Local Audit and Accountability
Bill [Lords]

The Committee consisted of the following Members:

Chairs: † Sir Edward Leigh  , Mr Mike Weir 

† Bingham, Andrew (High Peak) (Con) 

Blackman-Woods, Roberta (City of Durham) (Lab) 

Blomfield, Paul (Sheffield Central) (Lab) 

† Carmichael, Neil (Stroud) (Con) 

† Glen, John (Salisbury) (Con) 

† Glindon, Mrs Mary (North Tyneside) (Lab) 

† Griffiths, Andrew (Burton) (Con) 

† Hames, Duncan (Chippenham) (LD) 

† Jones, Susan Elan (Clwyd South) (Lab) 

† Lewell-Buck, Mrs Emma (South Shields) (Lab) 

† Lewis, Brandon (Parliamentary Under-Secretary of State for Communities and Local Government)  

† Morris, James (Halesowen and Rowley Regis) (Con) 

† Pawsey, Mark (Rugby) (Con) 

† Perry, Claire (Devizes) (Con) 

† Sawford, Andy (Corby) (Lab/Co-op) 

Simpson, David (Upper Bann) (DUP) 

† Stevenson, John (Carlisle) (Con) 

† Stunell, Sir Andrew (Hazel Grove) (LD) 

† Vickers, Martin (Cleethorpes) (Con) 

† Whitehead, Dr Alan (Southampton, Test) (Lab) 

† Williamson, Chris (Derby North) (Lab) 

Georgina Holmes-Skelton, Fergus Reid, Committee Clerks

† attended the Committee

Public Bill Committee 

Tuesday 5 November 2013

(Morning)  

[Sir Edward Leigh in the Chair] 

Local Audit and Accountability Bill [Lords]

8.55 am 

The Chair:  Welcome everyone. I hope that we have a nice time and I am sure that we will. I have a few preliminary remarks to make, which I am sure you will all know anyway. I and my fellow Chair do not intend to call starred amendments that have not been tabled with adequate notice. The required notice period for public Bill Committees is three working days. Amendments should therefore be tabled by the rise of the House on Monday for consideration on Thursday, and by the rise of the House on Thursday for consideration on the following Tuesday. 

I will now explain briefly how public Bill Committees proceed. The selection list for today’s sitting is available in the room and shows how the amendments selected for debate have been grouped together, generally because they are on the same or a similar issue. A Member who has put their name to the leading amendment in a group is called first. Other Members are then free to catch my eye to speak on the amendments in the group. A Member may speak more than once in a single debate. 

At the end of the debate on a group of amendments, I will call the Member who moved the lead amendment again. Before they sit down, they must indicate whether they wish to seek to withdraw the amendment or press it to a vote. If any Member wishes to press any other amendment in a group to a vote, they must let me know. I will work on the assumption that the Government wish the Committee to reach a decision on all Government amendments. Please note that decisions on amendments do not take place in the order in which they are debated, but in the order in which they appear on the amendment paper. I will use my discretion to decide whether to allow separate stand part debates on individual clauses and schedules following the debates on the relevant amendments. I hope that that explanation was helpful. 

Before we begin line-by-line consideration of the Bill, we need to dispose of the programme motion and the motion to report written evidence. 

Ordered,  

That—

(1) the Committee shall (in addition to its first meeting at 8.55 am on Tuesday 5 November) meet—

(a) at 2.00 pm on Tuesday 5 November;

(b) at 11.30 am and 2.00 pm on Thursday 7 November;

(c) at 8.55 am and 2.00 pm on Tuesday 12 November;

(d) at 8.55 am and 2.00 pm on Tuesday 19 November;

(e) at 11.30 am and 2.00 pm on Thursday 21 November;

(2) the proceedings shall be taken in the following order: Clause 1; Schedule 1; Clause 2; Schedule 2; Clauses 3 to 7; Schedule 3; Clauses 8 and 9; Schedule 4; Clauses 10 to 17; Schedule 5; Clause 18; Schedule 6; Clauses 19 to 23; Schedule 7; Clauses 24 to 28; Schedule 8; Clauses 29 to 32; Schedule 9; Clause 33; Schedule 10; Clauses 34 and 35; Schedule 11;

Clauses 36 to 42; Schedule 12; Clauses 43 and 44; Schedule 13; Clauses 45 to 47; new Clauses; new Schedules; remaining proceedings on the Bill;

(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 21 November.—(Brandon Lewis.)

Resolved,  

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Brandon Lewis.)  

The Chair:  Copies of the memorandums that the Committee receives will be made available in the Committee Room. 

Clause 1 

Abolition of existing audit regime 

Andy Sawford (Corby) (Lab/Co-op):  I beg to move amendment 72, in clause 1, page 2, line 2, at end insert— 

‘(6) Before this section is commenced, the Secretary of State shall, by regulations, put into effect arrangements for relevant authorities to opt into arrangements for national procurement of external audit.’.

The Chair:  With this it will be convenient to discuss the following: 

Amendment 80, in clause 4, page 3, line 23, at end insert 

‘or by a procurement body of which an authority may be a member’. 

Amendment 86, in clause 5, page 4, line 2, at end insert— 

‘(1A) Before this section is commenced, the Secretary of State shall, by regulations, put into effect arrangements for smaller authorities to opt into the national procurement of external audit.’.

Andy Sawford:  It is a pleasure to serve under your chairmanship, Sir Edward. This is my first time leading as an Opposition spokesperson. I notice the expertise of many right hon. and hon. Members, some of whom I have served with on the Communities and Local Government Committee and others whom I know from my background in local government. Many have years of experience, and we have a number of former local government Ministers here, so I hope that they will assist me and the rest of the Committee in giving the Bill the scrutiny it requires. The Bill has taken three years to appear and is still full of holes. I hope that the Opposition can work together with the Minister and the Government over the next few weeks to fill those holes. 

Amendments 72, 80 and 86 concern the arrangements that the Opposition believe should be made prior to the abolition of the Audit Commission. The amendments would enable an authority to opt in to a national procurement body, and I want to set out why that is necessary. Amendment 72 states: 

“Before this section is commenced, the Secretary of State shall, by regulations, put into effect arrangements for relevant authorities to opt into arrangements for national procurement of external audit.” 

The amendments we have tabled to clauses 4 and 5 follow on from that and we hope will make it a reality. 

After Labour pressure in the Lords, the Government have agreed to introduce amendments so that councils have the choice to opt in to centralised arrangements for audit procurement. That is supported by the Local Government Association, the Audit Commission and the National Association of Local Councils. It might be convenient now for me to make a declaration of interest, which is that I am a vice-president of the LGA. I should also add for completeness that prior to my election I was the chief executive of the Local Government Information Unit, and I will cite its evidence during the debate. I previously worked for the National Association of Local Councils, which contributed strongly to the Bill. 

Those organisations, together with the Audit Commission, argued for a separate national procurement body for all relevant authorities, with arrangements for smaller councils. That issue will be addressed in clause 5. It is estimated that national procurement is cheaper than local. We want the Government to put that capacity into the Bill and to set out the details of the proposed scheme. As amendment 72 states, we want regulations that will enable national procurement to be introduced by the time of the abolition of the Audit Commission. 

9 am 

A crucial issue is what the Bill is intended to do. The Government have claimed that it will make substantial savings in local authority audit, but the amount it will save is in doubt. The Government argued on Second Reading that the new audit regime will save £730 million over the next five years and £1.28 billion over 10 years. However, those figures have been contested by a number of stakeholders. The vast majority of the saving has come from axing the Audit Commission’s inspection work, and most of it has been banked. 

The Audit Commission has already outsourced 70% of the audit work it formerly carried out, and states that it has reduced fees for public bodies by up to 40%. It claims that it has already saved local public bodies £250 million, which will rise to £400 million if the contracts are extended. We have the opportunity to debate that issue later. 

The Government measure savings against the 2009-10 baseline, but the Audit Commission has pointed out that many of those savings have already been secured. The ad hoc Committee on the draft Bill received a lot of evidence about what the actual savings will be. Given the conflicting nature of the evidence, it recommended that a new financial impact assessment should be published. Will the Minister comment on why no substantial financial impact assessment has been published on the parts of the Bill that pertain to savings? Crucially, many questions remain about local authorities’ ongoing financial commitments, such as their procurement of local audit. How may a sector-led joint procurement body be funded or enabled to take on that work? All those things should be addressed in a financial impact assessment. 

At the draft stage the ad hoc Committee was presented with an impact assessment, which argued that the total cost of the audit regime in the final year of the Audit Commission would be £85.1 million, and the total annual cost of the new regime would be £83.73 million—an annual saving of about £2.4 million a year. The Government argue that the new systems will save councils money in

audit fees, but there is little sign of a real market developing, and large savings have been made in the initial transition through central procurement. 

The ad hoc Committee believed that more modest savings would be made by abolishing the Audit Commission in its present and reduced form, and appointing auditors locally. Using the same approach as the Committee, the latest version of the impact assessment indicates that there will be approximately a £4.8 million per annum saving, which is the difference between the total annual cost in 2014-15—the final year of the commission—and the equivalent figure in 2018-19. The comparative figures over that three-year period drop from £83.5 million to £78.7 million, which is where we get the £4.8 million per annum. That is a more realistic guide to the savings that might accrue. However, the Local Government Information Unit’s helpful analysis of the Bill tells us that a 10% increase in audit fees will completely wipe out any predicted future savings in the new framework. 

During the House of Lords stages, the Government agreed to work with the LGA to introduce a Government amendment that would create a sector-led body to give councils the opportunity to opt in to a national procurement option. The LGA has told me that it has been meeting with the Department’s officials to develop those proposals. I hope the Minister will assure us of the progress. 

We broadly support the Government’s new clause 1, but we have only just seen it. I hope that we will have the opportunity to debate it in more detail. Whether through new clause 1 or through the amendments that we have tabled, we want to ensure that councils have the flexibility to procure their audit nationally if they wish. We believe that that will be the most cost-efficient and effective option for many authorities. 

Recent modelling calculated that, in comparison with local appointment, central procurement and appointment would save the public purse more than £200 million over five years. The Government’s initial impact assessment noted that using a system of local appointment, it would not be possible to maintain the savings of 40% that the Audit Commission secured during its most recent procurement exercise. 

James Morris (Halesowen and Rowley Regis) (Con):  Notwithstanding the hon. Gentleman’s comments about cost savings, there is an important principle underlying the Bill that he has not yet mentioned—that local authorities should have the freedom to audit their own accounts. That is an important part of our attempt to drive further localism in the way we are governed. I am concerned about what he means by opting in to the larger structure. Is there not a danger that that will replicate some of the bureaucracy that the Bill is designed to chop away? 

Andy Sawford:  The hon. Gentleman is one of the local government experts I referred to at the start of proceedings. I have worked with him in the past, and I know that he is a committed localist. I understand the dilemma that he highlights, and I agree that we do not want to recreate the Audit Commission. As I made clear on Second Reading, and as my right hon. Friend the Member for Leeds Central (Hilary Benn) has also made clear, we understand the critique that emerged of the Audit Commission, which was the basis of the Government’s decision to move to a new model of local independent audit. 

Crucially, amendment 72 would allow local authorities to opt in. We hope that no barriers would be placed in the way of local authorities opting in if they judged it to be in the best interests of their authority, but the process would be sector-led. We hope that, when the Minister tells us about his discussions with, for example, the LGA, he will be able to assure us of the integrity of the sector-led approach, which I believe the Government also favour. In the spirit of the localism that he and I both support, it would be entirely for local authorities to decide whether the model was favourable. I foresee that many authorities, particularly smaller ones, might consider it to be the way forward, whereas larger authorities—for which considerations such as European procurement requirements are not such a barrier, and which find a queue at the door, albeit from a small number of providers, to provide all their services—may choose to go it alone. The choice will be a local one, and on that basis, I hope that the Minister will support the principle. 

The Government’s impact assessment recognises that councils will incur additional compliance costs when they appoint their own auditors. That stems from the requirement to have independent audit panels—we have considerable questions about the costs of those panels, which we will discuss through amendments later in proceedings—and from the individual procurement process, to which some costs will be attached. The Government’s best estimate of those costs is £3.73 million. Those two factors demonstrate that the system of local appointment will be more costly to councils than the current arrangements for national procurement of audit. That is not to say that the net effect of local procurement will be more costly, because if the market functions effectively and is competitive, the overall costs may be reduced, but local appointment will be more expensive for a local authority than a national process would be. 

