Local Audit and Accountability
The Committee consisted of the following Members:
Georgina Holmes-Skelton, Fergus Reid, Committee Clerks
† attended the Committee
The Minister will be pleased to note that the amendment is fairly brief. We have tabled several similar amendments to the Bill, because many elements will require further regulations. We have some concern about the number of areas that are still to be set out in regulations, and we were hoping for more clarity from the Government after the Lords stages. Does the Minister accept the point that the amendment is designed to make, and will he give us an assurance that there will be consultation with persons affected by the change? It may be an individual authority that is affected, or it may be a group of authorities as set out under schedule 2; I think the latter is more likely.
The Minister and his officials will have had in mind when drafting the clause that circumstances might arise in which relevant authorities no longer needed to be covered by the regulations governing local audit. It is difficult for me to foresee which, if any, of the relevant authorities’ accounts we might no longer want to subject to scrutiny or proper independent audit. There may well be a straightforward explanation, such as the qualifying size of an authority’s budget or turnover, and I could understand if that were the intention. Will the Minister set that out for us?
When does the Minister intend to consult, and what does he expect the regulations to cover? Will he give a broad commitment—we do not want to repeat this debate at each point at which we have asked for consultation—of the Government’s intention to ensure relevant parties are consulted before regulations are written?
I would also be grateful if the Minister could address a point that was debated in the Lords about the means by which a relevant authority might cease to be affected by the regulations. In its report on the Bill, the Delegated Powers and Regulatory Reform Committee raised a concern, the relevance of which the Minister will doubtless understand better than I, that the clause might lead to a
The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis): It is a pleasure to serve under your chairmanship, Mr Weir. The amendment would require the Secretary of State to consult persons affected before bringing forward regulations to add to, modify or remove entries in the list of authorities contained in schedule 2 to which the Bill applies. I am sympathetic to the purpose of the amendment, which is to ensure that bodies are consulted before being added to or removed from the public audit regime. It is our intention to consult on any significant changes to the schedule 2 list. All regulations that may be made to alter the list of authorities in schedule 2 will also be subject to the affirmative resolution procedure, so Parliament will have an opportunity to scrutinise these alterations and the extent of our engagement with the bodies concerned. There is no intent at the moment to bring forward any regulations. We are talking about a reserve power that might be needed, for example, where a body ceases to exist. We have shared with the Committee draft regulations in key areas—for example, on audited panels—so we do not consider it necessary to add further legal requirements for consultation to the statute book. With those reassurances, I hope the hon. Gentleman will withdraw the amendment.
Brandon Lewis: This group of amendments addresses the unique nature of a parish meeting where there is no separate parish council. Unlike a parish council, a parish meeting has only one elected member—its chairman—but all local government electors in the parish are entitled to vote at a parish meeting and are therefore, arguably, “members”. Where there is no separate parish council, the chairman and the proper officer of the district are together known as the parish trustees. The parish trustees are the body corporate of the parish meeting. Any parish property is held by the trustees. The Audit Commission currently appoints auditors to more than 1,100 parish meetings. The amendments
The principle we have used is that where a function is of an administrative nature—which is the case in the majority of functions—it will be exercised by the chairman on behalf of the parish meeting. Where a function is of a deliberative or decision-making nature, it will sit with the parish meeting itself. Amendment 65 sets out the principle that the chairman exercises the function on behalf of the parish meeting, unless the Bill expressly confers the function on the parish meeting itself. That is consistent with the Accounts and Audit (England) Regulations 2011.
Amendments 1, 27 and 64 facilitate references to a parish meeting. Amendments 15, 16, 18, 20, 25, 42 and 49 make provision to confer functions on the parish meeting itself, rather than delegating them to the chairman—these are the exceptions to the general rule. Those provisions relate to decision-making rather than administrative functions, which should not be delegated to the chairman. Those decisions are to appoint an auditor; to appoint an auditor panel; to enter into a liability limitation agreement with an auditor; to consent to an extension of a successor partnership where the appointed auditor’s original partnership ceases; to appoint an auditor to conduct a second audit or to review and report on the first audit; to consider a written recommendation or report in the public interest and to decide whether the report requires any action or whether the recommendation is to be accepted, and what, if any, action to take; and to consider an advisory notice and the consequences of not acting in accordance with such a notice.
Amendments 17, 31 and 32 ensure that duties that would otherwise be placed on “members” of the parish meeting are restricted to the chairman and the proper officer of the district, and are not placed on all local government electors. That is consistent with the treatment of parish councils in the Bill, where the functions are placed on council members only and do not extend to local government electors. Those functions are the auditor panel’s power to require attendance at a meeting to answer its questions; the auditors’ power to require the provision of information or explanation and to require attendance at a meeting; and the auditor’s right to recover reasonable expenses in relation to proceedings for an offence under clause 22. That will be allowed only where the offence is committed by the chairman or the proper officer of the district.
Amendments 36 and 43 exclude the chairman of a parish meeting from a duty to supply to all local government electors a copy of a report in the public interest or a written recommendation, as that would clearly be disproportionately onerous and costly. That is again consistent with the Audit Commission Act 1998. Local government electors in a parish meeting will be able to access a report in the public interest or a written recommendation under clause 24.
Amendments 34, 37 and 40 are tidying amendments. Amendment 37 removes provision that is redundant in the light of the new default that the functions of a
Andy Sawford: We broadly support the amendments. They seem to us to make an important distinction between a parish meeting and how it functions, and a parish council. Of course, we are talking about a very large sector where authorities can range enormously in type. There are larger town councils in places such as Weston-super-Mare or Ventnor and other areas with large populations and substantial budgets, which provide significant services. There are also areas where local authorities struggle to fill the number of places on the parish council or where the parish councils are not elected. Sometimes they operate as a parish meeting rather than a parish council. As I understand it—if I am wrong the Minister will tell me—that is usually connected to the size of the population served by the parish meeting and often indicates that it serves a very small area, sometimes even a hamlet or a small group of hamlets or dispersed properties.
I have a number of questions that I hope that the Minister can answer. I do not intend to encourage my hon. Friends to oppose these changes, but I want to understand these points. Do the changes affect the powers of a chair of a parish meeting in any other way? They are set out in relation to audit and other matters that are addressed in the Bill, particularly local audit, but do any unintended consequences flow from the provision on the governance of parish meetings that would require further consultation, perhaps with the National Association of Local Councils? I ask that partly because I have asked NALC for its view on these changes, and frankly it has not been able to put forward a particularly strong view, other than to say that it is broadly supportive.
As is often the case with such changes, the devil is in the detail. I would like the Minister’s assurance that he and his officials have considered the matter, that these changes will be specifically limited and can only be interpreted, for example, under other legal processes, as relating to the process of audit, rather than the general powers of chairs of parish meetings. What assessment has the Minister made specifically of the number of parish meetings that will be caught by the £25,000 threshold that we see in the Bill? Given that parish meetings often cover very small areas, I expect very few parish meetings would be caught by the threshold, but I would be grateful if the Minister indicated that to us.
Of course, we support the Minister’s sentiment that this measure is not disproportionately onerous. He is right to say that parish meetings should still be covered by clause 24, but will he say how—this is a matter we will look at more broadly in relation to smaller authorities in the Bill—in circumstances where a parish meeting is not required to have an audit because, as in most cases, it will be under the £25,000 threshold, it can meet the expectations on the right of electors the clause places on it? The Minister said that local government electors
Brandon Lewis: In the small authorities, a balance needs to be found between electors and parish members being able to go along and ask questions and not putting too onerous a regime on small authorities that cannot cope with audit issues. Small authorities will be required to appoint an auditor or have an auditor appointed on their behalf by a sector-led body to undertake any challenge work, such as responding to elector questions and objections to items of accounts. That is covered.
There should not be any unintended consequences because what we are doing is consistent with existing legislation. We are confident about that. Regarding the de minimis number the hon. Gentleman mentioned, there are no data on the number of parish meetings that will be affected, but I agree that it is likely to be few. We must get the context right regarding what it is appropriate for an authority to deal with in terms of regulation, and we think that that is well covered here.
