Lord McKenzie of Luton: My Lords, obviously we are content with these amendments, and I thank the noble Baroness for taking forward this issue. We did retable our original amendment as Amendment 21,

15 July 2013 : Column 567

but that was simply to make sure that something was on the agenda. Clearly, I will not move it when we reach that stage.

Amendment 7 agreed.

Amendment 8

Moved by Baroness Hanham

8: Clause 7, page 6, line 8, leave out “accounts, or” and insert “accounts;”

Amendment 8 agreed.

Amendment 9 not moved.

Schedule 4: Further provisions about auditor panels

Amendment 10

Moved by Lord McKenzie of Luton

10: Schedule 4, page 41, line 3, at end insert—

“(10) Such regulations shall in particular provide that an individual shall be ineligible to act as a member of an audit panel if that individual has any disqualifying interest.”

Lord McKenzie of Luton: My Lords, the purpose of the amendment is to test the scope of the term “independence”, although it is written in terms of an audit committee rather than an audit panel. I regret not having been able to attend the meeting which the noble Baroness, Lady Hanham, kindly organised to consider these issues, but I am grateful for the note which was provided.

We have reflected on the proposition that all principal authorities must have an audit committee whose functions include those required of an audit panel, and we see some merit in the Government’s argument that this could be too restrictive. We consider that all principal authorities should have an audit committee to undertake the range of functions with which we are familiar. Given that the appointment of auditors is a new function, the audit committee would be a natural place to provide the appropriate scrutiny and oversight of the relationship with the external auditor.

However, given the importance to that scrutiny and oversight role of the independence requirements, we think these should be paramount. These independence requirements are not mirrored in audit committee arrangements, and the CIPFA guidance is more focused on the separation of engagements of executive and scrutiny members. That guidance does not require a minimum number of independent, non-councillor members. So if we insist on audit committees to carry out the auditor panel role, and on the independence requirements to be satisfied, it seems to be the case that many local authorities would have to substantially restructure their arrangements. We encourage them to do so, but to require them to do so where audit committees are currently functioning well is perhaps against the spirit of localism.

The suggestion that the auditor panel might be a small sub-committee of an existing audit committee almost gets the best of both worlds, and may at least provide a transitional solution. However, the primary

15 July 2013 : Column 568

purpose of the amendment was to address the definition of independence. For this purpose, the Bill requires members of the audit panel to be independent of the authority for which the auditor is to be appointed. In the Bill independence is defined in terms of individual positions; that is, membership and relationships—so parent or grandparent. It does not cover influential business relationships, for example. The amendment is intended to open up this possibility.

It seems from the briefing note received just last week that it is intended for these other matters to be covered through a combination of regulation and guidance. This is welcome, but we should at least ask when we might see a draft of this. When will it be ready for colleagues in the Commons to consider, if not for ourselves? The Bill has spelled out in some detail the membership and personal relationships components of a definition of independence, but we have little or no information on these other components. I would be grateful to hear further from the Minister. I beg to move.

Lord Palmer of Childs Hill: My Lords, the amendment of the noble Lords, Lord McKenzie and Lord Beecham, says that an individual will be ineligible if that individual has a disqualifying interest. Yet it seems, by all the purposes of any law there is, that if you have a disqualifying interest you are by nature ineligible. I listened to the noble Lord, Lord McKenzie, and I still struggle to see why one needs to clarify and why one needs the amendment, because if one has a disqualifying interest one would be ineligible. I raised this matter at early stages of the Bill. As for who should sit on these panels, yes, the members of the local authority who are qualified may sit on the panel, and there then seems to be a great emphasis on independent members.

At this stage I declare an interest, and I probably should have done so earlier in the course of this debate. I am currently a chairman of a local authority audit committee. I do not think that this disqualifies me, and perhaps it qualifies me particularly to comment on this. One of the interesting things which I hope the Minister will address in her answer is that it is currently quite the custom in many local authorities, including my own, for a member of that local authority who is of a different political party from the ruling party to be the chair of the audit committee. That very often provides a very independent chairman or chairwoman of that committee.