Perhaps we should consider an opt-in or compare the arrangements with those that were made for the current audit contracts. The Audit Commission has modelled six options, and it estimates the total cost attached to them. Hon. Members may not have had the opportunity to consider them, because there is a huge range of information to contend with, including the report by the Select Committee on Communities and Local Government and the ad hoc Committee report. The commission estimates that over the five-year period, local choice would cost £650 million, joint procurement would cost £613 million, a framework agreement would cost £599 million, central procurement with an opt-in would cost £550 million, central procurement with an opt-out would cost £487 million and mandated central procurement would cost £445 million. 

To be clear, we are not advocating mandated central procurement, which speaks to the point that the hon. Member for Halesowen and Rowley Regis made. The modelling makes clear that the more co-ordinated the approach to procurement is, the greater the savings delivered. We would not want, however, to see that co-ordination go so far as to undermine the localist intent behind the Bill of allowing local authorities a genuine choice in the local audit arrangements, subject to a test of those arrangements on independence and probity. 

The Government have argued that competition will drive down costs, but local appointment does not necessarily increase competition and access to the audit market. That is because the main barrier to entry for small firms is being able to demonstrate the expertise and public sector knowledge that is required to audit local authorities. They are complex entities that are different from private sector organisations. On that, we absolutely agree with the Chartered Institute of Public Finance and Accountancy and other organisations that have rightly suggested—this is the substance of some of our amendments—that auditors working with relevant authorities should understand the context of public audit. We would not wish that to be lost in the new arrangements. The claim that local appointment is more likely to increase competition fits with neither the experience of audit procurement nor the experience of individual body procurement in the foundation trust audit market, where fewer suppliers than in the local government market provide audit services, and no small firms have succeeded in winning work. It is important for us to be guided by that relevant comparative market, where the barriers to entry are such that the market has not become more competitive. 

FTI Consulting’s independent report to the Department for Communities and Local Government argued that using a local choice model would lead to a 

“consolidation as big players pick up contracts and market concentration goes back up”. 

The excellent Communities and Local Government Committee report on the draft Local Audit Bill states: 

“Unless the Government can crack the problem of the very limited competition in the audit market in the UK, it will be open to the accusation that the abolition of the Audit Commission is not a measure to save public money but merely a mechanism to transfer public money into private hands.” 

Those points were made by hon. Members on Second Reading, and I do not think they have been answered. There has been no assumption that that will not be the outcome of these changes. 

The eligibility criteria developed by the Financial Reporting Council are rigorous, and rightly so. Firms wishing to comply with regulatory requirements and compete for local authority audit need to maintain significant investment to ensure that they have the required capabilities. Seven audit firms currently carry out local government audit work. In the recent tendering exercise carried out by the Audit Commission, no small firms were able to meet the standards required. 

We have a dilemma—I do not lay it at the Government’s door in a critical way, because I accept that it is an inevitable consequence of the changes being made through the Bill—which is that we want a vibrant market and new entrants, but we want standards to be high, through the Financial Reporting Council’s eligibility criteria and, crucially, that knowledge and understanding of public audit. In that context, I would be grateful if the Minister told us how he believes that that dilemma will be resolved through the Bill. Will he reflect on the opportunity for more centralised and sector-led opt-in procurement to help us to address that dilemma? For example, the opportunity to offer continuity or a basket of contracts to a new entrant to the market could give assurance to that new entrant such that it will make the investment needed to meet the standards set out by the Financial Reporting Council, with the expectation that it will buy in or through training or other means be able to meet the test on understanding public audit. 

9.15 am 

James Morris:  The hon. Gentleman is being very generous with his time. What does he mean by “sector-led”? Does he imagine that the Local Government Association will play a central role? Is there not a dilemma in the role of the Local Government Association? It is a members’ organisation, and one of its main functions is lobbying Government about local government issues; does it have the necessary independence to drive the sector-led co-ordination that he is talking about? 

Andy Sawford:  Again, the hon. Gentleman hits on a question that we need to explore. I would welcome the Minister’s view on how this is likely to develop, particularly in the context of Government new clause 1. Whether a membership body can also be a regulator, in effect—part of the function of audit is to hold a body to account for its financial affairs—is a well worn question. There are very few examples of bodies effectively having both roles; the Law Commission is perhaps an exception in England. 

The Opposition envisage the LGA playing a role in developing the sector-led joint procurement offer because it is the most appropriate body to do so, but it may not necessarily offer that joint procurement itself; it may be a facilitator or enabler of that offer, but there will be a measure of independence in how that is established. Perhaps the Minister will set out how he thinks it will work, but this is why we believe our amendment is important. We want to be assured that regulations will be in place before the Audit Commission is abolished. All these questions need to be addressed by the Government, and I hope that the Minister will be able to assure the Committee. 

It is suggested that, under a model of local appointment, councils will be able to secure better fees as a consequence of having improved their internal audit arrangement. That reduced cost, it is claimed, is not factored in to the pricing of the national local procurement options modelled by the Audit Commission. I have heard that analysis of the Audit Commission’s figures, but it is no longer the case that strong internal audit services can reduce external audit fees significantly. The revised auditing standards encourage external auditors to perform the work themselves. We do not want this model to result in auditing on the cheap in terms of quality. Of course, understanding the context in which local authorities struggle to balance their books, we would be quite happy to see the most financially efficient model, but we also want to ensure that there is quality. 

Under the Bill, a large proportion of local bodies would have to follow EU procurement rules, because the value of their contracts would be above the EU threshold. EU thresholds apply to the total value of the contract awarded, not the annual value, so because audit contracts in the UK are usually let for five years—shorter contracts are likely to mean higher fees, so five years will probably be the desired time frame for contracts—an estimated 93% of such contracts would exceed the threshold and have to follow the EU procurement rules, which will clearly add substantial cost. Although it is not for this Committee to debate the costs of engaging with EU bureaucracy, we all acknowledge that there are substantial costs involved. 

What we want is a collective body with the power of appointment. That can be achieved if individual bodies delegate the power of appointment to the collective

body—the opt-in choice that we have discussed—which would then be able to guarantee volumes of work and involve firms in its procurement exercise, even when those firms may be prevented from auditing specific individual bodies due to conflicts of interest. That will deal with one of the complications in the Bill and perhaps enable smaller firms to overcome some of the barriers to entry. The delegated appointment will allow guaranteed volumes for the successful firms and, we hope, promote competition. In our view, the absence of either of these would increase fees. 

Enabling the collective body to work across sectors will maximise the scale of procurement. It will also give audit firms a single point of contact and so reduce their management costs, which should be reflected in lower audit fees. The flexibility enabled by the power of appointment would allow the collective body to appoint the same auditor to groups of councils that share services. This is a matter that we want to explore in Committee because local authorities are increasingly involved in joint arrangements, shared services and so on. The sector-led joint procurement body may be able to develop over the coming years a way of ensuring that auditors can work effectively together across authorities. That will be a benefit of opting in to that body. 

What we seek from the Minister, if we are to consider withdrawing our amendment, is his assurance that there will be an effective, viable and, frankly, attractive model for joint procurement; that this will be sector-led and, crucially, the Government will help to make this possible; that the dialogue between his department and the Local Government Association has made good progress; that the arrangements, in terms of regulations, will be brought forward in a timely way; and that, subject to your offices, Sir Edward, we will have adequate time to debate new clause 1 later in Committee. I beg to move. 

Chris Williamson (Derby North) (Lab):  I shall add a few comments in support of my hon. Friend’s very sensible amendment. I shall rehearse some of the questions I posed at Second Reading, to which I do not feel we got a reasonable response. I hope that we will get some clearer answers from the Minister this morning. 

As my hon. Friend pointed out, 70% of the Audit Commission’s work has been externalised. Will the Minister give some clarification or reassurance that there is not a degree of double counting in the Government’s figures for the savings they claim will be made by this move? The amendment is supported, as I understand it, by the Local Government Association and, indeed, the National Association of Local Councils. On the basis of localism, and listening to the views of local authorities, it would therefore seem sensible to accept my hon. Friend’s amendment. 

We know that the ad hoc Committee on the draft Bill suggested that it would be helpful if a new financial impact assessment was undertaken using a different baseline. That would reassure the Opposition and people outside, who are concerned that the claimed savings are somewhat inflated. Taking a later date as the baseline would give a clearer picture of what the real savings will be. If there are savings to be made, clearly all of us, on both sides of the Committee, want to make them, but we do not want to move forward on a false premise, so I think it is important that we look at this. 

The Local Government Information Unit has suggested that the approach the Government propose could lead to higher costs, saying that 

“If the market concentrates further, or even stands still, this will eventually lead to higher, not lower, fees.” 

That, I imagine, is not what the Government intend. I therefore hope that the Minister will answer directly the concerns articulated by the LGIU. 

Will the Minister also comment on the suggestion by the National Audit Office that central Government are reducing the percentage of work going out to the private sector? Presumably the Government believe that that offers better value for money for the taxpayer, because we know that they like to be the taxpayers’ champion. I would be grateful for a direct answer from the Minister to that query. 

I emphasise the point made by my hon. Friend the Member for Corby when he quoted the Communities and Local Government Committee, which suggested there is a real danger that: 

“Unless the Government can crack the problem of the very limited competition in the audit market in the UK, it will be open to the accusation that the abolition of the Audit Commission is not a measure to save public money but merely a mechanism to transfer public money into private hands.” 

I tried to make that point strongly on Second Reading. I am concerned, and I believe that this fear is felt outside the House, so it is incumbent on the Minister to reassure us that the Government are not establishing what is tantamount to another money-making cartel, whereby taxpayers’ money is diverted into the coffers of vested interests in the private sector. 

Sir Andrew Stunell (Hazel Grove) (LD):  I am interested in the hon. Gentleman’s line of argument, which I must say seems to be a little self-contradictory. Does he support his Front-Bench spokesman, who believes that the abolition of the Audit Commission is the right move and is an important step forward in localism? Or is he advancing a rather different argument—that it is some sort of privatisation mode that will destroy localism? I would like to understand the differences between the two hon. Gentlemen. 

Chris Williamson:  Let me give the right hon. Gentleman some clarity. I hope he will not be surprised to learn that the Opposition are unanimous in our support for our hon. Friend the Member for Corby and the proposition that he has put forward. I am not arguing against what he has said in any way, shape or form. We accept that the days of the Audit Commission are gone and that a new regime must be put in place. However, it is important that the alternative being introduced is not effectively a money-making cartel for private interests, and it is incumbent upon the Government and the Minister to explain that. There must be reassurance on that point, because we are talking about taxpayers’ money. The Government’s whole proposition is that the changes will represent better value for money for the taxpayer. I am therefore asking only for clarification and reassurance on what the Communities and Local Government Committee said—I am only quoting, and it is worth repeating— 

Andrew Griffiths (Burton) (Con):  Will the hon. Gentleman give way? 

Chris Williamson:  Let me be clear, because the right hon. Gentleman may not have heard me properly and may not have read the Select Committee’s conclusion on this point, which was that 

“Unless the Government can crack the problem of the very limited competition in the audit market in the UK, it will be open to the accusation that the abolition of the Audit Commission is not a measure to save public money but merely a mechanism to transfer public money into private hands.” 

As I understand it, that was a unanimous report. We all know that it is a cross-party Select Committee, so clearly Conservative Members of that Committee share those anxieties. All I am saying is that it is up to the Minister to reassure us that the changes will not lead to the situation the Select Committee is concerned about. 

9.30 am 

Mark Pawsey (Rugby) (Con):  I sat on the Select Committee and I think the hon. Gentleman is being rather selective. The Committee said that a competitive audit market will be crucial. I look to my hon. Friend the Minister to reassure us that there will be a competitive market, so that local authorities will be able to choose from a broad range of audit providers. 

Chris Williamson:  I am grateful for the degree of unanimity breaking out across the Committee. The hon. Gentleman, like me, is calling on the Minister to give that clarification and reassurance, and that is all I am asking for. 