‘30 A Local Enterprise Partnership.’.
May I say what a pleasure it is to serve under your chairmanship, Mr Weir? The amendment would add local enterprise partnerships to the list of relevant authorities in schedule 2. To start analysing the Government’s position on this, I thought it would be useful to look at what the Department for Communities and Local Government website says, so, like all good researchers, I started there. It says that LEPs decide what the priority should be for investment in roads, buildings and facilities for the area, that there are 39 of them across England, and that is pretty much it, so actually, that was not as helpful as I thought it might be.
In fact, a number of changes have been made to LEPs that will greatly expand their role. From 2014 onwards, in addition to driving local economic growth, they will be tasked with: developing investment strategies for European structural funds; looking after skills for employment; leading on community-led local development; taking on board economic and social inclusion; looking at environment and climate change issues; taking forward social innovation, ICT and digital inclusion; and tackling youth unemployment—just a small set of additions, we might conclude.
We might have thought that extending audit to LEPs would be uppermost in the Government’s mind, especially as recent publications, such as excellent one produced by the Smith Institute, identified real issues with LEPs’ current governance, capacity, resources, business
That issue was taken up recently by the all-party group on local growth, local enterprise partnerships and enterprise zones. It produced a very helpful report on the subject; I have a copy of it, if any members of the Committee want to see it. In the report, it noted:
“Since their establishment three years ago, and particularly following the publication of Lord Heseltine’s report “No Stone Unturned”, the remit of LEPs has expanded dramatically and the roles and responsibilities of LEP boards have changed: whilst LEPs have generally welcomed this increase in responsibility, powers and funding, it is fair to say that this has brought about a number of challenges at both local and national level.”
That analysis was made by two Conservative MPs, the hon. Members for Halesowen and Rowley Regis, and for Gosport (Caroline Dinenage). In the report, they go on to identify a number of challenges that LEPs face. First, there is the need to build capacity in order to carry out place-based economic appraisals. Secondly, they point out that the Government need to add to the single local growth fund at each spending round and that funding streams outside of that fund should conform to similar time scales, assessment criteria and reporting requirements. Thirdly, they said that LEPs should put in place light-touch formal arrangements to ensure transparency, with an emphasis on local accountability, although they do not say to whom LEPs should be accountable. They also say that the Government should ensure that the reporting and compliance requirements that are placed on LEPs are minimal, and that they should consider whether LEPs’ accountable body arrangements are adequate for their new responsibilities. That is precisely the issue that we are considering today, and it was identified by people who had carried out a pretty in-depth review of the operation of LEPs.
I could go on to list a number of additional challenges that were identified in the report, but instead I will recommend to the Minister that he reads it himself. Nevertheless, the picture that is emerging is of 39 organisations across the country that are receiving public money, their range of responsibilities is being expanded, yet seemingly that is often happening without their having the capacity to take on those new responsibilities. Furthermore, they are being advised to be light-touch in their formal arrangements, with minimal reporting. Indeed, we are not even sure whether the accountable body arrangements are adequate for the new responsibilities. So there are additional responsibilities, light-touch reporting and no audit whatsoever.
Lest we think that that is not important, I remind the Committee that LEPs are receiving, or are due to receive, an increase in the amount of public money that they are being given. We know that money from central Government
James Morris (Halesowen and Rowley Regis) (Con): I am glad that the hon. Lady has quoted the report by the all-party group on local growth, local enterprise partnerships and enterprise zones, of which I am a co-chair. Surely she is not right to say that LEPs are “not accountable to anyone”—I think that is what she just said. Having representatives of local authorities on LEP boards is clearly a process of direct democratic accountability.
Roberta Blackman-Woods: I am grateful to the hon. Gentleman for making that point, because it will allow us to have a brief discussion about how inadequate such reporting may turn out to be. One thing that is not taken on board is the complexity of the arrangements that now underpin LEPs—their wide range of responsibilities and the sometimes complicated roles that people play within them. That is not captured by any reporting or monitoring that I have seen. His own report makes it very clear that we need to enhance the monitoring and audit of LEPs.
James Morris: The hon. Lady said that LEPs are “not accountable to anyone”. That is clearly not true in the sense that representatives of local authorities sit on them, which leads to direct democratic local accountability, irrespective of her broader point.
Roberta Blackman-Woods: To be frank, the hon. Gentleman is in danger of going down the route of semantics. LEPs are a separate entity, and my point is that as such, they are not subject to audit in and of themselves, which seems a huge omission, given the amount of public money that will now be channelled through them. I have made the clear point, which he identified in his own report, that the audit arrangements now in place are not adequate.
A question therefore arises for the Minister about the DCLG’s thinking about how LEPs should be audited. Where does he think audit arrangements lie, and are they adequate? In addition to monitoring how money is spent, we must ask whether it is value for money and, critically, what the community will get for the money spent: what are the outputs and how is the success of LEPs to be judged? I look forward to hearing the Minister’s response to that fair set of questions.
Dr Alan Whitehead (Southampton, Test) (Lab): I will briefly draw the Committee’s attention to a previous report by the all-party group on local growth, local enterprise partnerships and enterprise zones, published in September 2012 and entitled, “Where next for LEPs?” The report said:
“Participants identified some public agencies as being well aligned with LEPs’ objectives…Participants recognised that LEPs are increasingly being called upon to act as commissioners for a number of funding streams.”
I was interested in that report, because it seemed to set out pretty straightforwardly the position of LEPs. I was pleased to see that the report was endorsed by the then chair of the all-party group, the MP for Yarmouth. I do not know what happened to him subsequently—
I commend the Minister for recognising what important public bodies LEPs are. Will he reflect on the thrust of that report and the extent to which those public bodies ought to be included in the schedule?
Chris Williamson (Derby North) (Lab): There has been either an anomaly or an omission from the Bill. I hope that it is the latter rather than the former. If it is the latter, I hope that the Minister will accept the amendment tabled by my hon. Friend the Member for City of Durham, because it makes admirable sense to do so.
As my hon. Friend has set out, local enterprise partnerships are becoming increasingly important in spending public money in areas around the country. The Chief Secretary to the Treasury said in a speech in June this year:
My hon. Friend the Member for City of Durham made the point—this is set out in the document—that funding that would have previously been directed to
It seems odd to create bodies such as LEPs, to make them responsible for, according to the Chief Secretary, £20 billion by 2020, and to be top-slicing funding that previously went to local authorities, which would have been subject to audit arrangements. We somehow have a laissez-faire approach—that does not matter, and the private sector is involved so, somehow, it does not need to be subject to the same level of scrutiny as public bodies. That does not stack up.
I shall refer to the document referred to by my hon. Friend—the report of the all-party group on local growth, local enterprise partnerships and enterprise zones, which is co-chaired by a member of the Committee, the hon. Member for Halesowen and Rowley Regis.
Andy Sawford: By way of a declaration of interest, I am similarly compromised by those past reports, because I am an officer of the all-party group. I shall pursue a position consistent with the group’s in today’s debate.
If we are to build that political consensus, the amendment is important. I hope therefore that the hon. Member for Halesowen and Rowley Regis will be voting for the amendment—if we come to a Division—or at least speaking in favour of it.
Roberta Blackman-Woods: My hon. Friend is making an excellent case. Are we not making the point that there is no way of telling whether the LEPs are fit for purpose, because there is no overview of their operation or proper scrutiny of it?
Chris Williamson: My hon. Friend hits the nail smack bang on the head—to use a local colloquialism from Derby again. I am not sure if “smack bang on the head” is a parliamentary term, but that is what she has done.
Clearly, if LEPs are to have an increasingly important role and if we are to achieve that political consensus so craved by the hon. Member for Halesowen and Rowley
Increased accountability surely entails proper auditing arrangements, so I hope that the Minister will agree to the amendment in his response, not least because of the Local Growth Committee, which was established and launched with great fanfare by the Deputy Prime Minister in the summer. It will be deputy chaired by the Chancellor of the Exchequer and attended by the Business, Education, Communities and Local Government, Energy and Transport Secretaries and the Chief Secretary to the Treasury, and key in its agenda will be the allocation of the regional growth fund and the implementation of the single local growth fund.
