professional accounting bodies and on the Financial Reporting Council, so I am not entirely clear why that would be necessary. The idea is to make the auditing of companies and of public bodies roughly the same in the way in which auditors look to such bodies for guidance and support. If you have particular circumstances in mind, Mr Betts, I am very happy to explore it.

Q647 Mr Betts: The fact is that the accounting of public bodies is not the same, because public interest reports do not happen in the private sector because they are public interest reports and the scope of audit is different. The professional bodies and the FRC have a role in the private sector, but there is a difference here in public sector audit.

Eric Pickles: Public interest is a very rare thing. In the past 11 years, there have been 14 cases, and they have varied enormously in terms of the reasons for doing so.

Mr Betts: Being prepared for the unexpected is quite a helpful thing to do sometimes.

Q648 Ian Swales: As the Chair said earlier, part of this is testing against those cases to see whether the Bill is robust and whether the arrangements are robust. My local police force has run up a bill of £4 million and still counting on an investigation, which is way beyond their own ability to pay. You talk about the parallel with the private sector. Do you therefore see some kind of Serious Fraud Office-type arrangement? If things get to the point where there is a massive case, that would be the parallel. Is that what we need to talk about? What would the fall-back be in terms of how work would be done and how it would be paid for?

Eric Pickles: I am not entirely sure of the circumstances where that would occur. I can go back 30 years from personal memory, and we are talking about one case and that was a serious aberration and a serious breakdown of responsibility and trust. In terms of public interest reports, these are immensely rare and very unusual. Of course, with greater openness making sure that local authorities produce the documentations and the raw audit, they are now more subject to freedom of information requests. That was not available in Westminster. There is a provision in the Bill, before the final audit is done, for members of the public to see the raw figures and the documentation 20 days before it is commenced. There are all kinds of checks and balances within the system.

Brandon Lewis: One other thing we need to bear in mind is that we are in a very different world in terms of the information that is out there, where it is accessible and how it is accessible in the first place, compared to when we were looking at Westminster-your example. As we have seen recently in the Isle of Wight and Barnet, with the internet and accessibility through transparency, the general public-bloggers, journalists and so on-can very quickly access information that simply was not available back then. There is a whole other layer. In some ways, I suspect, as we go forward in years, it is going to become a far more intrinsic way in which authorities are held to account. The public will be doing it. They will not be able to hide things in the way that-

Eric Pickles: You raise a very interesting point. I am talking completely off piste now, but if you think about it, I do not think the Westminster scandal would have got to anything like the position that it did if the present arrangements with regard to transparency and freedom of information had existed. It would have saved our local government a horrible scandal, and probably saved Shirley Porter quite a lot of money.

Q649 Chair: I hear that. There is some truth in it. I want Ian to talk about his police example, but the interesting thing about Westminster was that it was an individual ratepayer who took it forward. But the ratepayer does not have the apparatus and resources to pursue a council if they think the council has acted inappropriately. The ratepayer "whistleblew"-in today’s terminology-to the auditor, and then the auditor, who does have the resources, took it forward. I hope it never happens, but all we are saying is that, responsibly, in drafting the legislation, there ought to be a system in place allowing that process to happen unconstrained by somebody thinking, "Who’s going to pay for this lot?", in the interests of proper accountability, value for money and probity.

Eric Pickles: I cannot see circumstances in which an auditor would not get their costs, but-

Q650 Chair: They have to risk it. I think there might be a difference of view. We will never know the answer, but risking £2 million in the early 1990s was a lot. It was very helpful to the whole process to have that indemnified by the Audit Commission.

Eric Pickles: Any indemnity issued is also not going to be paid out immediately. There will always be a test for reasonableness. I say this with enormous respect: I do not think that so far you have made a case for this to be in the Bill, but I will consider it. I want to go about this on a completely consensus basis. Of course we will look at anything.

Q651 Ian Swales: Just expanding that, clearly the focus of your attention and the Bill, understandably, is local government, but of course, the Audit Commission goes into other areas. We heard evidence this morning from the police. Maybe you are the wrong person to answer this, but I think it is worth exploring with you the effects of the Bill in other areas.

If we take my own police force, in an interesting bit of symmetry, the previous chair of the police authority was prosecuted for perverting the course of justice on the very day of the police commissioner elections. We now have a new police commissioner, who walked in on his first day and sacked the chief executive of the police force and put someone he was familiar with into the job. That shows behaviour where there ought to be some checks and balances.