Andy Sawford:  Is my hon. Friend’s reading of the Communities and Local Government Committee’s report the same as mine? There is a clear statement under section 5, “Competition in the audit market”. That section has a sub-heading, “Domination by the few”, which clearly indicates the report’s conclusion. The first sentence under that sub-heading on page 23 states: 

“The number of firms successfully competing in the public sector audit markets is small.” 

The report then goes on to define just how small that is. My hon. Friend is absolutely right to highlight that point. 

Chris Williamson:  I am grateful to my hon. Friend, who gives me the opportunity to draw the analogy with the privatisation of the energy market. I disagreed with it at the time, but I would like to think that it was done with the best of intentions by the then Conservative Government, who hoped that it would lead to better value for money. The reality is that it has created a money-marking cartel. I do not want to see, albeit on a smaller scale, another situation where the taxpayer is being ripped off, as we are seeing with the big six in the energy market, which is a direct consequence of the ideology that was pursued by the Government at that time. I do not want to see the same thing— 

The Chair:  Order. This is not a Second Reading debate. We are discussing a narrow amendment about the national procurement of external audit. I know that the hon. Gentleman will wish to get back to that point. 

Chris Williamson:  I am grateful, Sir Edward. I will draw my comments to a conclusion. I had drawn them more or less to a conclusion when I started receiving interventions from Government Members and I have merely been responding to those. 

The Chair:  Dr Philip Whitehead. 

Dr Alan Whitehead (Southampton, Test) (Lab)  rose—  

The Chair:  Dr Alan Whitehead. I apologise. 

Dr Whitehead:  I do get linked with Philip Whitehead sometimes, Sir Edward. 

I have always thought that the method by which the Bill came about is interesting. The Audit Commission was effectively abolished by a press notice, followed by a ministerial statement. Both said, with no apparent supporting information, that substantial savings would result from the abolition. After a long pause for breath, an impact assessment arose, which fortunately said that there would be some savings. It would have been embarrassing had the assessment demonstrated that there were no savings. The impact assessment was an interesting exercise in its own right. It stated that the assessment would be carried out by weighing up the proposals against the counterfactual, as it put it, which was to do nothing and carry on with business as usual. That was an interesting comparison. I have not seen many impact assessments that have used that method, but we will let that one pass. 

The impact assessment went on not to make the case for business as usual as the counterfactual to the idea of abolishing the Audit Commission; instead, it took as the baseline business in 2009-10, when circumstances were very different. Prior to the press notice being issued, arrangements had already been agreed for how the Audit Commission would change its business. 

The assessment made its comparison on that basis. It suggested that the cost of auditing in the final year of the Audit Commission would be £83.5 million, only slightly more than the estimated cost of £78.7 million in 2018-19. That represents a saving of some £5 million, which is, interestingly, almost exactly the estimated saving published in the original press notice well before the impact assessment took place. 

There is an enormous potential variation, depending on how the exercise is undertaken, in how much cost savings will be, and indeed whether there will be any substantial cost savings at all. Such a narrow margin on those final figures will be pretty sensitive to small variations in overall costs over time, and, as my hon. Friend Member for Corby has just said, the concentration of the audit market may also affect those figures. As far as I can see, the impact assessment has not considered that. 

It is no great surprise, therefore, that the majority of witnesses who gave evidence to the Select Committee and the ad hoc Committee on the draft Bill cast considerable doubt on whether there would be any cost savings at all. Bearing in mind that those savings were a centrepiece of the original proposal to abolish the Audit Commission, I would have thought that one would want to make doubly sure that any cost savings would be instituted properly over a period of time. I imagine that that is one reason why a commitment was made in another place to allow arrangements for optional centralised procurement to be provided in regulations. 

We do not know into what range any cost savings will fall, and the impact assessment does not make that any clearer. However, we know systematically from evidence to the Select Committee and to the ad hoc Committee that allowing local authorities—particularly smaller ones, as we have heard—to enter into voluntary joint procurement arrangements is likely to lead to substantial savings.

Joint procurement arrangements would not represent a return to a centralised, external body; they would, as the name implies, allow procurement to be undertaken jointly on a voluntary, agreed, optional basis. That is not a particularly a controversial principle in local government, where we know that money can be saved by joining up back-office facilities, procurement across local authorities, regional procurement, procurement between unitaries and various other arrangements. That is why local authorities are strongly encouraged to do just that. 

The amendment strikes me as non-controversial. It would put belt and braces on the idea that the change really will result in cost savings, and it would allow local authorities to take advantage of known cost savings in procuring their services for the future. In the absence of the Government coming forward with the material in detail—I accept that it was said in another place that it would be in regulation—and proposals for putting this in place, the Opposition have done the Bill a great favour by tabling this amendment. I hope that the Committee will suitably acclaim it and so ensure that the Bill will do what that press notice sought to do so many years ago and make real the claim that there would be substantial savings. 

The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis):  It is a pleasure to serve under your chairmanship, Sir Edward. As the hon. Member for Corby said, it is a great testament to local government that we have such a strong Committee of people with local government experience and a passion for the sector: it can only put us all in good stead. 

I shall restrict my comments to the amendments before us, rather than getting too far into a wider debate, which may be more suitable when we discuss the Government’s new clause 1. I will touch on my reasons for that in the next few moments, but first I shall deal with the queries that hon. Members have raised. I have to make it very clear at the beginning that we want to make sure that we see the end of the Audit Commission: I do not accept and the Government do not accept the inherent arguments from hon. Members that because we have had quite a lot of savings already, we do not need to finish the job. We do need to finish the job, to make sure that we do not end up with a recurrence of what the Audit Commission became, but that we deliver on £1.2 billion of savings over the 10-year period that abolition will establish. 

Chris Williamson:  Will the Minister give way? 

Brandon Lewis:  I will when I have finished my opening remarks. This is about local power and choice, not just about savings. It is about making sure that the sector gets to make its own decisions, but there are also a couple of things worth bearing in mind on costs and savings, particularly for the hon. Member for Derby North. First, there is already evidence, not just that the NHS trusts, which have gone their own way, have saved around 50%, but that in the past year, with the Audit Commission winding down and outsourcing contracts to the private sector, there has been a 40% reduction in the audit fees. It is worth the hon. Member for Derby North realising, despite his comments about the private sector, that the Audit Commission has been using the private sector to subcontract for some considerable period. He may want to comment on that now. 

Chris Williamson:  No, I just wonder whether the Minister will comment on the ad-hoc Committee’s suggestion that he should take a different baseline year to determine the accurate figure for the savings. It seems that the year the Minister is using for the baseline leaves him open to the accusation of double counting. I am sure he would not want that, so will he address that specific point? 

Brandon Lewis:  I am sorry that the hon. Gentleman did not agree with the fact that the private sector has already shown local government a way to make huge savings. We want to make sure that we make a finish on that. On competition, 13 firms managed to get through the Audit Commission’s pre-qualification requirements. Touching on the comments from my hon. Friend the Member for Rugby about the market and competition, it is fair to say that once that market is open and fully working in the way we want to see, more companies will want to come into it. At the moment, there is no market to come into, but we still had those 13 companies that met the requirements, and, more importantly, we have seen that saving of 40% already. 

Andy Sawford:  Does the Minister agree—I do not think it is controversial—that some of those savings have been achieved in a model where, frankly, there has been a co-ordinated centralised procurement, albeit in a transition from the old world to the new, and that we hope that that will not be lost if there is an opportunity to have a local opt-in to a national model? 

Brandon Lewis:  The hon. Gentleman makes a very good point. I do not entirely disagree: it is more about the process through which we enable the sector to have that co-ordination and the fact that we give the sector the choice of whether it wants that or not. I shall touch on that in detail now. 

Amendments 72, 80 and 86 relate to extensive discussions in the other place in relation to provision for the collective procurement of auditors. Amendments 72 and 86 would require the Secretary of State for Communities and Local Government to put into effect such arrangements for both principal and smaller authorities before closing the Audit Commission. Amendment 80 is linked to that and would clarify that an authority may have its auditor appointed by a collective procurement body if it chooses not to make its own appointment locally. 

Amendments 72 and 86 appear to place a duty on the Government themselves to put collective procurement arrangements in place. As I said a few moments ago, and let me be clear about it, this is a Bill about the abolition of the Audit Commission. It is not a Bill that aims to abolish the Audit Commission and see the re-creation of Audit Commission-lite. 

9.45 am 

Regulations under clause 5 and the Government’s new clause that they are adding to the Bill will set out an overall framework for authorities to opt into sector-led collective procurement. That is particularly the purpose of new clause 1. It will also set out a process for the Government to approve an organisation to act as a sector-led body; they will not establish the body or arrangements for national collective procurement. It will be for the sector itself to decide if it wishes to establish an appointment body and to take those proposals

forward. We firmly believe that if the sector wants to do this, it is right that we facilitate it and allow that co-ordination. We think it is wrong to impose a model that is of the Government’s design. 

The provision to make these regulations is included at the request of the sector. If this sector comes together to develop proposals, the Government will work constructively to support it—and we have been. We also intend to work closely with the sector and any prospective sector-led body in developing the detail of the regulations, so they are right for the sector, work for the sector and are designed by the sector. 

Andy Sawford:  The Minister remarked that we do not want to see the re-creation of Audit Commission-lite. We can debate the Audit Commission, but I understand the point that the hon. Gentleman makes. Our amendment does not seek to create an arrangement that we know that he would certainly see as undesirable. It is about the question of the Government’s enthusiasm for ensuring that the sector’s clearly expressed wish to have the option to come together through a central procurement body will be in place by the time the Audit Commission is abolished. That is what we seek to test through the amendment. 

The impression I get from the Minister’s remarks is that, frankly, there is little enthusiasm to support that, but that is what I want to hear. We want to know that the Government will do as much as they can to facilitate and enable that, rather than put any barriers in the way, given their fear of re-creating an Audit Commission-lite. 

Brandon Lewis:  The Government are absolutely clear. If the sector itself wishes to come together—and we have been working with it since the conversation in the other place to create a body for it to be able to use—we think that that is absolutely appropriate. As I remarked a few moments ago, we will work closely and constructively with the sector to make sure that it can deliver that. However ultimately, it will be something that has to be led by the sector; it should not be Government-enforced on them, but designed and worked on by the sector to deliver for the sector. It will give it flexibility as well—as the hon. Member for Corby said—to have a choice about it in a way that works, so that if some authorities, large or small, wish to do something else, they have the power to do it. That is what this Bill aims to set out. We do not want to move away from that core objective of the Bill. 

That is why I would argue that amendment 80 is not necessary. The Government have tabled an amendment, which we will debate later in this Committee’s proceedings, that will achieve exactly what the hon. Gentleman appears to seek. It would ensure that the Bill accommodates the possibility that some authorities will have an auditor appointed on their behalf. With these reassurances and clarifications, I hope that the hon. Member for Corby is willing to withdraw his amendments. 

Andy Sawford:  I thank the Minister for those assurances. I hope that this will be the subject of considerably more debate, because what we hope to hear from the Government is that this will not be left to chance over the next few years, but that there is a real determination to ensure that the sector will be enabled. As the Minister rightly says, new clause 1 also addresses this matter. One of the critical factors is possible resourcing issues in terms of

the sector’s ability to take on this role and develop a central opt-in model for procurement. We need to hear further assurances on such matters, but based on the Minister’s opening remarks, I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Andy Sawford:  I beg to move amendment 73, in clause 1, page 2, line 2, at end insert— 

‘(6) Before this section is commenced, the Secretary of State shall, by regulations, put into effect arrangements for integrated audit which enables auditors to work across authorities and with the National Audit Office, where national and local funding is being used jointly.’.

The Chair:  With this it will be convenient to discuss the following: 

Amendment 94, in clause 7, page 6, line 18, at end add— 

‘(9) Where two or more relevant authorities have substantial integrated or shared services or expenditure, auditors for each relevant authority may be instructed under their contract to produce a joint audit or appoint one auditor as a lead auditor.’.

Amendment 95, in clause 7, page 6, line 18, at end add— 

‘(9) Where two or more relevant authorities have substantial integrated or shared services or expenditure with a body audited by the National Audit Office, arrangements may be made to produce joint audits between the relevant authorities and the National Audit Office.’.