In oversight by that highly important, big-hitting Committee, attended by all those Secretaries of State and chaired by no less than the Deputy Prime Minister, surely they would demand that the LEPs are subject to proper auditing arrangements. I would venture to suggest that nothing less will do. I therefore hope that the Minister will not indulge in double standards on LEPs when he responds. I hope that he will listen to the counsel of the hon. Member for Halesowen and Rowley Regis and will acknowledge the important role of the LEPs in future and that with increased funding comes increased accountability. To achieve that accountability, however, there must be proper auditing arrangements. The amendment provides for that, so I support it and hope that the Minister will as well.
Brandon Lewis: I should hold my hands up to my past interest, as quite rightly pointed out by the hon. Member for Southampton, Test, as the original chairman of the all-party parliamentary group on local growth, local enterprise partnerships and enterprise zones, which looked at LEPs. It was slightly surreal that the group’s report was published some three working days before I was promoted. By the time of the launch event, I was standing there as the Minister to welcome a report from a group that I had chaired. The hon. Gentleman is right that there are some important issues related to local enterprise partnerships. I am fortunate that Great Yarmouth—there is a Yarmouth nearer the constituency of the hon. Member for Southampton, Test that people may confuse with Great Yarmouth—is well represented by the New Anglia LEP. It has done a good job of making progress from where we used to be under the dreaded old regional development agency system, which simply did not provide anything for our area. Having a local, driven economic base has made a lot more sense and it binds Norfolk and Suffolk together into a sensible and cohesive economic unit. I will not tempt your patience, Mr Weir, by getting drawn into discussing the merits of LEPs more generally and will stick to amendment 77.
Some of our discussion, in particular the comments of the hon. Member for Derby North, highlights an inherent difference in ideology—to use that time-worn phrase—between the two sides of the Committee. I understand his passion for accountability, but local growth is important. The country can benefit from local
Andy Sawford: Further to the excellent case set out by my hon. Friend the Member for Derby North, if the Minister will not accept the case made by my hon. Friend the Member for City of Durham that LEPs should be accountable as public bodies, is he proposing that they should be audited as private bodies under the Companies Act 2006?
Brandon Lewis: If the hon. Gentleman will bear with me, I am about to explain how LEPs are accountable. My hon. Friend the Member for Halesowen and Rowley Regis has already made the point that they have involvement from democratically elected and accountable members, but there is another aspect that leads me directly to amendment 77.
Amendment 77 seeks to bring local enterprise partnerships within the audit requirements of the Bill. As I have outlined already, that is not the right approach, nor is it necessary for LEPs to be brought under this audit regime. Local enterprise partnerships are voluntary strategic partnerships of local authorities and business leaders. They are not public bodies and neither do they have any statutory basis.
Chris Williamson: I accept the Minister’s point about elected members sitting on the LEPs, but does he see the difference between elected lay members and professional auditors? Professional auditors obviously assist the elected members in ensuring proper accountability and proper auditing arrangements. I was an elected member—I think that the Minister was before he was elected to this place—and I would not have felt qualified to provide scrutiny to the extent that auditors can. It is therefore unreasonable to expect lay members to fulfil the role of auditor. Surely the job should be undertaken by professional auditors.
Brandon Lewis: I hope I will be able to convince the hon. Gentleman. If he looks at the Bill as structured, he will see that issue is dealt with. Public funds that are received by and worked on by the LEPs are audited. A lead local authority is accountable for ensuring that public funds are spent with regularity, propriety and value for money. That authority’s external auditor will assess that, as part of the audit. That is why I hope the amendment will be withdrawn.
Roberta Blackman-Woods: I am sure the Committee will hardly be surprised to note that I do not find the Minister’s response entirely satisfactory, alas. He appears to be saying that the difference in ideology comes down to the Opposition thinking that it is important that there are clear, direct arrangements in place for making
Brandon Lewis: The point that I am making is that they are audited anyway, through the way the Bill is structured. The Opposition are looking to create another level of bureaucracy by creating another level of audit on top of what is already there for the local authorities whose money is funnelled through. So they are audited.
Roberta Blackman-Woods: I appreciate the Minister’s comment. The point we are making is that because of the additional responsibilities that are now being given to LEPS, and because of the complexity of arrangements and roles for particular members that are involved, we have real and genuine concerns that those arrangements, whether they are effective or not and whether they are spending money in the best way at the moment, are being captured adequately by the current audit procedures.
It is clearly envisaged that the Secretary of State may be required to consider whether a body not previously on the register is exercising functions of a public nature and therefore should be added to the register. Does my hon. Friend think that LEPs exercise functions of a public nature or that they are defined in a different way?
Roberta Blackman-Woods: My hon. Friend makes an excellent point. I want to reassure him that I love speculating on schedule 2 and what the Secretary of State might do with it. We are suggesting that he might like to exercise his authority under schedule 2 and add LEPs to the list of bodies to be considered.
We have indicated a whole set of issues that are identified in the report of the APG. I urge the Minister to go away and think through carefully some of the detailed issues that we have raised this afternoon. I hope he will see the error of his ways and perhaps bring back something for us to look at on Report. I beg to ask leave to withdraw the amendment.
The amendments seek to address some of the issues around the financial year. Amendment 79 would delete paragraph (a). The power of the Secretary of State to make regulations throughout the Bill is extensive. We have serious concerns about the number of issues that the Secretary of State has taken away for his determination. In this case it is perhaps slightly more understandable than where he seeks to redefine the English language at later points in the Bill. Here he only seeks to vary the financial year for local authorities.
Relevant authorities should assume that the financial year that they operate on will be determined by statute. That is set out in clause 4 quite clearly to mean the period of 12 months ending 31 March, which is the financial year that most authorities covered by the Bill will be used to. Alternatively it should be determined by custom and precedent. Extraordinary circumstances may mean that the financial year needs to change for a group of authorities. There might be a major structural change in public service organisation where a group of authorities were changed by a subsequent piece of legislation or were wound up as bodies. The Government are wont to do that from time to time as they are doing with the Audit Commission. That subsequent primary legislation would in itself set out a new financial year.
We are concerned about the Secretary of State taking it upon himself to vary at a stroke the financial year that the relevant authorities are operating under. I hope the Minister can give us a sound explanation of why that power is needed? Have his right hon. Friend the Secretary of State or the officials thought of an eventuality that is not immediately obvious to me? Otherwise we will oppose this extraordinary power for the Secretary of State.
We tabled amendment 78 to make the point that any body affected by these changes would expect there to be a proper Government consultation. Again, it speaks to our concern that so many of the details in the Bill are left to regulations and the vagaries of the Secretary of State himself. They could quite clearly be stated in the Bill. If the Minister could assure us on those points we would be grateful. Perhaps he might just agree to support the amendment and omit paragraph (a).
Brandon Lewis: Clause 3 sets out the general duties of non-health relevant authorities to maintain accounting records and prepare annual statements of accounts. Clause 31 provides a power by regulation to fill out these statutory requirements in accounts and audit regulations. To assist understanding of the legislation, subsection (8) in clause 3 provides a signpost to the power in clause 31, so that readers are aware that additional requirements may be imposed. This is perhaps not strictly necessary, but I hope the Committee will agree that it is helpful.
The effect of amendment 78 would be to add a requirement to consult to subsection (8). This is completely unnecessary, because a duty to consult before making accounts and audit regulations is already included in subsection (3) of clause 31. So, the amendment would merely clutter the signpost with unnecessary information.
Turning to amendment 79, one of the purposes of clause 3 is to specify the financial year for non-health relevant authorities. It does this in subsection (4), where the period of 12 months ending with 31 March is specified. Under subsection (3) authorities are required to prepare a statement of accounts for each financial year. But subsection (5)(a) allows the Secretary of State to alter this period by regulations. Subsection (6) allows these regulations to make consequential amendments or modifications to the Act or provisions made under it, and under subsection (7) the regulations can apply to all authorities or particular authorities.