In the evidence earlier today, something became clear to me that had not been clear so far, which was that even the independent panel has the power only to recommend an auditor to the police commissioner under the new arrangements. There is a real concern about the extent to which the new arrangements will have the checks and balances that we want to see in the public interest.

Brandon Lewis: Obviously, the police commissioners come within the remit of the Home Office-the Department of Health has fed its own things through to the Bill-and that is something that we need to take back to the Home Office and talk to the Home Secretary about.

Q652 Ian Swales: You are the lead Department on the Bill. Have you checked that the arrangements work in areas outside local government, such as the police? Have you been formally liaising with your colleagues, because the Audit Commission goes into other areas?

Brandon Lewis: You have given a specific example there. Rather than give you an instant response, I would rather have a look at that and come back to you with a proper response that answers the question.

Chair: It is a pretty shocking example.

Brandon Lewis: With the greatest respect, I want to find out more about it before I come back with an off-the-cuff response.

Q653 Ian Swales: To be fair, I am not looking for specific instant feedback; what I am saying is that the arrangement we are putting in place needs stress testing against real-life situations. Sometimes we get surprises because there is something that we never thought of. If we have got real cases like that already, we need to stress test the arrangements against how they will work.

Brandon Lewis: I appreciate that. It is part of the advantage of this Committee and what will feel through from it, but that is why I want to look at what has happened in that case and get some more detail before responding. I want to make sure of the facts. Obviously, that is something that we will talk to the Home Office and Home Secretary about.

Eric Pickles: You certainly seem to have an exciting police authority.

Ian Swales: It is a bit of a legend at the moment. The first force to sack its chief constable in about 30 years, I think. That happened two months ago. It is quite exciting.

Q654 Chair: I wanted to bring us back to the more general, rather than the specific. We had succinct evidence from Lord Heseltine last week, and he was completely clear-I don’t know whether you had a chance to read it-that we needed a systematic process and common methodology to allow value for money in like-for-like services across local authorities to provide incentives to improve. That is very obvious. Do you agree with that?

Eric Pickles: The one moment of hesitation that I had in this process was realising that I was tearing up Lord Heseltine’s noble work.

Chair: Against us.

Eric Pickles: It is the strangest thing. The reason why I took the decision was, while the Audit Commission was completely independent when it was set up-it would not even talk to Ministers, if you remember, when it first started out-it gradually went from that process of haughty good practice, saying "This is the way to do it", to becoming an enforcement arm of Government. I felt that it had completely lost its way.

I wanted to preserve the integrity of the audit process, recognising that things have moved on, but also recognising that, in a way, the Audit Commission had almost become a parody of itself in terms of wastefulness and lack of regard for the public purse. If we are honest, it was not terribly effective on the big issues that affected local government. I think that you saw some evidence of that from other witnesses. In doing that, one of the first people that I told that this was where I was going was Michael Heseltine. It was not an easy meeting, but he kind of understood why we were going to do it. However, I then had the misfortune of telling him that I was also winding up regional government. I still get a Christmas card from him.

Q655 Chair: That is a very neat answer, but you have not actually addressed the issue of value of money. What your system does is the audit. I can understand that. But he was absolutely clear: he said that you have to have a framework and you must be able to prepare the data. You have to have value for money if only-again-for you to provide assurance to Parliament that you are spending the taxpayers’ money properly, and, certainly for my Committee, to make some effort in proving value for money.

Eric Pickles: I agree, but I do not think that value for money can always come from the centre. As you devolve power to local authorities, that value for money has to come through local accountability and local activism. It is right, of course, that there should be a commonality to be able to compare local authorities, and the Local Government Inform is an important arm of doing exactly that. But I am not entirely sure that the Audit Commission-I say this with lots of respect-really added to that process of producing value for money.

Q656 Chair: In a sense, put the Audit Commission and its record to one side. The Public Accounts Committee would feel very strongly-a lot of money comes through your Department-and we would want to know whether there was value for money received for the taxpayer. Following the taxpayers’ pound-rather boringly, I say that all the time-we would expect to be able to interrogate reports that gave us comparative data, from dustbin collection through to housing management or whatever.

Eric Pickles: Dustbin collection-yes, I agree.

Chair: Or whatever. It does not really matter.

Eric Pickles: The National Audit Office will have the ability to produce that. In addition to which, I do not think we should be sniffy about this. There will be the Institute for Public Policy Research, NESTA and various academic bodies.

Q657 Chair: But they need the data.