I am worried that if we change that and require an independent committee chair, will that chair be as independent as an opposition chair? By the nature and appointment of audit committees, when looking for people who will be independent, particularly in the case of chairs, there is in some cases a possibility that those appointing will look among people they know who may have political sympathy with the ruling administration. The current arrangements seem to give chairs greater independence. This is probably wider than the amendment of the noble Lord, Lord McKenzie, but it seems to me to follow on from what is a disqualifying interest. I think we are giving that too much concentration, rather than the actual and real independence of the person who chairs that committee.

15 July 2013 : Column 569

Baroness Hanham: My Lords, my noble friend and the noble Lord, Lord McKenzie, raised several issues, seeking clarification about the auditor panel. I start by reminding noble Lords how the auditor panels will operate, and how we are moving to keep arrangements streamlined and flexible in terms of whom the auditor panel is made up of. First, I want to confirm what I said in Committee, that we do not expect these auditor panels to be large. We expect them to be quite small, probably three or five people at the most. This does not exclude members of the audit committee being members of the panel, as long as they are independent members. If the audit committee has an independent member, that member can be a member of the audit panel. I do not think that there would be anything to exclude them being chair of the panel, if that is required. It would not actually preclude a member of the opposition being chair of that panel. We can see that that is how they will be made up.

Other than that, they can appoint a completely separate auditor panel outside the audit committee regime. There again, they will have to make sure that the members of that panel are majority-independent. Again, that would not preclude any member of the local authority being part of it, even though they might be considered to have some relationship with what is going on because, by definition, they were a member of the council. None the less, we think that there might be some virtue in having a councillor or councillors on the auditor panel to help with the selection.

Amendment 10 goes back to our discussions on wider issues; that is, the assessment of the independence of auditor panel members beyond direct personal links to the audited authority. I hope that I have explained that we need them to be really independent. Some concern was expressed last time, a concern which I do not think the noble Lord raised this time, about significant business relationships. By any definition, a significant relationship with a local authority, particularly on a contractual basis, would preclude somebody being a member of the panel.

We do not want to make much more regulation, but I think that we need to look at giving some guidance about who can and cannot be on an auditor panel. We will do this as the regulations are considered later in the year.

Baroness Eaton: Can the Minister give a bit more information about the process of selection for independence? That would deal with the point made by the noble Lord, Lord Palmer, about political affiliations sometimes not being absolutely clear. Is there likely to be a clearly defined process for how local authorities select independence? Rather than their just saying, “That is an independent person; we’ll have them”, is there going to be due process?

Baroness Hanham: My Lords, local authorities have due process already, as the noble Baroness knows, on how to appoint people, panels, independent committees and standards boards where independent members are required. I would not want to tie this down too firmly, other than to say that they must be pretty clear that nobody on the panel has a connection with any

15 July 2013 : Column 570

firm that may be applying to do the audit. If they have a political affiliation that should be declared so that, before the auditor panel is set up, it is known if they have a particular affiliation. Apart from, as I have suggested, there perhaps being one councillor on the panel, it is pretty clear that people should have some experience of audit so that they know what an audit looks like and what they might be expected to do.

We do not rule out independent members possibly being a member of a political party but it is essential that that is known so that there is transparency about it. We would hope that not more than one person, who would probably be the person off the council, would be that member.

It will be essential for members of auditor panels to declare any wider interests, commercial as well as political, and any other interests that they might feel had any relevance. Those would need to be taken into account in an appointments process that the committee undertook. If members of the audit committee were making the appointment they would have to make a balanced judgment on the balance of the panel, aligned with what I have already said. If it is an external appointment it will have to go through an external appointments process.

I think that it is clear that there should be, and be seen to be, independence in the auditor panel. I think that it is clear that local authorities have experience of dealing with external appointments. Although I understand the concern that the panels could be “stuffed” with political appointees, I think that there has to be transparency as to who is appointed. If it were found that it was just a political panel, it might be very open to question.

5.45 pm

Lord McKenzie of Luton: I thank the Minister for her reply. The noble Lord, Lord Palmer, criticised the drafting of the amendment. I should explain that its purpose was simply to put down a mechanism which could be used to address wider issues of independence. We had in mind, specifically, significant business relationships. The Bill defines independence in terms of personal relationships; it should cover as well, for example, significant business relationships, which was the purpose of the amendment.