Amendment 79 would remove the power to alter the financial year, removing a flexibility that has existed for many years in local government audit legislation. Under current legislation, the financial year can be altered by direction of the Secretary of State, but in preparing the Bill we judged it more appropriate that such a significant change should be made by regulations subject to negative resolution procedure.
Andy Sawford: Given that it is set out in current law, if the Government consider it important to continue to have the provision, which we consider to be an overreach by the Secretary of State, can the Minister give us an example of when the power has been used in the past? That would clearly be instructive as to why it is important now.
Brandon Lewis: That is a fair point. Nobody is suggesting that the power has been used in any great way, but it does give the flexibility for authorities to use it if necessary. As I think the hon. Gentleman said in his opening remarks, some authorities might well need a change of year if there is a change of authorities and one is taking over from the other. The power has not been used often, and we do not expect that to change. I see no reason why it would be any different in future. However, it has an important function. If an existing body is wound up or absorbed into another body on a date other than 31 March, the body will need to produce accounts for its final period, or a body may be established on a date other than 1 April, and accounts will be needed for its initial period to 31 March.
Andy Sawford: Can the Minister describe to us circumstances in which any relevant authority would be wound up or have its structure changed in such a way that it would not need to provide accounts for a period, or that the year over which it functions would need to vary, without requiring primary or indeed secondary legislation? I am thinking, for example, of a move to create a unitary local government. That would be subject to procedures in this House. Therefore, through those, any sensible changes around the financial year could be made to deal with the specific circumstances, rather than giving the Secretary of State a carte blanche power. In terms of how the Minister frames it, my clear reading is that power is given to the Secretary of State, rather than flexibility to the local authority.
Brandon Lewis: The flexibility is there for local authorities should they need it, and the Secretary of State can facilitate it. As I said, any such significant change made by regulations would be subject to the negative procedure. Often, relevant legislation will make the necessary provision
Dr Whitehead: I wanted to ask the Minister, but clearly I must ask my hon. Friend, whether he is fully aware that the clause is in fact is a smack bang on the head Henry VIII clause, a type of provision which the Lord Chief Justice said fairly recently should be confined to the dustbin of history. Does my hon. Friend agree with the Lord Chief Justice and that the clause might fit that description, or does he think that the Minister is happy to continue the tradition of Henry VIII clauses in Bills for which he is responsible? He will be aware, of course, that they related to the king’s prerogative to call his particular Acts equivalent in value to Acts of Parliament, bearing in mind that Henry VIII was a particularly oppressive tyrant.
Andy Sawford: I appreciated the intervention, although I am sure that hon. Members have noted your advice to us, Mr Weir. My hon. Friend is absolutely right that this is a classic example of a Henry VIII clause. There are so many in the Bill. We became aware of the Secretary of State’s predilection for taking extraordinary powers to himself in the Localism Act 2011. The great contradiction of the Localism Act was that it took a huge number of powers to the great centraliser, the Secretary of State. There are other such examples. Later in the Bill, the Secretary of State will take the power to redefine independence. This will worry democrats and campaigners throughout the ages and will send shock waves around the world.
If the Minister is not persuaded, I urge him to read the excellent piece by Henry Porter called “A new politics: Restrict the use of secondary legislation”, which I would be happy to share with him. It sets out the rationale for restoring power and respect to MPs by ending the overuse of secondary legislation, and particularly the negative procedure. He describes it as
Brandon Lewis: The hon. Gentleman and I had a conversation at the Dispatch Box last week about combined authorities. We said that we would work with him and the team of the right hon. Member for Leeds Central (Hilary Benn) on having one authority for Leeds. That is a good example of why the way things are structured is important. If a combined authority is set up by order, not primary legislation, the Government may not be
Andy Sawford: It was interesting to hear an example. It is a shame that it had to be dragged out of the Minister, because it would have been instructive to hear it earlier, so that we could understand his intentions. I would welcome a further intervention if he could clarify whether changes to a combined authority would themselves require secondary legislation in this House.
Brandon Lewis: To clarify, combined authorities are set up by order, not primary legislation, so the Government do not necessarily have the ability to make provision about the financial year. That is what the clause would allow.
Andy Sawford: But it could. The point is that if it was necessary for the Secretary of State—or other Secretaries of State, in relation to other relevant authorities—to change provisions relating to a financial year, they could do that at a subsequent time, rather than the Government taking yet another of these sweeping Henry VIII powers.
Roberta Blackman-Woods: My hon. Friend raises a really important point about how these sweeping powers are debated in Parliament. Is not the issue for the Minister that perhaps the Government should not use the negative procedure to the extent that they do? For example, there have been sweeping changes to permit development rights, with no opportunity for discussion or scrutiny in Parliament. That is one of the issues that needs to be addressed.
Andy Sawford: I thank my hon. Friend. She has been actively following the changes to planning law on the high street, and spoke about them only recently in a debate in the Chamber that I heard. She is quite right. There is a significant loss of accountability, both to this place and to the public, when the Government take these Henry VIII powers. The Government, and particularly the Secretary of State, often rhetorically masquerade as the champion of the public, when the reality is often so different. The armchair auditors policy was readily ditched earlier today by the Minister when it became inconvenient; the same has happened to the commitment to localism, the support for LEPs, and the channelling of funding to LEPs. This is clearly a centralising clause. It is unnecessary, and it takes power to the Secretary of State, away from Parliament, and away from the public.
Dr Whitehead: Would my hon. Friend care to emphasise his point by reading into the record the exact wording of subsection 5(b)? If he would not, perhaps I could. It says that the Secretary of state may
Andy Sawford: That is an excellent example. The Bill has some welcome detail on how some aspects of the new arrangements will operate. We welcome that, and we broadly support those parts of the Bill. We do not want the Bill to be so prescriptive as to rule out local choice. We have had the debate on opt-ins and opt-outs. It is important, however, that there is clarity on how the arrangements will apply. Wherever clarity has been provided in the Bill—my hon. Friend has shown us an excellent example—we find a clause snuck in that empowers the Secretary of State to vary any of that clarity at a stroke. My hon. Friend is absolutely right.
I draw the attention of hon. Members to other powers that the Secretary of State is taking. He will tell us who a “close friend” is, and I look forward to the debate on the definition of that. We will, after all, spend a great deal of time together over the next few weeks, and I wonder whether we might become close friends. We might find that under regulations set out by the Secretary of State in years to come, we are defined in law as close friends, when we had understood that not to be the case from the wording in the Bill.
Brandon Lewis: Obviously, I hope that during the passage of the Bill we will become close friends, if we have not already reached that point. I lightly point out that under the Bill, the power to change the financial year would be in regulations, and so would be scrutinised by Parliament.
Andy Sawford: We may think that now, but in years to come, the Secretary of State may vary the financial year through an order or regulations, and that is the point. While there may be some notional fig leaf of future scrutiny through parliamentary procedures, we all know that the reality is—this is the whole point about Henry VIII clauses—that the change will sail through Parliament. I would be surprised if the measures even came to our attention.
What is most likely is that the Secretary of State will use the powers in future years to effect significant change to relevant authorities and to the public they serve, without us ever having debated or envisaged those circumstances. That will just be allowed to happen and, for every one of those provisions in the Bill, that is wrong, except where the Minister can outline the
We have tested the principle, and I hope that the Minister has understood our concerns. As we proceed to debate the Government’s creation of these Henry VIII powers in Committee and on Report, I hope that he will seriously consider whether the powers are needed. I beg to ask leave to withdraw the amendment.
Andy Sawford: I want to speak—in a clause stand part debate, for the first time—about our concerns about the fact that local health bodies are treated differently throughout the Bill. As we rehearsed this morning, we would not have found ourselves in this situation, having prematurely abolished a body without consulting and setting out properly how we would make future arrangements. We certainly would not have produced a Bill with such holes in it. Nevertheless, we support the Government’s intention in some of the detail. No doubt the Minister’s officials have worked to ensure standards of probity, independence, value for money and the effective and efficient use of public money that we seek through proper audit arrangements. We would want those to apply to local and other relevant authorities, as well as to health authorities.