Brandon Lewis: This comes back to the point I made earlier. This is one of the really big changes in where we are. That data is there for anybody, because of the transparency agenda. Also, you have to remember that 95% of local authorities are signed up to LG Inform now, so that information is out there.

Q658 Ian Swales: There is data, information, knowledge and wisdom. Dumping a whole lot of data-mountains of data-out there is good from a transparency point of view. The armchair auditors, as they are called, would also quite like some information, and this is the type of thing we are talking about-in other words, aggregations that show comparisons and so on. Knowledge, if you like, comes from knowing how my authority is doing against another. That is what we are talking about here.

Eric Pickles: In terms of "one I made earlier", this is a list of the data that is currently collected up to that point that is available through the Local Government Inform process. Things have kind of moved on since those days when information was not available. Taxpayers will be able to do a compare of those things. Newspapers will be able to do a compare. Mr Swales, you will be able to do a compare. It is not about Mr Betts shaking his hands. You did get pretty good evidence to say that some of the stuff that was coming out of the Audit Commission was excessive and unnecessary, and there needs to be a check.

Mr Travers-before Mr Betts-drilled me to the floor on all this unnecessary data that was collected and how we must have an agreement. We now have an agreement between local and central Government as to the data set. If we want anything excessive, we have to pay for it. That seems to be a sensible thing. You cannot have your cake and eat it. You cannot say we are asking for too much money. We should have an agreement with regard to the data set that we keep.

Q659 Mr Betts: Coming on to that, a lot of it out there is in very raw form and it is not usable by people who want to draw comparisons. It is not about transparency. It is not usable in the way that you draw comparisons about value for money. Do you believe that the six studies a year by the National Audit Office are going to be sufficient? No, you probably do not, because you have already talked about the Local Government Inform scheme, which, although I am very supportive of it, is still being developed and not there yet. Does it not need some statutory underpinning to ensure that all authorities get involved, because 95% are? The 5% that are not, perhaps some of them will join, but some authorities are not even members of the LGA.

Eric Pickles: But the information includes all authorities, whether they are a member of the scheme or not.

Q660 Mr Betts: Should we be allowing free riders then?

Eric Pickles: That is a matter for the Local Government Association to work out. You do not expect me to put in a statutory underpinning for the Local Government Association fees, do you?

Q661 Mr Betts: I am just asking whether there needs to be some more statutory underpinning of the process of value for money and the data needed to provide for that.

Brandon Lewis: But there is, in the sense that that is a duty of the councils and their chief financial officers, as well being what the councils get elected for in the first place. So, to an extent, that is already there.

Q662 Mr Betts: Except they can still opt out of it.

Brandon Lewis: No. A chief financial officer is nothing to do with LG Inform. That duty to deliver value for money for taxpayers is inherent in being a councillor and a chief financial officer in a local authority.

Q663 Mr Bacon: Isn’t there also statutory underpinning in the Bill in clause 94, which says: "The Comptroller and Auditor General may carry out examinations into the economy, efficiency and effectiveness with which English local authorities have used their resources in discharging their functions." Granted he must have regard to various things and consult various people, but even if he decides for perhaps very good reasons to restrict himself to six large national studies, that is statutory underpinning, is it not?

Eric Pickles: Mr Bacon, you are absolutely correct, but I was seeking to avoid mentioning that on the grounds of decency, because you might say, "Yet another power taken by the Secretary of State." I do regard myself as long stop on this-of course I am. If things look particularly whacky in an authority, then of course we will look to intervene and to demand intervention. I was urged by people in this room to move towards a system whereby we worked with local government on the basis of consensus, and that is what I am trying to do in terms of the data set, of the reporting and of making sure that reports are relevant.

Q664 Chair: If I can draw on this little conversation slightly, we all agree about the transparency. I think, Secretary of State, that you do agree that you need to have comparability-the NAO will do its four, five or six reports. I am clear-do you agree?-that that has to be on the basis of the Comptroller and Auditor General being able to compare the data. So whether it is less data, which is what I understand the CLG Committee wanted, or whatever, as long as we are in the same place in understanding that there have to be data sets that allow a comparison to be made, so that value for money can be assessed, you can assure yourself that money is properly spent and local taxpayers can assure themselves that their local authority is value for money.

Eric Pickles: That is right, but I also have to guard local authorities from gratuitous information. That is why there is a kind of yearly round at which we agree the data that we will want from local authorities, and to guard them against someone bright in my Department suddenly thinking, "Well, it would be absolutely magnificent if we had the information on the colour of dustbins."