I was comforted by the briefing note that was produced following the meeting. It states:

“Through this combination of regulations and statutory guidance the Government intends to address other important aspects of independence for an auditor panel. We intend to work with interested parties and the sector to develop the detail of these, but as an example they might cover … the necessary skills and experience of panel members … specifying that certain persons are not independent where they have … significant commercial relationships with the authority or audit firm … the process through which independent members should be appointed … considerations around political balance, where the panel includes elected members … the conduct of members and, for example, how declarations of interest are managed on an ongoing basis”.

Each of those points, or at least some of them, were touched on by us in Committee. I took comfort from that. In a sense, that was the issue or the focus that my—clearly inappropriately drafted—amendment was seeking to address.

15 July 2013 : Column 571

I reiterate where we are on the issue of audit committees or auditor panels. I think that, because there is in some instances a potential conflict between wanting to fulfil the independence requirements and the broader role of the audit committee, the best solution where they cannot be aligned is the sub-committee approach. I am not quite sure who at the meeting raised that, but the briefing note again confirms that the auditor panel could simply be a sub-committee of the audit committee. As long as that auditor panel fulfils the independence requirement, honour and justice are satisfied. That seems to us to be a helpful way forward which still encourages local authorities all to have audit committees and to move to greater independence relating thereto.

Baroness Hanham: Although I do not think that I mentioned sub-committees, I think that I made it clear that where there are audit committees, the membership could be drawn from the independent members of that committee, with possibly a local councillor. The implication is that audit committees are meant to be there and could form the basis of the auditor panel.

Lord McKenzie of Luton: My Lords, I am grateful for that and beg leave to withdraw the amendment.

Amendment 10 withdrawn.

Schedule 5: Eligibility and regulation of local auditors

Amendment 11

Moved by Baroness Hanham

11: Schedule 5, page 50, line 8, leave out “and” and insert—

“( ) omit “, 23A(1)”, and”

Baroness Hanham: My Lords, Amendment 11 is necessary following a recent amendment to the Companies Act 2006 made by regulations. As I am sure noble Lords are instantly aware, paragraph 21 of Schedule 5 to the Bill modifies Section 1253(5) of the Companies Act 2006. That section specifies the conditions for delegating functions, such as the function of recognising supervisory bodies, to an existing body and refers to Schedule 10 to the Companies Act 2006, which is also applied by Schedule 5 to the Bill. On 8 July 2013, the Statutory Auditors and Third Country Auditors Regulations 2013 were laid. One effect of these regulations is to insert a reference to paragraph 23A(1) of Schedule 10 in Section 1253(5) of the 2006 Act. Paragraph 23A of Schedule 10 to the Companies Act is expressly omitted by paragraph 27(2)(f) of Schedule 5 to the Bill. This is because paragraph 23A of Schedule 10 concerns arrangements for independent monitoring of third country audits, which are outside the scope of this Bill.

Therefore, for consistency with the other modifications to Section 1253 in paragraph 21 of Schedule 5 to the Bill, we are providing for the omission of the new cost reference that the Third Country Auditors Regulations 2013 will contain. This is a minor, extremely clear and easily understood technical amendment that responds to an amendment to the Companies Act 2006 and I beg to move.

15 July 2013 : Column 572

Lord McKenzie of Luton: My Lords, we are perfectly happy with this amendment.

Amendment 11 agreed.

Clause 19 : General duties of auditors

Amendment 12

Moved by Lord Wallace of Saltaire

12: Clause 19, page 13, line 9, after “accounts,” insert “and that the statement presents a true and fair view,”

Lord Wallace of Saltaire: My Lords, this group of amendments deals with amending the scope of the auditors’ work. Amendment 12, which amends Clause 19, puts into the Bill a requirement for auditors of relevant authorities, other than health service bodies, to satisfy themselves that the statement of accounts presents a true and fair view. This requirement for health bodies is already in Clause 20.