Will the Minister explain why health authorities are specifically exempted from the clause? Lord True and others have raised the same issue in the other place. Although I am certainly receiving an education in how technical and complex legislation can be, I am sure that the Minister will understand that on first reading, it is implicit in clause 3 that a health service body does not need to keep adequate accounting records. The clause rightly states that adequate accounting records must
I understand why provisions are made for health authorities, and that they are different because of prior legislation. I understand that there are Acts that govern aspects of the audit and structural arrangements of health service bodies—the National Health Service Act 2006, for example—but when it comes to points of principle rather than points of practical difference, such as around the financial year, why are health bodies treated so differently? Will the Minister reassure us and comment on the points of difference?
So clinical commissioning groups will operate through an audit committee, rather than through an independent audit panel. Many have been critical of independent audit panels. For example, the County Councils Network has questioned the use of such panels, given that, in its view, it has effective audit panels, and given that 90% of local authorities have audit panels. Of course, we have an amendment on the subject later in the Bill, and we hope that the Minister will support our move to ensure that all councils have audit panels. Given that those audit panels operate, councils are asking why they need the bureaucracy and duplication of an independent panel, but we will have that debate in due course.
Is an independent panel necessary to introduce the required level of independence? We are all concerned about that, and I am open to persuasion. There are many practical questions about how independent panels would operate, but I understand that the Government’s intention is that an independent panel will operate with a measure of independence. We wait to hear what the Secretary of State will tell us about the meaning of independence, but the point is that elected members of a local authority would not sit as the independent panel, conduct the procurement process, or judge who was the best auditor to meet the requirements of the local authority and indeed the Act. They would make recommendations back to the council, and in so doing put some distance between the process of appointing the auditor and considering who will best provide the audit services; that will give some assurance to the public. We understand the Government’s intention, but why would they not replicate the arrangements for health service bodies? Why specifically exempt such bodies from clause 3?
There are other significant omissions. The CCGs are subject to some of the provisions of the Act, but will report in the first instance to the NHS Commissioning Board. Some local authorities are not automatically accountable to the Secretary of State for Communities and Local Government. The Bill enables the Government to abolish the Audit Commission, which covered a broad range of authorities, so we want to understand why CCGs are provided for separately.
Presumably that was the subject of considerable discussion between Ministers and officials in the Minister’s Department and the Department of Health, so we want to understand how the Minister reached his conclusion and what the compelling case is for the Committee to support the whole range of significant differences in how health bodies are treated. I will gladly provide a copy of that document to the Minister, although he will find it in the evidence to the ad hoc Committee that considered the draft Bill.
From a policy point of view, given that this is the first significant example of health service bodies being exempted, will the Minister explain why that approach has been taken, and elaborate on the point that this is not just about different practical arrangements, such as different financial years in CCGs or even different accounting,
Dr Whitehead: The Minister might also reflect on my understanding of how the Bill stands. As far as the accounting records of a relevant authority are concerned, the Minister can, by non-statutory legislative provision, simply not require relevant authorities to keep sufficient records. Under subsection (5)(b), the Minister can determine by fiat that that requirement does not apply, so those adequate accounting records can simply be wiped out. He cannot do that for health service bodies, because of the provisions that cover them. I do not advocate putting additional Henry VIII clauses in legislation, but there is no such clause for health authorities. Such an omission could be rectified either by removing the Henry VIII clause in clause 3, or by introducing a further Henry VIII clause to apply to such authorities. I am not sure which is preferable, but perhaps it should be done for the sake of consistency.
Andy Sawford: I invite my hon. Friend to speculate on whether the Secretary of State for Health takes a different view on how appropriate it would be to take such significant powers to himself. Perhaps the Secretary of State did not seek such powers, but it would be welcome if the Minister could assure us of that.
Dr Whitehead: My hon. Friend’s makes an interesting point. We might have a constitutional hero in shape of the Health Secretary because he might have demanded that such clauses that would indirectly or otherwise affect his Department are not put in legislation. If he has done that, we should know about it, but I fear we will not know, given the rather obfuscatory way in which the Bill has been drafted.
Brandon Lewis: The clause refers to accounts, not audit itself. The NHS has a slightly different structure. The base requirement on an authority to keep accounts does not apply to health service bodies because their accounting requirements are set out in the National Health Service Act 2006, as amended by the Health and Social Care Act 2012. Health bodies’ governance agreements are therefore different from those of local authorities. For example, they have no political elected members and they have boards that include designated non-executives. The Department of Health has provided public consultation on the definition of independence, and I am happy to share that proposed definition with the Committee.
Chris Williamson: For the record, it would be useful to clear up a point that has been made to me. A number of cynical observers have speculated that the exemption of health service bodies from the clause is something to do with the NHS Act and the privatisation of up to 49% of the NHS. It would be helpful if the Minister would allay those concerns and say that this is nothing to do with giving the private sector another free run without subjecting it to the same scrutiny as the public sector.
We have taken the opportunity to move away from the outdated formulation of the Audit Commission Act 1998, under which accounts must be made up each year to 31 March. That expression itself harks back to days when accounts were kept in bound ledgers. By the year end, the various accounts were ruled off and totalled, and the final fund statements of balance sheets were written into the very same book. Clause 3 follows a more modern approach, which is in the Companies Act 2006 and charities legislation, by drawing a distinction between the continuing accounting record containing all the day-to-day transactions of the authority and the annual published statement of accounts. The clause sets out basic requirements of the accounting records and the statement of accounts and defines the financial year end as 31 March. Subsection (8) flags up the fact that more detailed provision will be made regarding accounts and audit regulations under clause 31.
Powers are given to amend the period of the financial year and other requirements of the clause by regulation. The power to amend the year-end date exists in current legislation and is exercisable by direction. We thought that it was more appropriate to bring the power under the greater parliamentary scrutiny provided by regulations and to provide for an explicit power to make consequential changes. For example, there may be a need to change the publication dates for a statement of accounts prepared for a period ending in a date other than 31 March.
The power to amend or modify the application of other requirements of the clause would allow, in an exceptional case, the duty to prepare a statement of accounts to be lifted. The use of such powers is expected to be rare, but they provide the flexibility to cope with developments affecting relevant authorities.
Andy Sawford: The Minister asks us to place a lot of trust in both the intentions behind the clause and the Secretary of State, whoever that might be—I envisage that he will shortly be my right hon. Friend the Member for Leeds Central (Hilary Benn). The Secretary of State will need to be able to make a good judgment about the appropriate use of these regulations. The Minister says that the power will be used by exception, but it would be helpful if he could give us some examples. Given that the clause, like others, allows the Secretary of State to vary how the Bill applies, we clearly would have expected the Government to have based their approach on some consideration of scenarios that might arise, or that have arisen in the past. We would have expected that to be the stimulus for their approach.
‘and provision made under it’.
Brandon Lewis: The amendments are linked to a wider set of Government amendments that will establish sector-led collective procurement arrangements. They make minor changes to the definition of a local auditor to effect wider provisions. The amendments update subsection (1), which currently requires an authority to be audited by an auditor appointed by the authority. The amendments allow an authority to be audited by either an auditor it has appointed, or one appointed by a sector-led body. Amendment 4 simply removes a cross-reference to schedule 3 that is unnecessary due to amendments 2 and 3; it does not affect schedule 3. Amendment 14 makes a minor drafting change to clause 7 to reflect the fact that that provision is no longer where the term “local auditor” is first defined. These minor drafting amendments are linked to wider proposals on which I think we are in fair agreement.
Andy Sawford: We welcome the changes. The wider point will obviously be scrutinised when we consider new clause 1, but we completely understand why the Government have proposed these tidying-up amendments, which we fully support.
‘(b) by an auditor (a “local auditor”) appointed in accordance with this Act or provision made under it.’.
‘(2A) Subsection (2) applies to a provision of or made under this Act even if it makes specific provision about a smaller authority to which the regulations apply.’.
