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Baroness Noakes moved Amendment No. 13:

Page 12, line 32, leave out subsection (3).

The noble Baroness said: My Lords, I start by saying that I hope that the Minister will not respond to all my questions in future by inviting me to table parliamentary Questions, because he may not get such a calm response next time.

In moving the amendment, I shall speak also to Amendments Nos. 16 and 17, all of which amend Clause 14, which deals with the appointment of auditors to local authorities. Amendment No. 13 is important because it would remove subsection (3) and, with it, the prohibition on appointing the Auditor General for Wales as the auditor to a Welsh local authority. That prohibition is a curious one because on the one hand the Government are setting up a new public audit regime for bodies in Wales, including transferring the audits of NHS bodies from the Audit Commission to the Auditor General, but on the other hand they have drawn back from the logic of the new audit regime to make the Auditor General only the appointer for auditors to local authorities.

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The Auditor General will be able to appoint his own staff to the auditors to local authorities—I believe that is implicit in the transfer of significant numbers of Audit Commission staff to the new office in Wales—but he cannot appoint himself. The logic of that defeats me. I am sure that local authorities will see there is no difference of substance between having a member of the Auditor General's staff as the auditor rather than the Auditor General himself because the Auditor General will be able to direct his staff and it would be a fiction to think otherwise. It is also rather insulting to the Auditor General to say that he is not up to being a local authority auditor.

In Committee the Minister put forward an argument about conflict of interest. However, I do not believe that argument stands up to close examination. If the Auditor General is conflicted in the case of a local authority audit, he is also potentially conflicted in any other non-Assembly audit he carries out, including the NHS in Wales and other bodies that receive significant amounts of Assembly funding. I do not think that it has ever been suggested that the Auditor General is conflicted in any of his work at present. Indeed, as I have argued separately, "conflict of interest" is an odd term to use for a public auditor. The real issue is whether his independence would be impaired. I cannot believe that anyone would suggest that.

The Minister also put up a practical argument about how the Auditor General could not issue codes of practice he would then have to comply with. However, there is little of substance in those points that a little drafting would not sort out. I argued in Grand Committee that some of these convoluted issues of codes and so forth arise in the local authority sector only because the Auditor General is not the appointed auditor. I do not think that we should be hidebound by the English Audit Commission model because we have an opportunity to break away and create a new model for Wales.

I turn to the other two amendments in this group, Amendments Nos. 16 and 17. I had rather hoped that they would attract the Minister's name as he wrote to me on 23 March saying that the paragraphs that it was proposed would be deleted were not needed. Both the noble Lord, Lord Thomas of Gresford, and I challenged the Minister in Grand Committee to say what practical effect the paragraphs had. In light of the Minister's letter, I hope that when we reach those amendments, the Government will not oppose them as that would be perverse. I beg to move.

Lord Evans of Temple Guiting: My Lords, I have made a note never to invite the noble Baroness, Lady Noakes, to table a Parliamentary Question.

Amendment No. 13 tabled by the noble Baroness, Lady Noakes, and debated previously in Grand Committee would, if agreed, enable the Auditor General to appoint himself in a personal capacity as the auditor of a local government body. I am very sorry that the noble Baroness was not persuaded by the Government's view on this. That view is that, given the Auditor General is already the statutory external

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auditor of the National Assembly, there would be the potential for a very real or perceived conflict of interest if the Auditor General could appoint himself.

For example, suppose an issue arose concerning financial management where the Assembly government and a local authority took opposing views. Would it be fair to put the Auditor General into a position where he could arguably be pulled in two directions? In such circumstances, local government could take the view that the Auditor General was an instrument of the Assembly. Such a perception would damage the Auditor General's reputation for impartiality. Also, a key role of the Auditor General would be to monitor the performance of the auditors he appoints. Who would monitor his performance as an auditor?

Local government is constitutionally independent of the National Assembly. Although it receives very considerable funding from the National Assembly, it also raises a significant proportion of its revenue from local electorates to which it is responsible. The Bill sets out to safeguard the constitutional independence and democratic accountability of local government. That was made clear when the Bill was published for pre-legislative scrutiny last April. The Government's intention that the Auditor General would not be able to appoint himself as the auditor was given as one important means of demonstrating that. The principle was not questioned during the extensive pre-legislative scrutiny that the Bill enjoyed.

The Government, therefore, remain firmly of the view that there is a compelling argument for ensuring that the Auditor General cannot fulfil the dual role that this amendment would permit. I therefore invite the noble Baroness, Lady Noakes, to withdraw the amendment.

Amendments Nos. 16 and 17 would delete two of the criteria listed for being eligible to be appointed as a local government auditor. Both relate to approvals given by the Secretary of State under the Audit Commission Act 1998 and the Local Government Finance Act 1982 respectively. The criteria were included in the Bill as a failsafe to ensure that no person was inadvertently debarred from continuing as an appointed auditor.

During the debate in Grand Committee the noble Baroness, Lady Noakes, questioned whether any appointed auditors were still practising solely by virtue of the "approval" criteria.

Since Grand Committee the position has been considered further and the Audit Commission has been able to confirm that no appointed auditor is now operating under these approvals and that no auditor would be appointed for the future if they did not have an appropriate professional qualification. On this basis, and having reflected on the views of the noble Baroness, the Government have concluded that paragraphs (c) and (d) of Clause 14(4) could be safely deleted from the Bill. We thank noble Lords opposite for their very helpful amendments that the Government have great pleasure in accepting.

Lord Elis-Thomas: My Lords, I support the Government, not that they need any support, in opposing the amendment which would delete Clause 14(3).

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I emphasise something that I mentioned in Grand Committee; that is, the special relationship which has developed—it is a statutory one—in terms of the Government of Wales Act, our constitution and the standing orders of the Assembly, between the Auditor General, his staff and the Audit Committee. Linked to that is the whole issue of the scrutiny of local government spend and local government activity on the part of the Assembly. These are very sensitive areas. One of the matters that we continually try to protect in our proceedings is the recognition that local authorities are independent elected democratic representations in their own right in the same way as the Assembly is. We have arrived, as it were, as a "new kid on the block" at the intervening level of intermediate government. This is an issue that could apply in the regions of England but I shall not go down that line today. However, if there were assemblies in England, the same issue would arise. How does an intervening level of government—in this case a national Assembly—relate to other existing levels of democratic governance, especially when funding issues are involved? The independence of local authority operation is clearly an important principle here. Related to that is the independence of the Auditor General both as regards local government and as regards his position as a statutory authority alongside the Assembly's Audit Committee. Anything that would upset those delicate balances would not be helpful when the new public audit structure for Wales is established. I oppose the amendment.

Baroness Noakes: My Lords, I thank the noble Lord, Lord Elis-Thomas, for that contribution. I wish to ask the Minister one question before I decide what to do with the amendments. Why is it not right, or constitutes a conflict of interest, or the upsetting of a special delicate relationship, if the Auditor General audits a conventional financial audit when he is the named person who carries out value for money studies under Clauses 41 and 42 and best value studies under Chapter 3? I am struggling with the logic of how the Auditor General can be the named person who carries out all of that work in relation to local government but is not able to carry out financial audits. Can the Minister explain?

1.30 p.m.

Lord Evans of Temple Guiting: My Lords, at the moment, I cannot explain that inconsistency. If I do not obtain an answer within five or 10 seconds, I shall write to the noble Baroness within the next two or three days—well before Third Reading.

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