Andy Sawford:  This set of amendments is simply referred to in my notes as concerning community budgets, although there is a much broader point to consider. The amendments would allow auditors to work across authorities where two or more authorities, including central Government, have substantial integrated or shared services or expenditure. 

There are two dimensions to that. First, amendments 94 and 95 address the fact that authorities are working together. Secondly, amendment 73 would put a clear statement of principle right at the start of the Bill: 

“Before this section is commenced”— 

and the Audit Commission is abolished— 

“the Secretary of State shall, by regulations, put into effect arrangements for integrated audit which enables auditors to work across authorities and with the National Audit Office, where national and local funding is being used jointly.” 

The Minister will know I am a committed localist and an enthusiast for community budgets, and I believe he is too. Later, we will no doubt debate the Government’s progress on introducing community budgeting approaches and, in particular, on encouraging Whitehall to connect up with local authorities. That, of course, is the challenge; the Minister smiles, and getting those silos to join up is perhaps one of those “scars on my back” areas of public service reform. 

We hope, however, that we can enable local authorities to join together at local level. By “authorities”, I mean not just local authorities, but all relevant authorities; it is particularly important that health authorities, for example, work in this way, given the challenges of social care. By enabling authorities to join together, we hope we can audit their spend and, in particular, consider the value for money. We hope that the audit trail will demonstrate considerable value for money and that that will be a real spur to further joining up. By bringing the

National Audit Office into this approach to integrated joint audit, we also hope we can follow the public pound up and down the system. 

Let me say a little more about why the amendments are necessary. They are about the future of local government; they are about future-proofing the Bill. My hon. Friend the Member for Southampton, Test rightly said the Bill’s genesis lay in a press release three years ago. There has been considerable criticism—I hope the Minister will take it on the chin when I say it was pretty fair—of the fact that there was no real consultation with the local government sector or, indeed, the audit world about how the new arrangements might evolve when the announcement was prematurely made. That has led to a range of issues in the Bill. This is therefore very much a backward-looking Bill that seeks to rationalise a premature announcement made three years ago that took most people by surprise. 

When the right hon. Member for Hazel Grove sought to point to a difference between the positions of myself and my hon. Friend the Member for Derby North, he wrongly characterised my view of the Audit Commission as pro-abolitionist. On the contrary, I made it clear on Second Reading, as did my hon. Friend, that the Audit Commission carried out vital functions. We understand the argument that it had got carried away, that the burden of audit inspection had become far too great, that the commission had lost its way and, therefore, that one way forward is to abolish it, which is the route the Government have chosen. Frankly, we should have had much more considered debate about the future of the Audit Commission three years ago, but we are where we are. However, my hon. Friend and I are saying, as we did on Second Reading, and as we will throughout the Committee proceedings, that we must look at the functions that the Audit Commission carried out and that may be lost in the new arrangements. Indeed, the next set of amendments, which concern value for money, will be part of our consideration of what could be lost. 

Sir Andrew Stunell:  I am delighted to hear the hon. Members for Corby and for Derby North are back on the same page, but I am still a little confused about what page they are on. Is the hon. Member for Corby claiming that the Bill is right or not right in concept and principle? When we get to the detail, perhaps he can explain the difference between his amendments and my hon. Friend the Minister’s sensible proposals in new clause 1 and other amendments. 

Andy Sawford:  I think the right hon. Gentleman’s latter point would be better taken in relation to the previous group of amendments; clearly, new clause 1 would make the opt-in arrangements possible. We are now debating arrangements about the new world in which local government and all relevant authorities operate, such as community budgets. The amendment is about that matter, on which the Government have been silent. 

My point is that the Audit Commission was abolished prematurely, without proper thought being given to how to maintain some of its more valuable functions, such as enabling local authorities to make comparisons, use benchmarking tools and see whether they are spending the public pound as well as possible. We should be concerned for the independence of public audit. The arrangements in question are in some ways duplicatory and they may be expensive. We will subject them to proper scrutiny as we proceed. 

We would not have proceeded with the Bill in the way that the Government are doing, and that is why we have tabled substantial amendments. I hope that on Report the right hon. Member for Hazel Grove will fully understand the range of the concerns that will be raised by me, my hon. Friends the Members for Derby North and for Southampton, Test, and other Opposition Members. 

James Morris:  The hon. Gentleman is being generous in giving way. He talked about valuable functions of the Audit Commission, to do with the sector being able to benchmark itself and make comparisons. Does he agree that that suggests why the Audit Commission lost its way? There was actually little value in many of those exercises. They were about Government monitoring of what local authorities were doing. It was a structure of bureaucracy on top of local government, which did not provide value to the sector. It was all about compliance and top-down targets. Does the hon. Gentleman suggest that we should replicate through the National Audit Office precisely the top-down structure that the Audit Commission reflected? 

Andy Sawford:  The hon. Gentleman makes a valuable point for which I have some sympathy. He will know that I share his concern of recent years that the burden of, for example, comprehensive area assessment has become far too great and that the Audit Commission had lost its way in that respect. 

However, I shall reflect later, on schedule 1 and amendments 74 and 75, on the importance of the value-for-money work as originally envisaged by Lord Heseltine. We can demonstrate—and all the evidence before us, including that from the ad hoc Committee on the Bill, shows—that the value-for-money work delivered real value for money and savings. 

We must distinguish that from the way in which the Audit Commission became a tool enabling central Government to exert too much control over local authorities. The motivation for doing that was right, in contexts from improving social care outcomes to the environment, but the cumulative effect of all the targets was to put too much of a constraint on local authorities’ ability to innovate. 

It is perhaps more a subject for academic studies than for the amendment, but it is possible clearly to trace significant improvements in performance from the early years after the introduction of the performance management approach. 

James Morris:  On that point, the hon. Gentleman talked about the value-for-money studies being a key part of the original foundation of the Audit Commission under Lord Heseltine; but he was talking about a new world. The reason why the measures provided value in the early days was that the local government sector was vastly under-performing. We are now living in the 21st century and do not need that level of central Government evaluation of the sector. Is not that the key? 

The Chair:  Order. We are starting to stray a bit wide of the amendments. I refer hon. Members to the terms “integrated” and “joint”; perhaps hon. Members could return to them. 

Andy Sawford:  Thank you, Sir Edward. Perhaps you will permit me a moment of leeway to say that I hope we shall address the points made by the hon. Member for Halesowen and Rowley Regis, but that the question is indeed proportionality and whether audit or inspection achieve the Government’s intended outcome. 

To return to our amendments, we hope that, through integrated audit, not only will the best value for the public pound be obtained, but the new world of audit will be aligned to the new world of public service delivery, which is being shaped not from the centre but locally. 

 

That is something that I welcome. 

10 am 

There is a big hole in the Bill. The right hon. Member for Hazel Grove referred to the Government’s amendments in this area, but there are none. There is nothing significant. I can think of no references at all to integrated audit or community budgeting approaches and so on. The Bill is very limited in its view of the world of audit. It is very much focused on the relevant authorities—the unit of audit—and will lead to an atomised approach, rather than a connected view of how audits should be undertaken in the new world of public service delivery. 

The legislation is backward-looking. It has completely failed to make provision for auditing in the new world being built before our very eyes. My right hon. Friend the Member for Leeds Central rightly said on Second Reading that that is an astonishing omission. The Government have introduced community budgeting pilots; they have taken forward the good work of the previous Government on troubled families; and in the area of universal credit, they are looking at connected spending, so it is astonishing that the world of audit envisaged by the Bill will take no account of that at all. The Government have simply not provided for the changing world in which public services are managed and provided. 

We not only have community budgets but city deals, which the Government have championed around the country, and they have my support, but city deals should be properly audited. Combined authorities are part of the shift towards stronger working between relevant authorities, and indeed between local and central Government. As community budgets develop, will the Minister acknowledge that different auditors will examine the use of the local government pound while the NAO examines the use of the Whitehall pound, although they are actually spent together? That does not make sense, but that is what will happen under the Bill as it stands. If the service is shared and common, the audit should be, too. A submission to the draft Local Audit Bill Committee stated: 

“We see a real opportunity here to develop value for money examinations which provide a ‘whole system’ view, taking in both the national and the local perspective, and therefore consider that this is an important part of the draft Bill... Parliament has a legitimate interest in how resources passed down to local bodies are used, and how local bodies contribute to the achievement of national policy objectives.” 

I agree with that to some extent, although, as a localist, I would not want to see the measures in the Bill, and certainly those that we have proposed, being used too strongly to replicate the levers from the centre to influence local decision making. Nevertheless, Parliament has an interest in seeing that public money is used well, whether it is national or local spend. 

Parliament previously drew some assurance from the national value for money work carried by the Audit Commission, but that work is winding down and the VFM assurances offered in the Bill are limited. We believe that the National Audit Office can help to provide—excuse the jargon, but it was used in the draft Bill Committee—an end to end picture, and I think we all know what is meant by that. For example, it could include work on universal credit or on adult social care, where local authorities are increasingly taking a much stronger role at a local level, and we would all support that. 

We need to see the future of the health service as one in which we meet the challenges of a rising elderly population, with people living longer, but hopefully with greater independence. Local authorities have a critical role, but it will require us to end the notion that there is something quite separate called the national health service and something called social care that is provided by local authorities. We then need to audit how effectively the money is spent jointly. Some of it is held jointly—for example, through health and wellbeing boards. All around the country there are all sorts of shared services arrangements between local authorities, health bodies and other parts of the health and social care system—for example, clinical commissioning groups—where the spend is effectively managed jointly, and the audit should follow that. 

The matter becomes increasingly relevant as Government policy cuts across departmental silos, fresh patterns of local delivery develop and local authorities commission services from and develop partnerships with a diverse range of providers. The ad hoc Committee was absolutely right to state that the Bill 

“should provide an unambiguous basis for this type of insight” 

into spend across local and central Government. 

I hope that the Minister will accept amendment 73. I am sure that he agrees with the spirit in which it is intended. Although I acknowledge that it creates a challenge about how to give it effect in the Bill, he will have seen that we have tabled a series of amendments that would produce more connected or integrated audit. 

I will be interested to hear how the Minister envisages auditing in the new world of public service delivery. For example, would it not be sensible for the management of audit contracts if two authorities working together substantially and significantly—that may need to be defined in the Bill—could appoint a lead auditor to audit a particular set of services, rather than have two auditors crawl over the same books and duplicate how they look at the same services, perhaps reaching different conclusions? We would rather that such auditors worked together to reach a shared view about whether those services were value for money and whether public money was spent effectively. An audit presented to the relevant authority would contain sections that had been prepared jointly and appropriately with other auditors of local spend, perhaps from other relevant authorities, or with the National Audit Office. 

In my area, there are significant questions about whether the huge shared services arrangement between Northamptonshire and Cambridgeshire county councils genuinely delivers value for money. I am concerned that audits in which relevant authorities are responsible in a separate and fragmented way for their own audits—that is how the system is currently envisaged—will not truly

reveal whether the public spend across two big county councils with a huge shared services deal is effective. 

Will the Minister comment on city regions? I hope that he will reflect on the opportunity to audit the efforts of local enterprise partnerships through the approach covered by amendment 73, or by agreeing to our amendments to name them as relevant authorities. If they are not so named, this approach would be particularly relevant to new arrangements for bringing together spend. I hope that he will support the amendment or assure us that, at some later point, we will be able to take account of the new world in which local public services are delivered. 

Chris Williamson:  I support my hon. Friend, who has again spoken admirable common sense. I would hope that the amendment is not controversial and finds unanimous support in Committee, because he has talked absolute common sense. He made the point that the amendments are about future-proofing the Bill, which seems sensible. We do not want to be back in Committee next year or in two years’ time to consider new legislation because the Bill has proved to be out of date in double-quick time. 

My hon. Friend said that the Bill needs to reflect the current reality on the ground. In the present environment, with restrictions on public finances, it is clear that public sector organisations and local authorities are looking at how they can utilise the resources at their disposal to best effect, working collaboratively with other public sector agencies or local authorities. It is therefore important to ensure that audit arrangements reflect that reality on the ground. 

My hon. Friend gave the example of Cambridgeshire county council working with another local authority. Would it not be sensible if the audit arrangements took account of such working arrangements, so that we could have confidence that local authorities are demonstrating and providing value for money? Of course, they might not be, and if they are not, we need to know about it, so that they can modify the arrangements and put alternative measures in place: if the audit has suggested that the current arrangements are not working, any changes should reflect that fact. 