Brandon Lewis: Clause 5 is an enabling power that allows the Secretary of State to make regulations that provide for the audit of smaller authorities, defined as those with an annual turnover not exceeding £6.5 million.
There are two kinds of provision. First, there are those that will enable the creation of a proportionate, less onerous framework, mirroring the current limited assurance arrangements and in line with the smaller scale of the authorities. Secondly, there are those that will enable a person specified by the Secretary of State to appoint auditors to smaller authorities. The second kind of provision will facilitate the development of a sector-led body, as proposed by the National Association of Local Councils and the Society of Local Council Clerks.
Subsection (2) enables the regulations to disapply or apply with modifications any of the Bill’s provisions in relation to smaller authorities. Subsections (3) to (6) set out the matters that may, in particular, be included in the regulations.
To ensure a proportionate audit regime for smaller authorities, we propose to use regulations to make provision for the eligibility of an auditor of a smaller authority and for the nature of the audit itself. Our intention is that the limited assurance form of audit will be retained and specified in the code of audit practice, which will be produced, following abolition of the Audit Commission, by the National Audit Office. A limited assurance audit is a lighter-touch audit conducted off site and is proportionate to the small amounts of public money that smaller authorities control.
As explained in subsection (6)(a), the regulations may exempt specified types of smaller authorities from external audit. We propose to exempt authorities by reference to their annual turnover and to set that threshold at an annual turnover below £25,000. Subsection (6)(b) explains that regulations may make provision for the circumstances in which such an exemption would not apply. We propose to do that on the basis of risk, such as where a small authority is newly created or where an authority’s auditor has issued a public interest report in the previous financial year. Authorities exempted from external audit will still be required to appoint an auditor to undertake public interest duties.
All smaller authorities will be required to appoint an auditor, or have an auditor appointed on their behalf by the sector-led body, to undertake any challenge work, such as responding to elector questions and objections to items of account.
Provisions relating to a sector-led body are set out in subsections (3) and (4), which explain that regulations may provide for the Secretary of State to specify a
I now turn now to the Government’s amendments on this clause. Hon. Members will be aware that a commitment was made in the other place to bring forward an amendment to make similar provision to enable regulations to allow a sector-led body to appoint auditors to principal authorities. We intend to introduce a new clause to that effect, which we will be debating shortly. As a consequence of the new clause for principal authorities, amendments 5 to 13 make a number of minor changes to provisions for a sector-led body for small authorities. These ensure consistency with the new clause and clarify government powers to make regulations in relation to such a body.
Amendment 5 clarifies that the provision to make modifications to the Bill in regulations under clause 5 in relation to small authorities applies where specific provision about a small authority is already made in the Bill. Amendment 7 mirrors the new clause for principal authorities in allowing regulations to make provision about who may be specified by the Secretary of State as a sector-led body. Amendment 8 updates subsection (3) of clause 5, and provides further detail on the scope of any functions to be given to a sector-led body through regulations. As with the new clause, this includes functions on the appointment of auditors, on the activities of appointed auditors and on the resignation or removal of such auditors. Amendment 9 updates the existing power that enables regulations to give a sector-led body a duty to consult smaller authorities before setting fees. The amended power instead enables regulations to require the body to consult specified persons before exercising specified functions. This will allow, for example, regulations to require the body to consult on proposed auditor appointments as well as on fees. It would also allow regulations to require that audit firms, as well as audited bodies, are appropriately consulted.
Amendment 10 copies across a provision in the new clause for principal authorities, to confirm that regulations may make provision on how an auditor is to be appointed to an authority where a sector-led body is due to, but fails to, make such an appointment. Amendment 11 makes a minor change to the regulation-making power in relation to the procedure through which an authority can opt in or opt out of sector-led arrangements. This ensures that such regulations can make provision as to the role of both individual authorities and the sector-led body itself in relation to this process. Amendment 11 also makes it clear that regulations may impose duties on a smaller authority that has its auditor appointed by a sector-led body. As with principal authorities, this might include a duty to pay the appropriate fee to the sector-led body and to provide information that the body would need to make an appointment.
Amendment 13 replaces the existing power to make provision in regulations on the audit of the accounts of a smaller authority with a power to make provision on the functions of a local auditor in relation to the
Andy Sawford: We broadly support the clause and do not envisage a stand-part debate, unless the Chair thinks it necessary. We also broadly support the amendments, although I do want to test the effect of those amendments, specifically in relation to our amendment 87 but also, more broadly, the cumulative effect of the other arrangements. As the Minister says, we will be having a debate about sector-led procurement, but certainly in relation to new clause 1, I envisage that our focus at that time will be more on principal authorities and therefore this is an opportunity to seek some assurances and clarifications from the Minister about how the Bill will apply to smaller authorities.
The Bill will affect about 9,000 parish and town councils around the country in different ways. There is a three-tier regime. There is an exemption for those with a turnover of under £25,000 a year. There is an intermediate level, which I think the Minister envisages all town and parish councils coming under, but will he confirm that? Does he have any current figures on which town and parish councils will not be considered to be the smaller authorities under £6.5 million? Then there are the larger authorities, with a turnover of more than £6.5 million. It is clearly sensible to make the arrangements for smaller authorities proportionate. We welcome the way in which the Government have sought to do that, which is set out in clauses 5 and 6. When we come to the debate on clause 6 I will have some questions on the qualifying areas.
The Government were encouraged by the Earl of Lytton, the president of the National Association of Local Councils, to set out why the £25,000 threshold was chosen. He made the interesting point in the other place that that is half the salary of a clerk. It is easy to see how a small authority that takes the simple measure of seeking to professionalise their clerk will find itself subject to having to prepare a proper audit, rather than being exempted and being subject to the much lighter touch arrangements that apply to the smaller authorities. Will the Minister explain why the threshold was set at £25,000, rather than £50,000, which might allow a local authority to carry out its core functions? Many parish councils do not provide direct services but do employ a clerk, rent an office and manage small services within villages and small communities. Some councils will be caught by the threshold and will have to take part in the sector-led body, or procure an independent audit. Will the Minister explain how the £25,000 threshold was arrived at? I do not necessarily oppose it. We all want to ensure that public money—even £25,000—is spent well, but I want to know what consideration the Minister has given to why that level is right and who it will capture.
The Minister presumably envisages these to be opt-in arrangements for smaller authorities, and in the spirit of localism, we support them. The amendments will
We had an interesting discussion earlier about joint procurement for principal authorities. Is it the Minister’s intention that NALC will be the co-ordinating body? It seems that it is the principal consultee at the moment, certainly from the Minister’s remarks and the submissions I have received from NALC. Does he envisage that NALC would lead the sector-led body or that some other form of arrangement might emerge?
I know NALC well, and declared an interest this morning as I have worked with it previously on extending the general power of competence and the power of well-being to town and parish councils. It is a light-touch, nimble and effective organisation, but is very small when compared with the Local Government Association in its annual turnover. If NALC is to lead the body, does the Minister consider that it would have the capacity and expertise to take on that leadership role? If not, who else is he looking at to develop that sector leadership?
Specifically in relation to smaller authorities, will the Minister comment on the transfer of the Audit Commission’s functions in relation to any outstanding contracts between 2015 and 2017 that relate to town and parish councils? That brings us back to my earlier question about which authorities would be captured, as the significance of those contracts relates to the size of town and parish councils. There will be some that are currently provided for by the contracts that have been let in the transitional arrangements. If contracts are transferred from the Audit Commission to the sector-led body for principal authorities, which was certainly the tenor of our conversation earlier and is the basis upon which the Minister is consulting the Local Government Association, for example—indeed, he has said that he does not want to set the details out in the Bill because the matter needs further work and there may need to be regulations—will there be separate arrangements for contracts to be transferred to the sector-led body for smaller authorities?
