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Baroness Hamwee: The noble Lord is absolutely right: it is government by inspection. I did not criticise the work of the Audit Commission or audits themselves. I made it quite clear that my criticism was about categorisation and its outcome.

Clearly we are going to have the long version of this argument on Report. I should say now, however, in answer to the Minister's question about how we will know how authorities are doing, that we will know because of auditors' letters which are discussed publicly and very thoroughly, and we will know because of the outcomes of elections. I beg leave to withdraw the amendment.

[Amendments Nos. 202B and 202C not moved.]

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Lord Hanningfield moved Amendment No. 203:

    Page 55, line 12, at end insert—

"( ) The Secretary of State may, following an application from an authority subject to this section, extend the period specified in an order made under subsection (4)."

The noble Lord said: We have had a discussion about the CPA process. I shall not repeat it. The amendment is more about detail. Let us concede that we must live with the CPA. Having resigned ourselves to that fact our objective must be to make the best of it. The purpose of the amendment is to introduce more flexibility into the system.

We have seen various provisions tied to an authority's CPA classification throughout the Bill. I am concerned about the effect of a sudden reclassification of an authority; about the financial impact of such a reclassification; and about the effects on partnerships that such a reclassification will have.

Some suggestions that have emerged from the innovation forum require significant shifts of resources and ways of working, as the noble Lord, Lord Smith, told us. The delivery timeframe for these proposals is way beyond the three-year horizon of the CPA process. I am concerned that there should be sufficient flexibility in the system to prevent damaging reclassifications that fall simply as a consequence of the ending of the timeframe set out in the original order. It may be that, in order to enable innovative and constructive work to go forward for the benefit of a local community, an authority will need to retain its CPA status.

I am quite sure that this amendment is not technically right. Perhaps the noble Lord could comment on that. Does the Minister concur with my concerns about the effects of reclassification? What safeguards does he think are necessary to reassure local authorities and potential partners of local authorities? I beg to move.

Lord Bassam of Brighton: I congratulate noble Lords opposite on the innovation. Obviously, the spirit of local government innovation is working its way through to the amendments. That is to be applauded.

Amendment No. 203 would provide a situation in which an application can be made to the Secretary of State for an authority to extend its period within a performance category. I shall pass on the fact that the noble Lord does not like performance categories. Effectively, it would establish a right of appeal on categorisations delivered by the Audit Commission.

The independence of the Audit Commission's judgments is essential to the credibility of the process and the assessments. A right of appeal could potentially mean that the Government were delivering conflicting judgments on individual councils and could lead to a protracted process of submissions from authorities as well as practical difficulties in responding on an individual basis to the 150 single-tier and county councils and the 238 district councils.

Potentially, that seems to be a recipe for a great deal of chaos and unnecessary hard work. What then happens if the local authority is unhappy about the

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appeal to the Secretary of State? Does it seek to challenge it within the courts because there is an important issue of principle or a right that it thinks has been overlooked? I do not think that this is the right way or an acceptable way to proceed.

While I understand the noble Lord's disdain for the categorisation process, we have also talked about its virtues. The amendment would run very firmly against the principle that the Audit Commission should have the responsibility for delivering categorisation based on performance. I cannot believe that he was serious in moving the amendment. I think that he understands the difficulties and confusion that it would create for the local authorities.

Baroness Hanham: Perhaps we may pursue this point a little. My noble friend Lord Hanningfield has identified what will be a serious problem. If, for example, the Audit Commission recommended that an authority should go from—and it would not be the "excellent" to "good" categories, as that would be all right—"good" to "fair", that might have serious implications for what it was then able to do against what it was currently doing. It might have implications for other organisations. It might have financial implications. It would be interesting to know what sort of testing has been done in regard to what might happen to local authorities in such situations. It is great if one is going up the ladder, but quite a different matter if one is doing a "snakes" down it and wriggling.

I am sure that my noble friend Lord Hanningfield will suggest that we may want to return to this issue. We need perhaps to have a longer discussion on the implications for authorities moving between categories.

Lord Hanningfield: I agree with my noble friend Lady Hanham; the Minister has been rather contradictory. First, he was claiming how important it was to agree with the amendment. Now, he has not really answered the question: what happens when you pull a little and suddenly have thrown out everything you are doing? We must address that issue. I do not know whether the Minister wants to deal with it today or whether we should return to the matter on another occasion.

Lord Bassam of Brighton: I shall certainly reflect on the comments and observations made. I accept that there are as many implications for those authorities that go down the categorisation as there are for those that go up it. My understanding of the CPA process—and I may be wrong, not having been involved in local authority for a few years—is that there will be early warning signs that something is amiss within the local authority and that there are issues to be addressed.

My view is that it is an iterative process and that will probably help the local authorities. It is, after all, a way of ensuring that the authority concentrates on improving the quality of its services. That is why the whole CPA process has been put in place. So, yes, I accept that there is an issue; there may well be some implications; and that those issues need to be

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addressed. We shall obviously want to consider the matter. However, that is somewhat wide of the specific issue raised in the amendments, which is that there should be a right of appeal to the Secretary of State.

Lord Smith of Leigh: I can confirm to the noble Lord, Lord Hanningfield, that the issues raised in his amendment have been discussed in the innovations forum, particularly between the "excellent" authorities. Obviously, we shall ensure that any partnerships entered into have a long-term commitment. I think that the Government understand that in this case. However, as my noble friend said, having established a benchmark position for local authorities through the CPA, which is a very wide and comprehensive view of a local authority—we are not considering a particular area of their activities—the continuing oversight of the district audit will ensure that authorities do not move suddenly from one category to another. There will be signs and authorities will obviously have an opportunity to put those matters right.

Baroness Maddock: An important point has been raised—in particular, about housing matters. Local authorities often work with voluntary sectors to

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provide particular services for people who are homeless and those with acute housing needs. If we discuss the issue again on Report, I hope that we will get some answers on how the Government view that and whether there are safeguards. It would be dreadful if some of the services for the least well off and the least able to look after themselves in society fell away for lack of funding because of changes in the categories.

That would obviously not affect many authorities, but, clearly, it could happen. We need to understand from the Government that there are safeguards to ensure that the most vulnerable in society do not suffer when such things happen.

Lord Hanningfield: I thank the Minister for his reply and other Members of the Committee who have participated. I am sure that we shall return to the matter at a later stage in the Bill. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 100 agreed to.

Lord Rooker: This may be a convenient moment for the Committee to adjourn until Monday at 3.30 p.m.

        The Committee adjourned at twenty-seven minutes before eight o'clock.

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