Mr Betts: Have you got a view on that as well?

Q665 Chair: I am moving us on. Do you think that the LGA should tell the NAO what reports it should do?

Eric Pickles: I would be really pleased if there was a kind of agreement in terms of where we are looking at things, but you have always got to ensure that the National Audit Office has the ability to say, "No, no, I want to do that." That is right; it should always be able to do that, but sometimes-with a lot of things that I have been trying to do-I have really tried to get a degree of consensus to look at areas that we have all known we need to do. A prime example of that would be troubled families, whereby we have announced an initiative, but we could not really have got it off the ground had there not been consensus right across local government that, actually, this was an area that everyone had neglected for a while.

Q666 Chair: Another area that has come up in our evidence has been the national fraud initiative, which everyone thinks is a good thing but has yet to find a home?

Eric Pickles: It is indeed, and we will indeed find it a happy home, and any recommendations that you may care to make-clearly, it will probably go into DWP, the Home Office or the Cabinet Office. But it is a valued initiative.

Q667 Mr Bacon: You will agree with the CAG’s comment, which you may not have heard, that he regarded the NFI, which he strongly supports, as an executive function, and that therefore the NAO would be an inappropriate home for it.

Eric Pickles: I have never in my wildest dreams thought it should come to the NAO, so he can rest safer in his bed tonight.

Q668 Chair: Okay. So we will make a recommendation to you, but you are aware of it and you will take it up.

Eric Pickles: Yes, absolutely.

Q669 Mr Betts: You interrupted my holiday in August 2010 with your announcement, I think, that you were going to save £50 million as a result of the abolition of the Audit Commission. It has now gone to £650 million over five years. Presumably, quite an element of that is the extraneous things that the Audit Commission has developed over the years, or been given, like the comprehensive area agreements or CAAs. In terms of the actual audit function, what saving do you now expect to get as a result of the abolition of the commission?

Eric Pickles: Of course there is a billion and a bit over a slightly longer period. If I could refer, Mr Betts, to page 171, that lays out the various savings. There are basically three biggish things. We are talking roughly about the sums, but there is about £20 million1 in ending the inspection; there is about £264 million that relates to the cost of audit; and there is about £225 million on overheads and ending payments to contractors. That is what the £650 million is roughly made up of, but a breakdown is available there.

Q670 Mr Betts: I am sure that we will have a look at that before our final report. About the £650 million, how much of that was a saving related to where the Audit Commission was in 2010 and what would the saving be compared with what the Audit Commission does now?

Eric Pickles: I don’t think you can divide the two.

Q671 Mr Betts: I think you can, because-

Eric Pickles: I’ve kind of heard your evidence, in which people say, "Oh, look, we’ve done this; we’ve done that; these savings are made; we don’t need to do it." The fact is this, Mr Betts: none of these savings were made until we took the decision to abolish the Audit Commission. And I was pretty surprised, I have to say, about the extent to which local authorities had been overcharged for their audit function. If we don’t ignore what they were actually doing, if we don’t ignore the total size of the Audit Commission, if we then pretend that they have moved down this road of their entire own accord, then of course-but there are still savings to be made.

Q672 Mr Betts: I wouldn’t want to take any credit away from the action you have taken so far, but let’s say we are where we’re at. The Audit Commission is now running in a very different form, doing far less; it is merely procuring audit for local authorities. Compared with the cost of doing that now, are there going to be any savings from moving to the arrangements in the Bill?

Eric Pickles: There will, in terms of improving the audit arrangements by getting more competition in; we’ve got another two of the big players in. Do we have the actual figures to satisfy Mr Betts, or do we need to write to him?

Brandon Lewis: No, we need to write to him on that. What also isn’t accounted for, to an extent, in the £650 million is the substantial savings that are actually out there. They are almost-I am trying to think of the right phrase-the anecdotal savings that are there for the sector itself. Now I know, Mr Betts, you’ve got the experience, and I certainly have got relatively recent experience of leading a small district authority. And I know from that experience alone the amount of time and therefore taxpayers’ money that is used up by officers in satisfying the Audit Commission for things, which is not accounted for in this, because it is within those officers’ costs.

Let me just give you an example. I can still remember, when I was quite fresh as a leader, sitting with a chief executive and several officers and members, having a conversation about-I appreciate that this is a very favoured topic for present company-bin collections and moving to fortnightly bin collections, which we were getting strong advice from our officers we should do, because that would keep the Audit Commission happy and because of driving up recycling. From memory, we managed to drive up recycling from just below 20% to just over 40% by doing it in our own way, where we can make it easier for people. I will not take up the Committee’s time in going through the exact details of how we did that.