In either event, we need to consider the implications. For example, if the contracts are to be transferred to the joint procurement body for principal authorities, it could be done as part of arrangements in which the
Amendment 87 is designed to test the intention behind the clause, and we have an open mind. As I understand it, the issue here is a letter of objection from a local elector needing a response—if I have grasped the wrong end of the stick, the Minister will tell me. We are concerned about the cost implications of meeting that new obligation for very small councils. In some cases they have very limited resources—where their resources are not above £25,000 threshold for auditing, for example. It may be that some kind of insurance could be provided at a reasonable cost for all those smaller authorities whose resources are not above the audit threshold but which are, rightly, required to respond to electors about their accounts. Alternatively, perhaps some kind of scale of charges could apply according to the turnover of those authorities. I will be grateful for an assurance from the Minister that that has either been considered or will be in future dialogue with NALC and other representatives of the sector.
As Baroness Hanham said in the other place, in the command paper of 2012 that accompanied the draft Bill we committed to review the £25,000 threshold with a view to whether we potentially need to raise it in future. That was partly for the reasons the hon. Member for Corby laid out, and I understand the points he has raised. It is right that the threshold can be reviewed, and we are happy to make that commitment. There are a number of parish councils in my constituency, all of which work—as I am sure the hon. Gentleman knows that many do—on that much smaller scale where a parish clerk may get only a few thousand pounds. Where to draw the line is an issue, and that is why we think it is right that it is reviewed.
To deal with the hon. Gentleman’s query about the numbers, setting a threshold at £25,000 would remove about 6,400 or 64% of smaller authorities from the requirement to have an external audit. For hon. Members who have rightly raised issues about ensuring that public money is well covered and audited, it is worth noting that such authorities are responsible for just 7% of the total money within the smaller authority sector. On his query about smaller authorities, all parish and town councils are defined as smaller authorities—in other words, all those under £6.5 million.
I will turn to limits and insurance in a moment. In relation to financial safeguards for parish and town councils, we will give auditors the discretion not to consider an objection if they think it is frivolous and
We are working with the National Association of Local Councils, but it is still possible for the Secretary of State to appoint one sector-led body, whether it is the Local Government Association or any other single sector-led body to administer both parts, but the contracts are different, because smaller authorities obviously have less onerous systems, as has been outlined.
Amendment 87 would remove subsection (4)(c), which explains that regulations for smaller authorities may include provision for them to pay into a fund to cover auditors’ costs in specified circumstances. The provision has been included at the request of the smaller authorities sector. The proposed fund would be administered by the sector-led body, and would be available to authorities that opted into its appointment regime. The provision is necessary as many parishes and other smaller authorities cannot currently make such payments, because they are not covered by the general power of competence. We understand that the purpose of such a fund could be to indemnify auditors against costs incurred in legal proceedings relating to the exercise of their statutory powers. It would be for the sector-led body to choose whether to create such a fund. We will consult in 2014 on any draft regulations about the fund, and those regulations will be subject to the affirmative procedure. With those reassurances, I hope that hon. Gentleman will not press amendment 87.
Andy Sawford: I thank the Minister for his assurances. It seems that further work is still needed, but the spirit clearly exists to do it in partnership with the sector, which he knows well and to which he is absolutely committed. Given our earlier debate, Opposition Members particularly welcome the fact that the regulations will be subject to the affirmative procedure. In considering the Bill’s consistency, we urge him to consider whether other regulations might also be made subject to the affirmative procedure.
‘(aa) make provision about the persons that may be specified by the Secretary of State;’.
‘(d) confer functions on a specified person, including in relation to—
(i) the appointment of local auditors under the regulations,
(ii) the activities of such auditors, and
(iii) the resignation or removal from office of such auditors;’.
‘such persons as are specified in the regulations before exercising specified functions.’.
‘(f) make provision for the appointment of a local auditor in relation to the accounts of a smaller authority to which arrangements within paragraph (a) apply where the specified person does not make an appointment under the regulations (and in particular for such an appointment to be made by the authority or the Secretary of State).’.
‘(b) make provision about the procedures to be followed in relation to opting into or out of those arrangements;
(c) impose duties on smaller authorities to which those arrangements apply, including duties as to—
(i) the payment of fees to a specified person, and
(ii) the provision of information to a specified person;
(d) make provision for the making of payments, in specified circumstances and by the smaller authorities to which those arrangements apply, to a fund of specified kind for the purposes of meeting local auditors’ costs of a specified kind.
(4A) Provision made by regulations under subsection (1) by virtue of subsection (4)(c)(i) may, in particular—
(a) provide for fees to be paid in accordance with a scale or scales of fees determined by a specified person, and
(b) provide for the payment in specified circumstances of a larger or smaller fee than is set out in the appropriate scale.’.
‘functions of a local auditor in relation to the accounts of a smaller authority’.—(Brandon Lewis.)
‘(6) The value for which an authority is categorised shall be reviewed three years after this Bill receives Royal Assent and every five years following.
(7) The Secretary of State shall publish the conclusions of reviews undertaken in accordance with subsection (6).’.
‘(6) The Secretary of State will give one year’s notice to authorities before changes to provision made by regulations under subsection (4).’.
The reason for changing “year” to “previous three years” is to pick up the debate that took place in the other place about the potential for local authorities to bounce in and out of qualification. The point was well made that small and town parish councils may have an annual operating budget of just under £25,000, which means that they would not qualify, or of just over, in which case they would still sit beneath the £6.5 million annual turnover mark, but in both cases, the disposal of land—perhaps in a rural parish with landholdings within or on the edges of their parish—might be of considerable value and significantly affect their operations on a given year, or a smaller financial consideration might just bounce them over one of the thresholds. Their Lordships made the point that some levelling might be helpful, and Baroness Hanham was sympathetic to those points.
Have the Minister and his officials had a chance to reflect on that in the intervening period between the Committee stages in the Lords and here? Might he consider using a three-year average of a council’s budget to avoid a situation in which the council bounces in and out from one year to the next? If a parish or town council were to bounce in and out, it might try to set up an independent panel, which would be expensive and time-consuming. If a year later it no longer qualified, or it no longer met either the £25,000 or the £6.5 million threshold, that would be a particular difficulty and would not have been the most efficient use of its resources. Will the Minister consider looking further at that, or can he assure us that such an eventuality is, in his view, entirely exceptional? Perhaps the Government have considered the matter or looked at some research into the turnover and budgets of parish councils, the extent to which they vary from one year to the next and how common it is for an authority to experience a significant receipt or a significant loss of its overall turnover.
In amendments 90 and 91, we argue that the value at which an authority is categorised should be reviewed three years after the Bill receives Royal Assent and every following five years. If those thresholds—particularly the £25,000 threshold, and to some extent the £6.5 million threshold—are specified in the Bill, they may quickly become outdated, not least at a time when town and parish councils around the country are taking on new and additional roles. The Minister and I hope that there will be a renaissance for those local authorities, and I know that other Members, including the hon. Member for Halesowen and Rowley Regis, support such a change in the status and ambition of parish councils around the country. Given that, will the Minister consider whether it might be sensible to build in a review to ensure that the thresholds keep pace with the changing world in which town and parish councils operate?
The Government’s intention is to ensure that the audit process is proportionate, and Opposition Members agree that that is an important principle. Reviewing the thresholds would ensure that in a few years’ time, we do not find that all councils suddenly qualify at a level that had not been envisaged. That is particularly important for councils that may be tipped over the £6.5 million threshold. If we find that that becomes a significant number, we might want to revise the level up to, say, £7.5 million, or some other appropriate figure. Of course,
Dr Whitehead: I should like to make my points under this group of amendments, but if they should be made in a clause stand part debate, I am sure that you will indicate that to me before I proceed any further, Mr Weir.
My hon. Friend the Member for Corby has made a good case for the amendments. I am sure he is aware that, even if the amendments were accepted by the Minister and made to the clause, they would be completely negated by subsection (5), which reads:
This is not a party political point. We are all in this together as legislators. We are required to scrutinise the Bill and make it the best Bill we can, regardless of what detail we might think, on a party political basis, ought to be in the measure. We have a responsibility as legislators for how the Bill subsequently works as legislation. This subsection is truly shocking. It seems to be suggested that we as a Committee will pass a provision that allows the Secretary of State effectively to abolish or amend the clause, or, indeed, send it off in an entirely different direction. We could rewrite the subsection as, “The Secretary of State may by regulation decide what a small authority is at any time that she thinks fit.” That is all we would need to do to discharge our duty as legislators regarding the clause, because that is the intention of subsection (5).