James Morris:  The hon. Gentleman talks about evaluating value for money, giving the example of Cambridgeshire and Corby. Amendment 73 would enable auditors to work 

“across authorities and with the National Audit Office”. 

Does he therefore imagine that the National Audit Office would be given the power to crawl all over Cambridgeshire and Corby councils to evaluate whether or not the shared services arrangement has delivered value for money? That would be a traditional, top-down approach, with the National Audit Office taking on precisely the role that has already been abolished with the abolition of the Audit Commission. What role does he imagine the National Audit Office would play under the amendment? 

Chris Williamson:  The hon. Gentleman overstates what I am envisaging. I am simply saying that the audit arrangement ought to be sophisticated enough to be able to look at the impact of the joint working arrangements. If they are not working, we need to know about that, but if they are working, it is important to share that information around the country so that other local

authorities can learn from the best practice being developed. I have no reason to doubt that the arrangement between Cambridgeshire and Corby is working—it probably is—but we will not know unless it is audited in the way that my hon. Friend the Member for Corby is suggesting: if that does not happen, we will not know whether we are getting the value for money that I think everyone on the Committee wants to see. 

Andy Sawford:  The shared services arrangement is between Cambridgeshire and Northamptonshire county councils; Corby district council is not involved, but I understand the point made by the hon. Member for Halesowen and Rowley Regis. That arrangement would be a matter for joint audit between those local authorities, who could perhaps appoint a lead auditor. 

As for the National Audit Office, I do not envisage—and I do not imagine that my hon. Friend the Member for Derby North would want this—that the NAO would see the amendment as empowering it to duplicate the role of the local auditor. Rather, it would enable the NAO to work with the local auditor in relation to the coming together of national and local spend. The amendment could therefore empower the local auditor to call on the National Audit Office to say, “There is substantial national spend here, too, so let us make sure we work together to see that it is value for money and present a joint audit.” 

Chris Williamson:  Absolutely. That does not seem controversial to me in any way, shape or form, so I hope we can all agree on that. 

The Audit Commission did some good work. We all accept that it perhaps lost its way and became over-burdensome, but it is essential that we do not lose the best parts of what it did. It is in all our interests to ensure that the good parts continue in some shape or form. My hon. Friend pointed out how important it is for an auditor to follow the public pound. The reality is that there is a lot more joint working now, and the silo mentality is gradually being broken down. For those reasons, it is important that we are able to see how the money is being used and whether we are getting value for money. It is also important to know where things have gone wrong, so that corrective measures can be put in place. 

Benchmarking is an important aspect of local public services. We surely do not want—I would be interested to hear the Minister’s comments on this matter—to see good practice in one area not being replicated elsewhere. It is important to learn from good practice. If, through joint working, public money is being spent more effectively and is getting better outcomes for the general public, surely we want to spread that throughout the whole country, or at least give people the opportunity to do that. 

Mrs Mary Glindon (North Tyneside) (Lab):  At an event hosted by the New Local Government Network on 22 October the Minister said: 

“The goal of the Transformation Network…is…to help places to save money and deliver better outcomes for local people by supporting more effective integration and collaboration across public services.” 

Does my hon. Friend agree that the amendments would help the Minister to do exactly that? 

10.15 am 

Chris Williamson:  I most certainly do. That is why I hope the amendment will not be seen as controversial and that we can achieve consensus. I am interested to hear the Minister’s response and I hope that he will agree with the amendment. 

Sir Andrew Stunell:  The hon. Gentleman is being generous in giving way. I am still trying to establish whether there is consensus among Opposition Members, never mind between the Opposition and the Government. Is the hon. Gentleman saying that the way to spread good practice is to have the National Audit Office tell local authorities what to do? If not, what exactly is he saying? 

Chris Williamson:  I am not sure whether the right hon. Gentleman wants to bring back the Audit Commission in some form—he keeps intervening and making the self-same point. I am absolutely clear that that is not what I am saying. My hon. Friend the Member for Corby made the point that we would not have followed the same direction of travel as the Government, but we acknowledge some good aspects. I am interested as to whether Government Members feel that there were any good elements to the Audit Commission, which was established by a previous Conservative Government. We happen to think that there were. 

We should not lose the best parts of what was available through the Audit Commission. Let us cherish those parts and try to ensure that the new arrangements keep the good parts and jettison the bad bits. That is all I am saying, and it seems perfectly reasonable. We do not want a return to the over-burdensome top-down targets that were exemplified right through the culture of the Audit Commission. However, we certainly want the opportunity to learn from best practice—it would seem crazy not to. If there is something good happening in one part of the country, are Government Members saying that that should be kept secret? Or do they agree that it should be imparted across the nation so that others can learn? That is all we are saying and that is all that the amendment would facilitate, so I hope that the Minister will accept it in the spirit in which it was tabled. Hopefully we can achieve the consensus that I have mentioned and move forward in agreement. 

Brandon Lewis:  Let me pick up on the hon. Gentleman’s argument, taking the last point first. My right hon. Friend the Member for Hazel Grove made a good point, because the Opposition seem to accept that it is time for the end of the Audit Commission, but the hon. Gentleman seems to be making the case for establishing what would effectively be another big quango. I am sure that local government will thank him for that but it is certainly not what the Government are trying to do. 

Chris Williamson:  Will the Minister give way? 

Brandon Lewis:  Let me finish answering this point and then I will happily give way. On the hon. Gentleman’s point about spreading best practice, it does not happen often, but I agree. We should be sharing best practice. The hon. Member for North Tyneside referred to my recent speech to the New Local Government Network, and there are ways in which we can support integration

and collaboration now. We do that at conferences. The responsibility to share lies on us all as Members of Parliament and on councils themselves. 

I am not sure what kind of utopia the hon. Member for Derby North was living in under the Audit Commission that has made him think that a quango is the best way to spread best practice around local government. The best way to spread best practice is to ensure that authorities that are doing good work get a chance to talk about it. I think he will find that that is a large part of what the Local Government Association considers to be its role. 

Chris Williamson:  On a point of clarification, I am not arguing for a new quango to replace the Audit Commission. I want to make it absolutely clear for the record that I am not arguing for that in any way, shape or form. Nor was I talking about a utopian world that existed under the Audit Commission established by a previous Conservative Government at a time when, I think, local government was performing very well and, to deal with the point made by the hon. Member for Halesowen and Rowley Regis, had a lot more power. 

I am glad that the Minister agrees with me on one aspect. If he agreed with me on a lot more, he would be making far better decisions than he has done hitherto. On the amendment specifically, I hope that the Minister will take it in the spirit in which it was tabled and agree that it will facilitate better outcomes for local authorities, for the taxpayer and for the consumers of public services. Surely we all want that, and the amendment would achieve it. 

The Chair:  Order. These arguments really fall under the clause stand part debate. I have essentially let the Committee debate the abolition of the Audit Commission, so I take it that we have now had a clause stand part debate. 

Brandon Lewis:  The hon. Gentleman is making an argument that in practice would mean the creation of a quango. It would effectively turn the National Audit Office into what was the worst part of the Audit Commission, the comprehensive area assessment, which nobody apart from officers in a given council cared about. I cannot imagine that he ever met a resident who said to him, “The best thing that our council ever did for us was pass a comprehensive area assessment.” 

The Bill provides broader powers to enable the NAO to undertake examination of groups of relevant authorities, enabling a more end-to-end view of the use of public money. However, to pick up on the strong point made by my hon. Friend the Member for Halesowen and Rowley Regis, the Government believe that transparency and the way that local government works now in being responsible democratically to its electors is the way to go, rather than relying on a quango. 

The hon. Member for Corby touched on the issue of consultation, and therefore the need for the amendments. I would gently point out to him that the Government did carry out a policy consultation in 2011 about the new audit regime. The Bill was published in draft in July 2012 and was subject to pre-legislative scrutiny by an ad hoc Committee and the public consultation last year. There has been wide consultation. 

I will deal specifically with amendments 73, 94 and 95. They seek to enable joint audits between different public bodies where there is substantial sharing or

integration of services or expenditure. We do not believe that that is the right approach, nor do we believe that the amendments are necessary to support public bodies to work jointly or share budgets. I will touch on that in a bit more detail. 

First, let me explain why we do not consider joint audits to be the right approach. This Government have reduced central bureaucracy and increased accountability to local people through abolishing comprehensive area assessment and introducing a new and important transparency code. Different public bodies are accountable to different people. Local authorities are democratically elected and accountable to their residents. Each has its own priorities and sets its own call on council tax. Each must have separate accounts as part of its accountability to its residents for the spending of the tax. 

Government Departments, through the accounting officer, are accountable to Parliament for the money voted to their Departments. Where this money is distributed to others, accounting officers also need to be able to demonstrate that appropriate accountability arrangements are in place. Audit is a key part of that. The public audit framework is designed to provide assurance about how each individual public body has used the resources provided by those to whom it is accountable and the decisions it has made. 

Local bodies are audited by their external, independent auditor. Central Government Departments are audited by the National Audit Office and held to account for expenditure by Parliament. The National Audit Office does not have a role in auditing expenditure by local public bodies and does not intend to interfere with the primary accountability of local authorities to the local electorate. 

Andy Sawford:  I hope we can be clear about what we intend by the amendment. If the Minister accepts the principle, we are debating a point of practicality about the effect of the amendment as to how the Bill will be implemented. Or are we disagreeing on a point of principle? We do not envisage that, by the amendment, we would be giving the NAO a power to overlap with or conduct local audit, or that joint audits would be the form by which two relevant authorities would approach their audit. Rather, we envisage that where there is a significant area of joint working or spend that there is some collaboration and co-ordination between the auditors. That integrated audit approach would then form perhaps a small part of the final auditor’s report to the relevant authority, recognising the Minister’s point about that relevant authority’s full council being the body to which it is accountable. It would be better informed and more comprehensive by having the integrated audit elements within it. 

Brandon Lewis:  I hope that I can satisfy the hon. Gentleman with some of the comments I am about to make. We do not believe the amendments are necessary. There is no evidence that the requirement to have separate external audits prevents joint working or sharing of budgets. I know that is not the suggestion, but it is important to make that clear. Auditors already work together to undertake audits of shared services and budgets. 

Hon. Members have commented on different local authorities that are sharing management and chief executives and are coming together, not the democratically

elected councils but their management structure and sharing services. I have to say, in those I have visited, whether some of the early adopters, such as the local area of my hon. Friend the Member for High Peak, with Staffordshire Moorlands, or Adur and Worthing, or in any of the many other authorities that are now sharing senior management structures, in all the conversations that I have had with their chief executives or leaders and councillors, I have not yet had someone say, “May we have a different type of job, please, to make our job easier?” 

Recently, the Government have worked in four areas to explore service transformation and joint working via a community budget. None of those areas raised external audit as a barrier to joint working or budget sharing; nor did the Public Accounts Committee raise external audit in its report on integrated working by Departments via community budgets. In fact, there is the risk of further top-down bureaucracy. 

I will say a little more about the mechanisms that enable auditors to work together to undertake audits of bodies, shared services and budgets—to deal, I hope, with the point made by the hon. Member for Corby. First, the bid enables authorities to procure jointly the same auditor, either themselves, with advice from an independent panel, or through a sector-led procurement body, as we will discuss later. Furthermore, auditors must comply with a code of audit practice, which requires auditors to undertake the audit 

“economically, effectively and efficiently, and in as timely a means as possible.” 

The code directs auditors to have regard to the fact that local government and health service bodies 

“operate and deliver their services in a range of partnerships and other forms of joint working or contracts”, 

and so to share information and co-operate with other auditors, to minimise the burden of regulation on audited bodies and to make best use of overall audit resource. In particular, auditors of health service bodies are additionally required to co-operate with the National Audit Office and auditors of NHS foundation trusts 

“to ensure that audit work is carried out effectively within the context of the needs of the wider NHS”. 

Subject to the passage of the Bill, the National Audit Office will produce a code of audit practice for all bodies covered by the Bill and for foundation trusts. I expect the code to specify similar requirements, given the likely increased focus on joint working and shared budgets, as Members have mentioned. 