Mr Bacon: Oh no, please do.

Brandon Lewis: But for local authorities that are interested, we looked at how to make it easy for people to recycle. Instead of saying that you must do this and we will stop having a weekly collection, we made it as easy as possible. We gave out free bags and we sorted out a base that was more cost-effective. Because it was easy, more and more people were recycling. [Interruption.] I did not want to move too far away, but Mr Bacon invited me to do so. My point was that we as a local authority spent quite a lot of time, and officer time, researching going down the road of fortnightly collections. That was not because any of our members wanted to do it, not because any of our public and our residents had asked us to do it, but because our officers felt that we should do it as it would keep the Audit Commission happy. If we did not keep them happy, there would be other connotations. That used to happen quite regularly. It could be that or preparing for CAA or the time taken with that-

Q673 Mr Betts: We have already established that CAA has gone anyway.

Brandon Lewis: I appreciate that. All of that time and effort in officer time was a huge amount of money. My chief executive said to me that he thought that we were probably using the equivalent of at least one, and arguably two, senior officers’ salaries a year to satisfy what we would refer to as the tick-box culture to keep the Audit Commission happy. For a small local authority with a budget of under £10 million a year to be spending arguably £100,000 or £200,000 a year on that kind of thing is not a good use of taxpayers’ money. Such savings are difficult to quantify, but for the sector, that is 3% or 4% on your council tax. A council leader said to me this week that they believe that the cost of the Audit Commission to them, outside of the audit where they are delighted to have saved around 40% because of the reducing fees, was around 2% on the council tax. That cannot be good for residents.

Q674 Mr Betts: I am asking about the savings from where we are now, not from where we were.

Brandon Lewis: But it still applies. The spectre of the Audit Commission on your back as a local authority-that needs a clean break as much as anything else psychologically.

Q675 Mr Betts: One thing that has been said to us by a number of witnesses is that they do not believe that fees will go down and that there will be additional costs of procurement with each body doing the procurement themselves. In particular, while large authorities, such as Birmingham, which had the chief executive before us, thought that they might make some savings on audit fees, the concern was that smaller authorities, such as the one you mentioned, will actually pay more in fees once they start procuring individually.

Eric Pickles: Yes, but Birmingham also went on to say that they were more than willing to band together to get some of the advantages-to get a critical mass in terms of getting fees together. I have just noticed from the copious briefing notes that I have some figures for income from audit fees paid by local bodies. If we start at 2009, that is £175 million. That drops in 2015 to £81 million and drops to £74 million by 2017. The corporate cost of the commission reduces from £48 million down to £9 million. So against that bid, it is a bit different to say, "Ah, but ignore the drop from £48 million to £9 million."

Mr Betts: It has gone.

Eric Pickles: Yes, but you cannot ignore it. You cannot say in an ideal world it will be very different. These things have happened.

Q676 Mr Betts: The ideal world is the here and now, Secretary of State. It is a comparison with the here and now. The figures that you have offered to provide to us about savings from the here and now would be helpful. Perhaps when those savings figures appear from the Department, it will be helpful to make sure they have added in the additional cost for the NAO, the FRC and anyone else who takes on additional responsibility as a result of the Audit Commission being removed. That surely is a fair way to present them, is it not?

Eric Pickles: Even the Audit Commission, bless their hearts, say they do not disagree with the £165 million2 figure.

Q677 Mr Betts: But you yourself have questioned the effectiveness of the Audit Commission, Secretary of State.

Eric Pickles: That remark is unworthy of a statesman such as yourself.

Q678 Chair: The PAC does its business in an entirely different way. I was going to ask a more general question arising out of that. There are some audit contracts that are going to be outstanding-about £90 million of awarded contracts. Witnesses have raised with us the issue of how those will be managed.

Eric Pickles: That is a fair and reasonable point. We will determine who will take care of and administer them. It could be the Department; it could even be the sector. I am completely open to suggestions. If the Committee thinks of an appropriate body that could look after them, I am more than willing to listen. But obviously, that question needs to be addressed for that vital period.

Q679 Ian Swales: A quick point. We know that a key part of the control structure of any body is the ability of whistleblowers to know what to do. The Bill is quite light on whistleblowing. Presumably you want that activity to continue. I am wondering if you think there is anything that needs to be beefed up in the Bill as regards whom whistleblowers go to, how they might be protected and so on. It is not going to be as straightforward in the new regime as it possibly is now.