The noble Lord, Lord McKenzie, moved a similar amendment in Grand Committee. In response, we provided assurance that it is indeed the Government’s intention to require larger relevant authorities to produce statements of accounts which are “true and fair” and for local auditors to give an opinion on whether this is achieved. We explained that this is not included in the Bill, but the same outcome will be achieved through a combination of the Bill and the regulations to be made under Clause 31, mirroring the same approach that is currently used.

We have reflected on this and other related discussions since Grand Committee, and consider that there are benefits to placing an explicit requirement in the Bill for auditors to give an opinion on whether the statement of accounts is “true and fair”, rather than retaining the current approach. The key benefit, of course, is alignment within the Bill between the audit requirements for health bodies in Clause 20, and those for local government bodies in Clause 19. Furthermore, presenting accounts that are “true and fair” is an established accounting and audit concept which is also used in legislation governing the audit of central government and companies.

The amendment will make clear that the accounts of the larger relevant authorities must meet the same high standards. However, because Clause 19 applies to all non-health bodies subject to audit under this Bill, this amendment will apply the “true and fair” standard to the audit of all relevant authorities. As we said in Grand Committee, the Government do not consider it appropriate that the “true and fair” standard should apply to smaller authorities. Smaller authorities are required to ensure that their accounts “present fairly” or “properly present”, which are briefer and more proportionate forms of accounting.

It will therefore be necessary to modify these requirements for smaller bodies, which the Government intend to do through the regulations under Clause 5. The modifications will retain the audit requirements on smaller bodies so that auditors of smaller bodies are required to continue to satisfy themselves that the accounts “present fairly” or “properly present”.

We are not planning to make the other amendment to Clause 3 that the noble Lord, Lord McKenzie,

15 July 2013 : Column 573

moved in Grand Committee, which would require relevant authorities to prepare statements of accounts which are true and fair. We believe that the amendment to Clause 19 achieves all that is needed. The duty on auditors in Clause 19 will effectively require the authority to prepare to true and fair standards. We will confirm that requirement in the regulations that will be made under Clause 31, by requiring the chief finance officer of larger relevant authorities to certify that the accounts show as true and fair. This is similar to the approach for health service bodies—which are required to keep proper accounts showing a true and fair view—and the Companies Act which says that the directors must not approve the accounts unless they are satisfied that they give a true and fair view.

Amendments 13 to 17 amend Clause 20, which sets out the general duties of auditors of health service bodies. These are needed to provide that the auditor of the accounts of special trustees is not required to give a regularity opinion. Clinical commissioning groups—which are covered by Clause 20—are funded by Parliament to commission healthcare services. As such, they are accountable to Parliament for how they utilise these resources. Clause 20 therefore requires the auditor to give an opinion on whether the CCG has used these resources as Parliament intended and in accordance with guidance covering financial transactions.

However, this clause currently requires auditors of the accounts of special trustees to provide a regularity opinion of these accounts. Special trustees are appointed by university or teaching hospitals under Section 212 of the National Health Service Act 2006 to hold property on their behalf. There are currently only three boards of special trustees in existence: for Great Ormond Street Hospital in London, the Royal Orthopaedic Hospital and Moorfields Eye Hospital. As these bodies do not receive funds voted by Parliament, there is no need for a regularity opinion by the auditor on their accounts. The general duties of the auditor of a special trustee are otherwise the same as for a CCG.

Finally, Amendment 65 is consequential to the amendments made to Clause 20 and technical in nature. It is required to enable Clause 20 to apply to audit of the accounts of NHS trusts and the trustees of NHS trusts in the same way as it applies to special trustees. I beg to move.

Lord McKenzie of Luton: My Lords, I thank the noble Lord, Lord Wallace, for introducing these amendments. We are happy with them. I will speak first to Amendment 12. We debated this issue of accounts being required to show a “true and fair” view in Committee, as the noble Lord said. We had drawn attention to the disparity of wording in the Bill between the general duties of auditors of relevant bodies which are health service bodies and those which are not. The requirements for local authority accounts to show a true and fair view was part of the process towards full GAAP compliance in the whole of government accounts.