With that explanation, I hope that the hon. Member for Corby will withdraw the amendment. 

Andy Sawford:  The Minister’s assurances go some way to addressing the points we made, which was the intention behind the amendment. He rightly highlights the ways—for example, through the code—in which auditors will be required to work together. We accept that, in practice, that may take place. In reality, however, the Bill as it stands gives no recognition at all of the extent of change in the world out there—no compulsion on auditors to ensure that they fully follow the spirit of the code and no nods by the Government that they intend, through further regulation or work, to consider how the world of public audit will take account of that very different landscape for public service delivery. 

I have listened carefully to the Minister’s response, not least his wilful mischaracterisation of the comments made by my hon. Friend the Member for Derby North, which was not helpful to the debate, because we were seeking to understand whether, in practice, we had a shared view of the importance of integrated audit in the new world. I am afraid therefore that we have to press the amendment to a vote. 

Question put, That the amendment be made. 

The Committee divided: Ayes 6, Noes 12. 

Division No. 1 ]  

AYES

NOES

Question accordingly negatived.  

Clause 1 ordered to stand part of the Bill.  

Schedule 1 

Abolition of Audit Commission: supplementary provision 

Andy Sawford:  I beg to move amendment 74, page 32, line 14, at end insert— 

‘(2A) The scheme would ensure that the benefit of any local government retained earning existing immediately prior to the abolition date accrue to the local government sector.’.

The Chair:  With this it will be convenient to discuss 

Amendment 75, page 32, line 14, at end insert— 

‘(2A) Contracts currently held by the Audit Commission that last until 2017 will be transferred to a sector-led joint procurement body.

(2B) Audit Commission tools for the purposes of making value for money comparisons will be transferred to the National Audit Office.’.

10.30 am 

Andy Sawford:  The amendments deal with some of the issues around the abolition of the Audit Commission and the arrangements that follow from that. Under amendment 74, the scheme, which allows for the abolition of the Audit Commission, 

“would ensure that the benefit of any local government retained earnings existing immediately prior to the abolition date accrue to the local government sector.” 

Under amendment 75, the contracts that are currently held by the Audit Commission and that last until 2017 

“will be transferred to a sector-led joint procurement body.” 

One thing that might be lost in the transition is the value-for-money work that the National Audit Office carried out, particularly the future of the value-for-money tools. 

We have a brief point on amendment 74, which was raised by my noble Friend Lord McKenzie of Luton in the other place to ascertain what is to happen to any retained earnings of the Audit Commission—if there are any in 2015—when it finally ceases business. I hope that the Minister can let us know what he expects to find in the Audit Commission’s coffers in 2015, and what he intends to do with it. Much will doubtless depend on the position of the pension fund. Will the Minister tell us what he expects to happen with the winding up of the staff pension fund and whether all the issues will be addressed? Such matters have been aired elsewhere; they are not politically controversial. We have not made specific amendments in relation to the staff pension, but the issues are pertinent to the point about what moneys remain when the Audit Commission is abolished. I hope the Minister can assure us that satisfactory progress is being made in safeguarding the pension fund and its future liabilities. 

On the point about any remaining income, the accounts record that the operating income of the Audit Commission is overwhelmingly derived from audit fee income from local government and health. In other words, it is money paid by local authorities and local health bodies. One could quite reasonably argue that it is their money. In the Minister’s view they have been overcharged in recent years and therefore the money should be voluntarily repatriated to their budgets, which are, as he knows, hard pressed. 

The streams of income from local government and health have to be kept separate, and our amendment requires that any surpluses are used for the benefit of those two sectors. Will the Minister assure us that that is his intention? Perhaps he will allow some creativity in how such funds are used. We would not necessarily see it as best value for money to divvy those up across all the relevant authorities, or across all the local authorities that go into the new scheme, having previously paid fees to the Audit Commission. Perhaps the money could be used, for example, to assist the local government sector in developing its joint procurement body; that would seem to be a valuable use of what is after all already local government money. 

The noble Baroness Hanham said that she was sympathetic in principle to Lord McKenzie’s point. As she said, it is not necessary explicitly to prescribe the arrangements in the transfer scheme. She suggested that if the funds were prescribed in the transfer scheme, they might not be available for transitional costs. Having considered the Minister’s argument, I cannot see how, at the point of abolition in 2015, any moneys remaining could be used for transitional costs. The moneys will either have been designated—if that is the Minister’s intention, he should set it out—or they will remain. Our amendment addresses what, if anything, remains in 2015. We therefore want to know what will happen with that money. 

Baroness Hanham said: 

“One possible use of any surplus might be to benefit the local government and health sectors in the form of reduced fees.”—[Official Report, House of Lords, 17 June 2013; Vol. 746, c. GC24.] 

Effectively, a small subsidy would go back to local authorities for the payment of current or future fees. I agree that that could be a way of using the money, but whether any substantial difference could be made to audit fees, or whether there could be a small allocation

to the Local Government Association or another designated body that is developing the opt-in schemes, will depend in part on how much the Minister envisages might be left in the pot. I hope the Minister is able to address those points. 

After the Lords stages, we anticipated that the Government would issue further information. The Minister will excuse me if I have not spotted that information in the paperwork and letters that have passed between us. As he knows, I took up this brief only two weeks ago. I have tried to catch up with some of the correspondence that his Department sent to the Lords. It would be helpful if he reminded the Committee of anything that has been said, or assured us of what will be said. 

On the more substantial amendment 75, we are concerned about the contracts currently held by the Audit Commission, which last until 2017. What will happen to those contracts? Up to 10 contracts are due to expire upon completion of the 2016-17 audits, and the Local Government Association argues that the contracts should be extended to 2020. We have considered that point, and in part our earlier amendments on, for example, ensuring that regulations are in place by the time the Audit Commission is abolished would have ensured that, should the contracts end in 2016-17, the new arrangements can take effect at that time. 

That is also the subject of some of our later amendments on, for example, setting up the independent audit panels and the timeframes for doing so. We have not taken a position, and I am interested to know how the Minister has reflected on the representations of the Audit Commission and the LGA on extending the contracts to 2020. Whether the date is 2017 or 2020, we want the new arrangements to be place. 

We approach the Bill as though the contracts will be wound up in 2017, as envisaged. Clearly there will be at least a two-year lag in which no organisation holds the contracts. That is no small matter. The successor body will need to meet the commission’s current statutory audit functions. If there is to be no successor body, who will carry out those functions? The functions are, for example, to make and specify the terms of appointments, to set the scales of fees and to determine variations in the scales of fees. 

I have looked at that in detail, and it is important. Between November 2012 and July 2013, the Audit Commission dealt with requests to vary the fees of 176 bodies in the principal audit regime. That significant role in the contracts will need to be carried out in 2015-16, and such requests usually lead to a reduction in fees, so we all have an interest in ensuring that the role can be effectively carried out. Where such requests do not lead to a reduction in fees, they are made because there are new circumstances. Joint working is such an example that the Minister says it is adequately set out in the code and requires the auditor to come back and request a variation in the scale of fees. Crucially, the Audit Commission is also involved in making arrangements for the certification of grant claims and returns. 

Page 90 of the Bill ad hoc Committee’s report sets out evidence on the role of accounting officers. Who will departmental accounting officers look to in respect of the annual accounting and auditing processes for the £246 billion spent by local bodies? The Audit Commission, for example, currently reports to departmental accounting

officers on the local bodies that produce their accounts late and the authorities where the auditor’s opinion has to be qualified for some reason. Reporting to accounting officers in departmental bodies on billions of pounds of public expenditure is important. That role will need to be carried out. Who will accounting officers in Departments get information from, if not from the Audit Commission? Who will pay the cost involved in providing that information? The Minister needs to address these points, and to set out clearly how those contracts will be managed and who will take that role. 

We have an open mind on whether the Minister thinks that the sector-led body would be the best approach. We proposed that in the context of our amendment because it seemed to us to be the most attractive option, linked to the opportunity for the sector to develop some kind of joint procurement model. Indeed, if funding is attached to carry out this role between 2016 and 2017, it may provide some capacity to effectively develop the joint model as the sector transitions to that after 2017. It could be that the Minister envisages that the Cabinet Office or his own Department, DCLG, could be the appropriate body to hold these accounts for the next two years. However, one way or another somebody will have to take on this very important role. 

I turn to our third amendment in this group, which is around value-for-money profiles. 

The Chair:  Third amendment? 

Andy Sawford:  Sorry, amendment 75 has two proposed new sub-paragraphs. Together they make three separate points. Sub-paragraph (2B) would insert: 

“Audit Commission tools for the purposes of making value for money comparisons will be transferred to the National Audit Office”.

The Audit Commission maintains value-for-money profiles which bring together data about costs, performance and activity of councillors. Its financial ratio analysis tool, for example, means that local authorities can compare their financial performance against similar authorities on a range of financial ratios. In its evidence the Local Government Association says that these tools are of, 

“on-going value… as a means of helping councils understand their performance in comparison with others”. 

I note that the Local Government Association has developed LG Inform, which is the sector’s own data management tool. It may well be that the Local Government Association is the appropriate body to which to transfer the value-for-money tools. We refer to this in clause 19. It will be crucial that auditors know how and from where they can access the value-for-money tools. Setting these up was the whole driving purpose behind the creation of the Audit Commission. 

We had some debate earlier around part 1 of the Bill on whether anything the Audit Commission ever did was of value. The Minister seemed to take the view that very little of it was of value but, out there in the much wider world of audit and local government commentators and academics, the huge range of evidence presented to both the Communities and Local Government Committee and the draft Local Audit Bill ad hoc Committee is that over the years that value-for money-work bought very significant savings to local government. We would not want to see this lost. 

The Audit Commission’s value-for-money work is founded on the original rationale of Lord Heseltine, the architect of the Audit Commission. He wanted the VFM studies and the VFM tools that support them—which we want to be transferred through this amendment—to be an integral tool for measuring the efficiency and effectiveness of local bodies. That is Lord Heseltine’s own language. The work done by the Audit Commission on value-for-money studies therefore created massive economies and benefits, simply by turning a spotlight on what you could achieve in a well-run authority. We should bear in mind the comprehensive area assessment. The Audit Commission has been going for 25 years, and I think that on reflection all hon. Members would agree that it lost its way only in the latest years. 

There were many years in which the focus of the Audit Commission was rightly on its original purpose, which was value for money. In particular, it was on enabling authorities and auditors to compare value for money across local authorities. For example, the Audit Commission recently did work on business rates which the Minister’s Department drew on in shaping its own policy on business rates, and rightly so. It is right to look at and learn from what the Audit Commission has advised through its value-for-money work. We want to know from the Minister where the tools will go. 

James Morris:  The hon. Gentleman said in a rather offhand way that he thought it might be possible that LG Inform would be the appropriate body to hold whatever dataset he is talking about, but his amendment states specifically that the tools 

“will be transferred to the National Audit Office.” 

I just wondered which it was. 

10.45 am 

Andy Sawford:  There are different views about the appropriate body. The written evidence about the LG Inform model submitted by the LGA to the ad hoc Committee on the draft Bill is interesting. I have not looked in any detail at the LG Inform model, although I read the brief evidence that is provided here. The Minister is perhaps better qualified to consider whether that would be an appropriate place—[ Laughter. ] It is good to know that Government Members have confidence in the Minister. Hopefully, he will assure us that the Government have a plan, because at the moment, there is clearly no plan for the future of the VFM tools in particular. 

There is an intention—this relates to the hon. Gentleman’s intervention on why the NAO—that the NAO has a role in conducting six value-for-money studies. We believe that that may be too limited. Although we acknowledge that the Audit Commission’s work had gone too far the other way, the pendulum swing may mean far too limited a role for anybody, and certainly the NAO, in conducting the value-for-money work. However, the Minister might argue—I would have sympathy with this argument—that the auditors themselves are charged with carrying out the value-for-money work. We would expect, of course—it is explicit in the Bill—that audit bodies will look at value for money, but it is not clear what tools, if any, they will have available to them for comparisons across local authorities. 