Eric Pickles: I am not entirely sure that that is right. If you whistleblow to the Audit Commission, it will pass it on to the auditor. It acts just as a glorified post office. It does not do anything itself; it just passes it on. It is certainly our intention to make an order under the Employment Rights Act to ensure that auditors continue to be named as a prescribed person for whistleblowers. We think that that is probably enough. It is immensely important that whistleblowers have the ability to do their business. I am old enough to remember the downfall of T. Dan Smith and Poulson, which came from a whistleblower.

Q680 Ian Swales: So you would simply see the relationship being directly to whoever the local auditor of that public body is?

Eric Pickles: Yes. In effect that is what it is.

Q681 Ian Swales: So no role for the audit panel or anyone else? Just that?

Eric Pickles: Oh no, I think you need to be able to say that there is one person who can receive this information, who can act on it and whose duty is to act on it. I think that is right. If you are a bit nervous-you are working for an authority, and you have just looked up and said, "Oh my God, this is absolutely dreadful"-you do not want to speak to a committee, but to one person.

Q682 Ian Swales: Is there any fallback if someone raises something serious and the auditor fails to act? Or would you just be into the democratic process then?

Eric Pickles: The auditor has a duty to act. The auditor clearly has to come to a view about mendacious and vexatious claims, but the auditor must act. That is the case in public companies, and we have seen, both in this and in other countries, the consequence to auditors where they have been given information and have not acted. The professional ethics of auditors, particularly overseen by their professional accounting bodies and the FRC, are sufficiently strong to ensure that that happens.

Q683 Ian Swales: So we do not expect public bodies to make it absolutely clear to everyone concerned what those routes are.

Eric Pickles: We think we can do this in terms of ensuring that we put auditors in under the Employment Rights Act. If the Committee feels that there is a loophole, please tell us, and we will do our best to address that. I personally do not think there is.

Brandon Lewis: If anything, because it is going straight to the auditor, who is a separate body, there is independence from the authority. It will actually be more straightforward under the new scheme than it has been, when you either go to the auditor or through the Audit Commission in the first place, who then refers the matter to the auditor.

Q684 Ian Swales: Let’s not go back over the ground again, but there is still the issue of who pays for that piece of work. We have already talked a lot about that.

Eric Pickles: There is no change. It will be paid for in exactly the same way as it is paid for now.

Q685 Chair: One final question. You intended to set up quite a healthy market in auditors, and you would probably accept that we are beginning to see that you end up with a small group of auditing practices dominating the market, and that, over time, there are dangers around pricing when that occurs. I wondered what your thinking was and what you were proposing to do to try to meet your intent to have healthy competition in the market for auditors?

Eric Pickles: I may be wrong, but I thought that the Audit Commission was the fifth largest accounting firm in Britain-I think that it was of that magnitude. Prior to the start of these new arrangements, I think that there were five companies in. There are now an additional two, and in total 13 had pre-qualified.

When the smaller authorities come in, that core of seven is likely to increase, and I would very much welcome that. You are quite right, Mrs Hodge, to say that we need to have a healthy market, and I would say that the market now is healthier than it was prior to these new arrangements.

Brandon Lewis: The sector itself has a large role to pay. Talking to the Local Government Association, many of them are very keen on their ability to drive down those costs and get good value for money in auditor’s fees, partly through the straight competition of companies competing with each other for the business, but also because those local authorities are very focused on every penny they spend and how they spend it, as they want that money for their front-line services. So they will negotiate.

In particular, one of the interesting things is that the small authorities will come in and, hopefully, see the sense in working together to procure together. As the Secretary of State said, this may well end up being sector led, and that is where we see more ability to drive down those costs in a good, competitive market.

Chair: Richard?

Mr Bacon: Mr Brandon Lewis has just answered my question.

Chair: I hope that that is the case. I have to say that our experience in the Public Accounts Committee is that, often with the best intentions, actually, these things all too easily get concentrated in the hands of very few. Then you see prices going up, but we will watch with interest.

Eric Pickles: So far, thank goodness, it has gone the other way, along with all the indications. I remain, as you can imagine, Mrs Hodge, an optimist with a song on my lips.

Chair: Thank you. We will submit our report to you before Christmas.

[1] Corrected to £200 million after evidence session

[2] Corrected to £650 million after evidence session

Prepared 11th January 2013