In response to our amendment, the Minister, the noble Baroness, Lady Hanham, reassured us that it was a requirement for larger relevant authorities to present accounts that were true and fair and this was achieved through the interaction of primary and secondary

15 July 2013 : Column 574

legislation—the Audit Commission Act 1998 and the Accounts and Audit (England) Regulations 2011. The Minister said in Committee:

“We intend to mirror this requirement in the regulations to be made under Clause 31”.—[Official Report, 17/7/13; col. GC 30.]

However, the Minister went on to say:

“This approach is less complex than specifying ‘true and fair’ requirements in the Bill, because further amendments would be required to disapply these provisions … for smaller authorities, which, as the Bill makes clear, are not required to ensure that their statement of accounts are true and fair”.—[Official Report, 17/7/13; GC 31.]

As I said, we support the government amendment. I was going to inquire about how that latter point would be dealt with, but the noble Lord covered that in his presentation.

Before commenting on Amendments 13 to 17, I take the opportunity to thank the Minister and the Bill team for facilitating a meeting about the differing effects of the Bill on local authorities and health service bodies, and for the helpful follow-up tabulation. That tabulation presaged the amendment in noting that a regularity of opinion was necessary in respect of clinical commissioning groups, because they were funded by Parliament to commission healthcare services. This is not the case for NHS trusts which receive income from contracts.

The Bill already disapplies the regularity requirements for NHS trusts in Schedule 13 and, under this group of amendments, does so for special trustees. The amendment specifically restores the other requirements of Clause 20(1) in paragraphs (a) to (c) for special trustees. However, it is not immediately clear how those provisions are reinstated in respect of NHS trusts—that is, those which are not special trustees. I think that the clue to that is in Amendment 65, to which the noble Lord referred, but it would be helpful to have clarification on that point. Subject to that, we are happy with the amendments.

6 pm

The Archbishop of York: My Lords, on Amendment 12, if the statement is true, are not the words “fair view” fatuous? Could you have a true statement which needs qualifying as being unfair? If it is true, it is true. Are those warm words, are they warming up the word “true”? What do they add, those words “fair view”? If it is true, it is true.

Lord Palmer of Childs Hill: My Lords, unfortunately in accountancy there is a certain jargon. “True and fair view” is jargon used by firms of accountants and auditors from time immemorial, probably since the formation of the Institute of Chartered Accountants of Scotland, which was the first institute.

My query is whether this is not something which could be included in the external auditors’ audit report in the normal way. Currently, the external auditors’ audit report will say that the accounts have been true and fair and all the other jargon that goes with it in a format which has evolved over the years. The amendment seems to provide that the auditors must be satisfied that the local authority presents its accounts in a true and fair way. If that be the case, I wonder whether my noble friend can say, either now or in writing, whether

15 July 2013 : Column 575

the auditors’ report itself will need to be amended. Currently, the auditors’ reports just say that the accounts are, in their opinion, true and fair—or words of that nature. Now we seem to be saying that the external auditor must be satisfied that the local authority has presented its accounts in a true and fair way, which seems to be going beyond the opinion that those figures are true and fair. I know that we have a jargon and that the statement should be true but not fair seems completely wrong, but this is a form of words which has been used by accountants for years and is being replicated in the Bill.

The government amendments raise the question of other accounts which the external auditors are auditing at the same time and which are included in the audit of that local authority’s accounts. For instance, when a local authority’s accounts are audited, the auditor—it is not necessarily the same auditor, and if it is, it is a section of that auditor separated by a Chinese wall—audits the pension fund of that local authority. That is treated by external auditors as a separate audit. Because of national accounting requirements introduced about three years ago, those pension fund accounts had to be incorporated within the accounts of a local authority, producing some very strange figures and below-the-line amendments, which sometimes make accounts of a local authority understandable only by a very rare breed of people. I believe that there is someone in Whitehall who is meant to understand them. Will my noble friend comment on that inclusion within the audit report and how it affects the supplementary accounts which are amalgamated by law, such as pension funds of the local authority?