The dangers of an atomised, fragmented world of audit, which I mentioned earlier, are very much part of our concern about the ability of local authorities and

relevant authorities to access benchmarking, particularly through their auditors. The many former councillors serving on this Committee will know anecdotally and from their own experience about those occasions when, either through playing a leading role, for example in an executive committee, or through serving on a scrutiny committee, they saw that the cost of providing a particular service in their authority was clearly wide of the mark in relation to other authorities, and because they could clearly identify that—not least through the value-for-money benchmarking tools—they took action to reduce the cost within their authority, often looking for opportunities to work with authorities which were delivering services much more successfully at less cost. 

A good example of the spur to shared services is the tri-borough project in the centre of London, whose work was originally motivated by recognition that the provision, for example, of education services and children’s services in Westminster was not as effective as in the royal borough of Kensington and Chelsea and in Hammersmith and Fulham. Some of that work was on the costs exposed by the value-for-money studies, which then caused the authorities to seek joint working arrangements to improve value for money significantly. 

I hope that all hon. Members keep in proportion the critique of the later years of the Audit Commission’s comprehensive area assessment and other manifestations of what became an over-burdensome inspection regime, relative to the many years of vital value-for-money work that I think all independent commentators would recognise delivered real value for money. That is what we are concerned will be lost and why we want the value-for-money tools to be transferred. We want to know that they will be maintained and hope that they will be built on. We want to know who will meet the costs of maintaining the tools, how auditors will be able to access them, and whether they will be encouraged to do so through the Bill. As the Bill stands, there is no practical encouragement for auditors to access those national benchmarking tools, because those tools will effectively cease to exist if the Government do not accept the amendment and provide assurances on the points we have raised. 

Chris Williamson:  I will speak specifically about value for money. My hon. Friend’s amendment is important, given the Government’s introduction of the business rates retention scheme. It is worth noting some of the comments of the much-maligned Audit Commission, which published a briefing drawn from its value-for-money profiles tool. It found that in 2012-13, councils collected £21.9 billion in business rates of the £22.4 billion due; the amount collected by each council ranged from £1.3 million to £1.6 billion. Councils collect most business rates in the year they fall due, but business rates arrears are substantial and currently stand at £1.2 billion. As that local tax remains uncollected, it is axiomatic that it cannot be used to support the delivery of services. In 2012-13, the uncollected in-year amount was £513 million. 

We should ensure that the value-for-money-profile tools are transferred. They are an extremely valuable means of ensuring that local authorities, many of which are being subjected to severe financial pressure, maximise the income at their disposal. Given that the Government are allowing local authorities to retain business rates through the business rates retention scheme, it would be a wasted opportunity if they were not able to continue

to benefit from the Audit Commission’s value-for-money studies. If the Government do not plan to transfer those studies, will the Minister explain how local authorities can maximise value for money? 

Brandon Lewis:  I will address the specific queries of the hon. Member for Corby, then speak more generally about the amendments. The Department provided a Crown guarantee for the Audit Commission’s pension scheme in early 2012. We intend the scheme to continue to run as a closed funded scheme with no active or new members. The Government published a written ministerial statement in 2012, and I am happy to give the hon. Gentleman a copy. 

We are looking at the management of audit contracts and intend to make an announcement in early 2014. We are committed to introducing local appointment in 2017, and have no intention of letting a contract that would lock all authorities into central procurement beyond that date, which would technically bind the Government after next. I will say more about that in a few moments. 

We are working with the Audit Commission, the Local Government Association and the National Audit Office to determine whether the value-for-money profiles will be continued and which is the right organisation to take them on. A decision will be made well in advance of the Audit Commission’s closure. 

On transparency for local people, the Bill places a new duty on local public bodies to publish public interest reports and auditors’ formal recommendations. As the hon. Gentleman noted, it continues the duties on bodies to consider those publicly. In the interim period, we are considering what framework would ensure the continued operation of the system. 

Schedule 1 to the Bill enables the Government to produce a scheme or schemes to transfer the Audit Commission’s property, rights and liabilities, including its existing audit contracts, when the commission closes. We are working closely with the Audit Commission and partner organisations on the transfer of its functions, and we intend to set out details of the arrangements in due course. Amendment 74 would require the transfer scheme or schemes to ensure that any of the Audit Commission’s local government retained earnings that exist immediately prior to its abolition accrue to and therefore benefit the local government sector. This matter was also raised in the other place. 

Under the existing framework, the Audit Commission is funded through a top slice on audit fees—effectively, it the difference between income from audited bodies in the form of fees and the amount paid to firms to undertake this work. I appreciate that this is the source of the retained earnings to which the hon. Gentleman refers. The Committee will be aware that this sum has been declining steadily since 2010. The impact assessment published alongside the Bill referred to the retained earnings that may be needed to cover transitional costs, including those associated with continuing management of the existing audit contracts. The amendment would divert the benefit of such retained earnings to the local government sector. 

Like Baroness Hanham, I am sympathetic to the intention behind the amendment, but I do not agree that it is necessary to prescribe these arrangements explicitly through the transfer scheme or schemes. If we did, the retained earnings would be unavailable for

transitional costs, even if it were agreed by all parties that they should be used in that way. I agree that one possible use of any surplus might be to benefit the local government sector and, indeed, the health sector in the form of reduced fees, but that is a matter that the Government will need to consider further with the Audit Commission as part of the shared programme management arrangements in relation to closure. 

Andy Sawford:  The Minister is building on his noble Friend’s argument. His agreement that a good use of the money might to support the development of the opt-in body or for the money to be returned to local authorities and health bodies is welcome. It may simply be that he has a more detailed understanding of this through advice from officials and others, but I cannot understand how at the point of abolition the money cannot be reserved for some unforeseen transitional arrangement because the transitional arrangements would surely need to be in place. The money could be earmarked to be spent at some future time but it would need to be in place by the time of the abolition of the Audit Commission. 

Brandon Lewis:  I understand the hon. Gentleman’s point. We want to avoid any unintended consequences. The amendment would put a fixed position in place; even if all the parties agreed, they could do nothing about it. We will resist the amendment because we want to ensure flexibility. Baroness Hanham made the point, which I repeat, that we are sympathetic to the intention. we sympathise with the idea that if money is there, it should go back to local government through reduced fees or whatever process. However, the amendment would prevent all parties, even if they agreed, from doing anything about it if something came up. We want to ensure that the flexibility remains. 

What we do not want to do, in allowing for a sector-led body or local appointment, is bind people through to 2020. That would not only mean that local authorities could not use the power they technically have until then, but we could be binding the Government after next, which seems somewhat extreme. The first part of the provision in amendment 75 would require the Audit Commission’s contracts that last to 2017 to transfer to a sector-led joint procurement body. The Committee will be aware that we are to table a Government amendment to allow the local public bodies sector to establish collective procurement arrangements. That amendment will give the Government the powers to set out a framework for such arrangements in regulations. 

The Bill and the relevant regulations will set out a framework for collective procurement and a process for the Government to approve an organisation to act as a sector-led body. It will be for the sector itself to decide whether it wishes to take up and use that power and take forward those proposals. If the sector comes together and develops proposals, the Government intend to work constructively to support it. My officials and I have already had initial discussions with the Local Government Association. 

11 am 

We also intend to work closely with the sector and any prospective sector-led body on developing detailed regulations. I hope that that satisfies the hon. Member

for Corby in relation to previous amendments. In parallel with that work, my officials are working with the Audit Commission and other partner organisations to determine options for management of the commission’s existing audit contracts. Upon the commission’s closure, the Government intend to transfer that responsibility to another body until 2017. 

Andy Sawford:  I understand the Minister’s points. A balance needs to be struck between consultation and effectively trying to work with, for example, the local government sector, which we hope will have a role in the joint procurement model, and the need for the Government to be clear about what they intend, given the Audit Commission’s important functions in relation to contracts that will run until 2017. I respectfully say to the Minister that the Government have had three years. The Bill started in the Lords, where these issues were aired and assurances and clarification were promised, yet while the Government appear to have edged a tiny bit further forward in indicating whom they are talking to and that those conversations are progressing, they have not given us the clarity that surely should be in the Bill. 

Over the next 12 months or so, accounting officers for departmental bodies across Government will rightly ask questions of the Minister’s Department about who they look to for assurance on the public expenditure that runs through their Departments to local authorities, which was previously provided by the Audit Commission. The Minister will need to give that guidance; at some point, the Government will have to grasp the nettle. Who does Minister think might take on the role? 

Brandon Lewis:  I was going to say that the Government or a sector-led procurement body could take on that role on an interim basis. The Government have been clear that one point of the Bill is to abolish the Audit Commission once and for all and to ensure that there no risk of an “Audit Commission-lite”. From the beginning, the Government have been determined to ensure that local authorities are able to procure locally what is right for them. 

That is partly about cost saving. We have already seen the savings that can be made by outsourcing contracts, apart from the £1.2 billion projected and the 40% savings already seen, but we also need to ensure that authorities have the power locally to decide how they want to work, whether individually or by coming together to work as groups of authorities. We have sympathy for the case made by the sector on coming together for a sector-led body. We are clear that if that happens, that must be designed and developed by the sector, for the sector, and not be a Government quango of any description, to avoid the “Audit Commission-lite” problem. 

That is why the Government’s position is that it is for local authorities to procure, but if they want to develop a sector-led procurement body that can work, we will be sympathetic to that and will work with them to ensure that they get the appropriate structure to deliver savings with that local power to make decisions. It is not for Government to set a top-down result, which is why we continue to work with authorities to develop that. 

The amendment would require us to prejudge the issue and commit to transfer vital contracts to a sector-led procurement body that is not yet fully developed. I reassure hon. Members that the Government take seriously the need to establish strong governance and

accountability arrangements for the contracts and to give thorough consideration to their management, following the commission’s closure. We therefore intend to continue working with partners and will set out further details on transfer arrangements for the contracts in due course. It is important not to rush this to satisfy a timetable this week, but to work with the sector to get this right. 

Andy Sawford:  The Minister says that we should not rush, but the Bill has been three years in the making. He outlined the extent of the post-announcement scrutiny— the ad hoc committee, work with the Department, the Government’s consultation and so on. The Audit Commission is barely alive in terms of providing expertise and playing its role in managing contracts, and I want to press him on that. Is sector-led management of contracts the Government’s preferred option? If so, is the Local Government Association willing to undertake that role? 

Brandon Lewis:  The hon. Gentleman tempts me into a debate about new clause 1, but I will try to respond to him now. I think he misunderstands where we are coming from. His comment about our not being able to answer these questions after three years is a complete misunderstanding of where we are. Our position has been to get rid of the Audit Commission and to have locally procured audits. It is only recently that we said we would work with the sector to allow it to develop, if it wants to, a sector-led body to procure. That is not the Government’s first choice. Our position is to get rid of the Audit Commission to ensure that local authorities can procure. The local government sector wants a sector-led body and we are sympathetic to and willing to work on that. To say that we have taken three years to get to this point is completely wrong. It has been nothing of the sort. 

Andy Sawford:  The Minister does not answer my question. If the Government’s view is that they are being dragged along to provide the sector-led option because of the strength of feeling in the local government sector, representations from auditors, the strong debate in the other place, and representations from the ad hoc Committee and the Select Committee, I regret that, but I welcome new clause 1 and the Government belatedly coming on board with this proposal. But if their preferred option is not for a sector-led body to hold contracts because they did not envisage that—they have had three years to envisage different arrangements—is their preferred option that the Cabinet Office or the Department for Communities and Local Government should hold contracts, and what is the status of the dialogue with those bodies about whether they will do so? 

Brandon Lewis:  Again, I am tempted to say that the hon. Gentleman is missing the point. The Government’s view and the reason for the Bill are to get rid of the Audit Commission and to allow local procurement. The local government sector has made the case that it wants to look at a local government sector-led procurement body. We have said that we are sympathetic and happy to work with it on developing that. I know that the Local Government Association is keen to develop that, although the National Association of Local Councils, which represents the interests of smaller councils and which the hon. Member for Derby North rightly mentioned,

is looking at its own procurements. There are different sorts of audit for different sizes of authority, so that is appropriate. We are working with them on that. 

Contracts run to 2017, so it is right that we get this right and do not rush it just to ensure that if the sector-led body can get itself organised, we can pass the matter to it. However, we cannot make a commitment now because that body is not organised, structured or in place so we must ensure that we have the flexibility to consider what is the correct body. It may be the Department for Communities and Local Government, but we cannot make a commitment yet. 