In the light, not of the detail of the clause, but of getting the Bill fit for purpose when it leaves Committee, will the Minister consider taking the subsection away and thinking about whether on Report he might come back with wording that actually makes some sense? As it stands it does not make any sense—it simply overthrows the clause. That cannot be a good way of proceeding with legislation.
Brandon Lewis: The amendments relate to the definition of a small authority as set out in clause 6. There would be substantial changes in the accounting and audit requirements for authorities that cross the £6.5 million threshold. The Bill therefore includes provision to ensure that an authority that crosses the threshold in a single year owing to, say, a one-off major capital project, will not suffer the disruption caused by temporarily crossing that threshold. That is set out in the three-year smoothing provision in subsections (1) and (2). In a few moments, I will touch on the point that the hon. Member for Southampton, Test made about subsection (5).
Amendments 88 and 89 look, superficially, like a simplification when compared with the current provision. I appreciate the intention behind them, but they fail to recognise that the three-year smoothing rule operates through subsections (1) and (2) working in concert. The drafting in clause 6 is, I will admit, less than concise, but that is because it takes into account the case whereby an authority is newly established or in its second year, in addition to setting out the smoothing provision. The effect of these two amendments would be to complicate the three-year smoothing provision even further. They do not delete subsection (1), which would have the effect of superimposing two competing rules and it is unclear how they might work together. That would appear to provide for a three-year by three-year rule, or a three to the power of three-year rule.
I reassure the hon. Member for Corby that the smoothing provision is relatively straightforward in practice. It is familiar to smaller authorities. It works well and gives smaller authorities much-valued predictability in terms of the accounting and audit regime to which they are subject in a given year. A smaller authority would need to exceed the £6.5 million threshold for three consecutive years before it would no longer be classed as a smaller authority. That provides a robust protection in the form of a period of grace.
In the first year in which a smaller authority’s turnover exceeds the threshold, it will remain within the smaller authorities’ regime. In the second year in which its turnover exceeds the threshold, it will still remain within the smaller authorities’ regime. It will, at that point, be in a position to predict with some confidence whether its turnover in the third year will again exceed the threshold. If that was likely, it would have adequate time to prepare for the change in accounting and audit requirements.
The two amendments refer to the previous three years’ income and expenditure, which would exclude from the calculation the current year’s figures, which are, quite clearly, the most relevant. The amendments also omit to make provision for newly-established authorities.
The reference to the previous three years’ income and expenditure has other potential consequences. On the one hand, it could be taken to mean that the figures in question are the sum of the authority’s income for those three years, and the sum of its expenditure for those three years. If that is the case, the amendments would have the effect of reducing the threshold to one third of its present level, to a figure closer to £2 million than £6.5 million. That would, of course, impose the significantly greater burden of the higher accounting and audit requirements on all authorities above that reduced threshold.
On the other hand, it is possible that the hon. Member for Corby intended the reference to the previous three years to mean any one of those years. When read in conjunction with subsection (1), that would have the effect of allowing an authority to remain a smaller authority for up to five years after permanently crossing the threshold—he mentioned five years in his opening remarks. That, we think, is just too much grace.
Amendment 90 would require a published review of the threshold three years after Royal Assent and then every five years. The threshold mirrors the Companies
Finally, I turn to amendment 91, which would require the Secretary of State to give one year’s notice to authorities before introducing changes to provision made by regulations under subsection (4). That subsection enables the Secretary of State to make regulations to provide for cases when an authority has been treated as a smaller authority for the financial year, but was not, in fact, a smaller authority for that year. Such regulations would prevent larger authorities from taking advantage of the three-year smoothing rule, which might happen where a new larger public authority bases its first year’s gross income and expenditure on an operating period of a few months or where an existing larger authority has a temporary dip in income or expenditure.
In such cases, the smoothing provision would enable the authority to remain within the small authorities regime for the next two years, regardless of its income or expenditure. We are aware that that has been an issue historically, when the small authorities threshold was significantly lower than the current £6.5 million. However, we are not aware of any immediate concerns, and currently there are only a handful of authorities with a turnover of between £6.5 million and £10 million or so to which any such regulations might become relevant.
Our intention is therefore to hold the regulation-making power in reserve in case such abuses emerge in future. In the event that they materialise, it is possible that the Secretary of State would want to act quickly to prevent any further abuse. A one-year notice period would hamper his ability to do so. It would also signal to the authority that it could get away with such abuse for a year, and it would create resentment among authorities that acted properly in defining themselves. With those considerations in mind, I hope that the hon. Gentleman will withdraw his amendment.
Andy Sawford: I thank the Minister for that mixed bag. I followed the meaning of his remarks in relation to our amendments on smoothing. I have heard his explanation of how it will work, although on reflection I think that it could have been simpler. It is important that what the Bill intends is clear to the people out there whom it affects. That is a concern of mine, having arrived here to find that half the time it seems like a whole different language is spoken here. It would have been simpler to have a provision that used the average across three years. The Minister has explained to us that the approach is different. We can see that the intention is the same and that an authority would not fall in and out from one year to the next. On that basis, I accept his assurances, and I will withdraw the amendment.
On the review every five years, we have sought, for example through our earlier amendment on the changing world of community budgets, shared services and so
The hon. Member for Southampton, Test makes an important point about the Government. I hesitate to say this, because I met the Minister’s officials and I appreciate the way in which the Minister facilitated that contact. I am sure that they spent many hours working away on the Bill, but it should not be beyond the will of the Minister and the ability of the parliamentary draughtsmen and the Department to provide for a future world within the context of the clause, for example by having a review every five years, instead of just falling back on the huge, sweeping power of the Secretary of State to make redundant any debate that we have had about the meaning and effect of the legislation and all the time that their lordships, the National Association of Local Councils and town and parish councils around the country have spent considering the Bill. We have spent much time today debating important points about whether and how local authorities, particularly small authorities, will qualify. That whole debate becomes irrelevant if, in a few years’ time, the Secretary of State decides that the provisions do not suit and wants to change them. What an extraordinary power to set out at the very end of the clause.
Brandon Lewis: I will answer that question, which also touches on the point raised by the hon. Member for Southampton, Test. I am sorry that I did not see him indicating that he wanted to intervene until I had already sat down, but I will keep an eye out in future. There is a definition of “smaller relevant body” in the accounts and audit in the regulations of 2011, which set out a £6.5 million threshold. These regulations are subject to the negative procedure. But the definition in clause 6 can be changed by the regulations, subject to an affirmative procedure which provides greater scrutiny. Indeed, the Delegated Powers Scrutiny Committee in the other place did not express concern about this power.
Dr Whitehead: I am sure that my hon. Friend is aware that the powers in clause 40 are not amendable. The Minister suggests that there is a backstop to clause 40 in clause 5(6); it is simply a question of his taking through the House a resolution which is not amendable and cannot be scrutinised in the way that primary legislation can and having it voted on. That is it. That surely cannot be acceptable in terms of how we make legislation in this place.
Andy Sawford: My hon. Friend clearly points out that the debate that has taken place in the Lords about whether this is an appropriate threshold could not take place in relation to the level the threshold is set at in any future changes made by the Secretary of State under these procedures. While the word “affirmative” gives us some comfort that this is subject to some procedure in this House, we all know that there will be no practical opportunity for any hon. Members on either side to scrutinise any future changes to the qualifying amounts that may be set out in subsequent regulations. There will be no opportunity for us to scrutinise those or to ensure that the small councils involved have the opportunity to set out their concerns.
I do not intend to divide the Committee on the clause. My hon. Friend the Member for Southampton, Test raised the matter first and very strongly. He was absolutely right: the sweeping power makes our whole debate redundant. I hope that now that we have raised this, the Minister will think about this before Report and will consider why this and the many other Henry VIII powers in the Bill are needed. Perhaps he will bring