The Archbishop of York: Does not the noble Lord think that a legislature is entitled not purely to accept jargon, however old it is, because the law needs to be very clear about what it is stating? Yes, jargon may have been there for centuries. In the council of the Church of England, the jargon is well known, but when we draft a Measure to come to your Lordships’ House it will be in a language understandable by the people. So yes, that may be the jargon, but what is the meaning? What is it getting at? Do you still have to keep jargon when you are legislating?

Lord James of Blackheath: My Lords, my attempts to help in this House usually end up in worse confusion, but let me try. I raised the same question about 40 years ago when the phrase was first coming into regular usage. The explanation I got at the time was that the accounts will be true but they may not be fair because they do not answer the question which accountants never ask at an audit stage: that is whether there is a working capital certificate sufficient to support the cash flow. Therefore, you have to say that the accounts are true, but they may not be fair because they may not highlight the pitfall that the cash is going to run out. So “true” and “fair” belong to each other, but they have a separate and subtly different meaning.

Lord Wallace of Saltaire: My Lords, I have been sitting reflecting on the Psalms which are read to us in that wonderful translation at the beginning of Prayers each day and the number of redundant words which

15 July 2013 : Column 576

are used in repeated phrases in the course of them. I think that it is not only accountancy which uses phrases which might possibly be pruned if one wished.

Let me try to answer some of the questions which have been raised. Amendment 65, about which the noble Lord, Lord McKenzie asked, amends Schedule 13, which makes provision for NHS trusts. On the question of auditors and related audits, I take the point raised by the noble Lord, Lord Palmer, and think that I had better promise to write to him. The next group of amendments tabled by the noble Lord, Lord Wills, raises some large issues about the related audits, which we certainly need to discuss seriously.

I am briefed to say that “true and fair” is an established audit concept. The National Audit Office’s code of audit practice will set out how that is to be reported in auditors’ reports, so the NAO will tell the auditors exactly how to interpret the auditors’ jargon. I beg to move.

Amendment 12 agreed.

Clause 20: General duties of auditors of accounts of health service bodies

Amendments 13 to 17

Moved by Lord Wallace of Saltaire

13: Clause 20, page 13, line 37, leave out “health service body” and insert “clinical commissioning group”

14: Clause 20, page 13, line 43, leave out “body” and insert “group”

15: Clause 20, page 14, line 3, leave out “body” and insert “group”

16: Clause 20, page 14, line 6, at end insert—

“(2A) In auditing the accounts of special trustees for a hospital, a local auditor must, by examination of the accounts and otherwise, be satisfied—

(a) that the accounts present a true and fair view, and comply with the requirements of the enactments that apply to them,

(b) that proper practices have been observed in the preparation of the accounts, and

(c) that the special trustees have made proper arrangements for securing economy, efficiency and effectiveness in their use of resources.”

17: Clause 20, page 14, line 13, after “(1)(c)” insert “or (2A)(c)”

Amendments 13 to 17 agreed.

Amendment 18

Moved by Lord Wills

18: After Clause 22, insert the following new Clause—

“Auditors right to documents and information of private contractors

(1) A local auditor has a right of access at all reasonable times to audit documents from private companies that the local authority have contracted services to during the last financial year.

(2) Local auditors only have a right of access to audit documents from private companies, under subsection (1), that relate to the service provided to the local authority by that company.

(3) A local auditor must publish any audit documents, obtained under subsection (1), as part of a local audit publication.”

15 July 2013 : Column 577

Lord Wills: My Lords, both amendments aim to improve transparency in the new arrangements for local government. Amendment 18 is very similar to one that I tabled in Committee, and Amendment 23, with which it is grouped, is identical to the one that I moved then. Both were resisted by the Government, and I am bringing them forward again to give Ministers the opportunity to think again about whether it is really in the best interests of the Government, let alone in the public interest, to restrict transparency in the way that continuing to resist the amendments would.

I set out the case for the amendments in Committee, so I will not repeat those arguments in detail now. However, since then, both Ministers and their officials have met me to discuss the amendments, and I should like to place on record my gratitude to them all for all the time and trouble that they took in doing that. The noble Baroness, Lady Hanham, then followed up with a letter, which, I understand, has been copied to all interested Peers, setting out in some detail the grounds of the Government’s resistance to the amendments. Again, I am very grateful to the Minister for the careful and thorough way in which she and her officials have approached these issues, and I think they are now owed the courtesy of a response to their arguments.