The second part of the amendment would require the transfer scheme to confirm that the Audit Commission’s tools for the purposes of making value comparisons will transfer to the National Audit Office. That is premature and unnecessary. We have been working and continue to work with the Audit Commission, the Local Government Association and the National Audit Office to consider the synergies between the profiles and other tools, such as LG Inform, to which the hon. Gentleman referred, and the guidance to auditors that the National Audit Office will produce. That work will help to determine whether the value-for-money profiles will continue following closure of the Audit Commission, in any organisation that may take this on. A decision on that will be made in advance of the Audit Commission’s closure. 

Andy Sawford:  The Minister knows that I am new to the House, having been here barely 12 months. My view of Government legislation is that, when seeking to do something substantial, which the Government believe to be right, its effect should be clear. To tell us again, after three years, that they are sorry that they cannot confirm the vital future of the value-for-money tools because they are still talking to people is not adequate when we are at the later stages of scrutinising a Bill that has gone through the other place, including discussion in Grand Committee, and when all these questions have been asked and aired, and assurances were given that the Government would respond. In many instances in the House of Lords, we were told that they would respond before now, yet the Minister is saying that they cannot do that because they are still in discussion.

I sympathise with the point that healthy consultation and discussion is right, and that that will continue, but we have set out through the amendments that, on the future management of the contracts, on the future of any funds that remain in local authorities and specifically on the point of value for money that the Minister is addressing, we ought to know now what the future holds, and that those three matters should not be subject to further consultation. Surely the Minister knows what he wants to do with those three important functions.

Brandon Lewis:  The hon. Gentleman made a comment in his opening remarks about how these kinds of models and the value-for-money tools drove some local authorities to look at shared services, shared management and that kind of work; anecdotally, he made that point. I would anecdotally argue that that is simply not how these things work in local government. 

When I was a local government leader, I looked at shared management and actually went with a shared chief executive with a county council. We did not do it just because the Audit Commission, or value for money,

or some other report from anybody said that that is the right way to go—we were doing it before many authorities were doing it. We did it because we took the view that the money we would spend on a chief executive was better spent on front-line services, and we could share a chief executive at a better cost. I know that authorities such as Staffordshire Moorlands and High Peak, which I mentioned earlier, and others around the country have not done it just because some report or commission said they should do it for value for money; they have done it because they think that a better way of using their resources is to have more of them spent on front-line services. 

James Morris:  The Minister is making an important point about these value-for-money studies. Despite the rather rose-tinted spectacles of the Opposition in relation to them, is not the truth that they have often been used as a way of beating local government down? They are not necessarily used to improve decision making in local authorities; they are precisely used for central Government to dictate to local authorities what they should be doing. Therefore, we should be cautious about their future use and where they lie in the system. 

Brandon Lewis:  My hon. Friend makes a very good point. I think that, on Second Reading, I gave an anecdote from when I was a council leader and my officers explained to me that, because of a report from the Audit Commission, which made it very clear that fortnightly waste collection was the way to go, we should have it, otherwise we would get penalised, one way or another—not because it was the right thing for our residents. In fact, we continued with weekly waste collection because that was what our residents wanted. 

Councils should make decisions based on how they think they should best spend local money, looking at best practice, and that is partly what the Local Government Association does, with councils networking and looking at each other’s work. Councils should be doing that to provide a good value-for-money service, not because of a report that they are given by the Audit Commission or some other quango. 

Andrew Bingham (High Peak) (Con):  My hon. Friend referred to what happened with High Peak and Staffordshire Moorlands. I was part of the executive that brought that in. We did that not because of some Audit Commission or some value-for-money study; we did it because, as elected counsellors, we wanted to use the money that we had available to serve our residents. Having a joint management team and a single chief executive gave us money to spend on the services that residents wanted, not surveys, studies and other things that excite people within local government, while residents are not really interested in them. 

Brandon Lewis:  I thank my hon. Friend for that point. I think it was his chief executive who made the point to me that even in a relatively small authority—one with a budget of approximately £10 million or £11 million—the staff found savings across the authority of about 18% to 20%, which they are now sharing as a result of that work. In his role in the Society of Local Authority Chief Executives, he was certainly spreading that best practice to other officers and shouting from

the rooftops about it, as indeed I have done when I have spoken at local government conferences about the good practices out there. Indeed, even in my own authority, which again is a small authority, we were able to save around £100,000 to £120,000 a year purely through sharing a chief executive and not taking on the full cost of a chief executive ourselves. In our authority, that was the equivalent of about a 4% increase in council tax, which was a substantial saving for our residents. 

Chris Williamson:  Is the Minister aware that the Audit Commission’s value-for-money profiles are very widely used? There were some 17,000 visits to them in the last financial year alone. Surely that indicates that there is a demand—a need, indeed—for some alternative to be put in place when the Audit Commission is eventually abolished? 

Brandon Lewis:  The hon. Gentleman makes a fair point. I am sure that many people look at those profiles and find them valuable. A lot of those people could well be the very council officers who have used them to put pressure on council members to make decisions that are not necessarily right for their local electorates—as I have experienced, and Members here have already made that point—to satisfy what they believe will tick a box with the Audit Commission. That is why, in some local authorities, they have even hired members of staff from the Audit Commission to learn how to tick the box to keep the audit commissioner happy, so I do not necessarily accept that as a good example of exactly why that system works. 

11.15 am 

Andy Sawford:  Will the Minister confirm that the Government are rowing back on their approach to armchair auditors who might well be among the 17,000 people who, as my hon. Friend the Member for Derby North rightly points out, access this information? Does he agree that the conclusion that could be fairly reached from his remarks is that he does not consider that the value-for-money work has any value? How does that relate to his earlier remarks about conversations about the future of value-for-money tools, because he has outlined that, in many cases, these have not been the drivers of change?

Does the Minister believe that the public’s ability to look at value for money is a critical element of this? It is welcome to hear examples from hon. Members about choices to improve services in their local area being informed not by VFM but by other means. That, of course, is a perfectly good part of local leadership. However, is not the importance of value for money not only for local government, but for the public to see what is value for money? 

Stretching the Chair’s lenience slightly to make one final point, does the Minister recognise the evidence, for example, from APSE, which said that the report Positively Charged highlighted the lack of corporate charging strategies in a high proportion of councils? Age UK said how valuable the Don’t Stop Me Now and Under Pressure value-for-money studies had been. These showed the way in which councils were variously performing in their services for older people. This not just about council leaders, with respect. It is also about the public understanding value for money. 

The Chair:  Order. I have allowed a lot of latitude. We have now effectively had a stand part debate. Please carry on discussing the amendments. 

Brandon Lewis:  Thank you, Sir Edward—noted. The hon. Member for Corby misunderstands what I am saying. It would certainly be absurd to look at having a value-for-money study on value-for-money studies, but it is fair to say that they are part of the jigsaw, and not the answer. My point is that we have now agreed in Committee that, unfortunately, the Audit Commission grew to a position where its judgments were not necessarily being used in the right way. Its remit had expanded too much, and I have heard a lot of anecdotal evidence from councillors that they were making decisions, based on the results of comprehensive area assessments or the desire to please the Audit Commission one way or another, that were different from those that that they might have freely made in the best interests of their local residents. 

Councillors also made the point that the benefits of working together and partnership in shared management and services will not just be driven by value-for-money reports saying that they are the right thing to do. To be blunt, if any borough treasurer or council leader cannot work out that councils sharing management and reducing their costs in that way is good value for money, they probably should not be in the job in the first place. It seems fairly simple common sense. 

I also think it is right that we should be clear that, in the transparency code, the Government have made sure that local people have more power to assess what is happening locally, see how their authority is spending their money locally and therefore have more access to taking a view on that, and not just rely on a Government quango. Maybe one of the differences between the Government and the Opposition is that we believe that people locally should have that power, and not just rely on Government quangos that tend to go out of control and beyond their remit. 

Chris Williamson:  The Minister is generous in giving way. I want to probe him a little further on giving information to the public to ensure that they have a grasp and understanding of whether they are getting value for money. Does he accept that, when auditors look at the accounts of respective local authorities, they use the value-for-money tools so that they can make that kind of comparison to inform their report? In turn, that is useful information for the local electorate about whether they are getting value for money for the council tax that they pay. 

Brandon Lewis:  The hon. Gentleman confirms the argument that I and other hon. Members were making. The auditors have that role, but local people can see the outcome of what the auditors do. That is the whole point of having an audit. 

Chris Williamson:  Will the Minister give way? 

Brandon Lewis:  No, I will finish answering the hon. Gentleman’s question before he jumps in with another. The Government continue to collect a wide variety of consistent, comparable spend and performance data from each local authority. That information is available to what Opposition Members refer to as “armchair auditors”, who will also now have the benefit of

transparency, which was never there under the previous Government. Those data are also published on departmental websites and form the backbone of—as the hon. Member for Derby North mentioned earlier—the LGA’s comparable performance data website. That already contains more than 500 performance metrics, which cover a wide range of local authority functions and will be made available to the public from this autumn. 

I want to reassure hon. Members that, as well as the work on the transfer of the existing contracts, the Government are working closely with the Audit Commission and partners on the value-for-money profiles and associated tools. 

To sum up, the amendments not only prejudge those discussions but would set an over-prescriptive approach too early to the development of the transfer of the scheme. With those reassurances, I hope that the hon. Gentleman will withdraw the amendment. 

Andy Sawford:  I thank the Minister for his response. It is disappointing that the Government have not been able to set out much more clearly the future arrangements they envisage in the three key areas addressed by the amendments. 

For example, regarding any money left in the pot, the Minister’s explanation—the same as that offered in the House of Lords by Baroness Hanham—does not seem a satisfactory way to assure local government health bodies, whose money this is, that the money will be used for their benefit. 

I recognise that the Minister has expressed a view that it is desirable that the money should be used for local government and health care bodies, and has set out why he believes it is not necessary to specify that in the Bill. We beg to differ on that point. However, given his assurances and the point of principle that has been established—that the money should be used for local health bodies and local government—I will not press the amendment. 

There are two parts to amendment 75. In relation to holding contracts in future, it is completely unsatisfactory that the Government cannot set out who will hold them. Who holds the contracts is less important in my reading of the Bill and interpretation of the Minister’s remarks than certainty about who will hold the contracts. For example, if the Minister chose to specify a sector-led body or the Cabinet Office or the Department for Communities and Local Government, it would be better to hear which body, if any, rather than to hear that the conversation is ongoing. 

The point is that those vital roles currently carried out by the Audit Commission will need to be undertaken in future. Of course, local authorities, departmental bodies and the public—about whom we should be most concerned—will want to know that there is proper assurance of value for money in what local authorities are doing. For example, where it is a qualified audit report, that someone is monitoring that and reporting to departmental bodies on it. 

On value-for-money studies, I hope the Minister has read the draft Local Audit Bill ad hoc Committee’s pre-legislative scrutiny, though he has not responded to its recommendations. It said, 

“We are concerned that as a result of the draft Bill there a vacuum surrounding Value for Money work for individual local bodies which sector led organisations, including the LGA, are

expected to fill. This places a substantial amount of responsibility on the LGA which is essentially a membership organisation and is primarily accountable to its members, rather than directly to the taxpayer.” 

That makes a very important point about ability to carry out the work. That is why, if the Government envisaged that a sector-led organisation would carry out the work, we want to see that in the Bill. We would want to understand, perhaps through regulations, how they would make that a reality. 

I am left more confused and uncertain by the Minister’s remarks. He seeks to assure me that the conversations about the use of value-for-money tools are continuing at the same time as telling me that those value-for-money tools are not much value at all. I beg to differ, as does the Minister’s noble Friend Lord Heseltine, who made a

clear statement in the course of scrutiny of this recently, and as does all the evidence presented about the value of those value-for-money tools. It is disappointing to hear the Minister conflicted about where they might go and whether they are any use at all. I hope he will later take the opportunity to assure us, particularly in relation to the NAO’s role in carrying out value-for-money studies, that they are important and that he has a view about where they will go. On that basis, and hoping for further assurances at a later stage, I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Schedule 1 agreed to.  

11.25 am 

The Chair adjourned the Committee without Question put (Standing Order No. 88).  

Adjourned till this day at Two o’clock.