Their first argument is that the amendments represent an increase in transparency and would bring auditors under the Freedom of Information Act in a way that they were not under the previous regime. I regard this as an argument for the amendments, not against them.

The recent Grant Thornton report for the Care Quality Commission showed just how important transparency can be in the work of those scrutinising the delivery of public services. What the Secretary of State for Justice last week rather politely referred to as,

“a significant anomaly in the billing practices under the current contracts”,—[

Official Report,

Commons, 11/7/13; col. 573.]

for electronic tagging has shown how important transparency is for scrutinising the work done by private sector companies for the public sector. In the light of what has been revealed recently about such work and about what has happened in the NHS, I am baffled as to why Ministers should still be resisting increasing transparency.

However, these amendments are not only about increasing transparency; they also set out to tackle a decrease in transparency brought about by the new arrangements. The Audit Commission, which is being replaced by the provisions of the Bill, was covered by the Freedom of Information Act. My understanding is that, in addition to information that it held for its own purposes—which was of course covered by the Freedom of Information Act—some information held by auditors would also have been regarded as being held by the commission in certain circumstances; for example, when it was investigating a complaint against a specified auditor, when it was conducting a quality control of their work, or when it had required an auditor to provide information for the discharge of wider Audit Commission functions, such as making judgments on local authorities’ use of resources. In such circumstances, the information would have been deemed to have been held by the Audit Commission and so subject to the Freedom of Information Act.

15 July 2013 : Column 578

These are important categories of information that cover significant areas of public interest and concern. Yet, as far as I can see, no public authority, as defined in the Freedom of Information Act, has inherited those responsibilities from the Audit Commission, so under the new regime such information will no longer be covered by the Freedom of Information Act. I think it should be. This restriction of transparency damages the public interest. These amendments seek to prevent that happening.

Next, the Government appear to believe that there are already sufficient provisions for transparency for these amendments not to be necessary. However, as I set out in Committee, the fact that local authorities themselves are covered by the Freedom of Information Act does not always provide the necessary transparency for private sector bodies carrying out public sector work. Nor does the right of electors to inspect accounts and audit documents always provide the necessary transparency, important though that right is and has been for all the years that it has existed.

The Minister will be well aware of all the information that would not be available for scrutiny by the public under this regime. Why should the citizen have to resort to the cost and trouble of going to court under the Government’s regime—as the Minister suggested in her letter—to secure rights to transparency, when such rights could be made available to them under the more accessible regime of the Freedom of Information Act?

The Government then argue that exemptions under the Freedom of Information Act, particularly regarding commercial sensitivity and audit activity, mean that little extra information would be made available under these amendments. The Minister, however, will be aware that these exemptions are subject to a public interest test. That is a relatively high hurdle to overcome, so it may mean relatively little information will become available through the means of these amendments. However, when the hurdle is overcome it means that the information that does become available is—by definition—in the public interest. I believe such information should be made available to the public. I am surprised that Ministers want to deny it to them.

Finally, we come to the nub of the Government’s arguments, which is that transparency increases cost and so increases audit fees and, ultimately, the cost to taxpayers—and that it may also restrict competition as some auditors will be deterred by the requirements of transparency from bidding for such work.

These arguments crumble as soon as they are examined in any detail. Quite apart from the fact that the Government admitted, in answering a Parliamentary Question from me on 3 July, that they have made no estimate of the cost of bringing local auditors under the Freedom of Information Act; quite apart from the fact that greater transparency can often save money by revealing fraud, corruption, incompetence and inefficiency; quite apart from the question of why anyone should want an auditor carrying out crucial scrutiny of public services who would be deterred from such work by making what they do subject to scrutiny by the public they serve; quite apart from all that, the Government's own figures suggest, as far as I have understood them, just how flimsy this argument is.

15 July 2013 : Column 579

6.15 pm

The Government have estimated that the cost of the external audit service 2017-18 would be £74.05 million. That is a meaty income stream for auditors. In my experience, it would take a quite a lot to deter accountants from such an income stream, especially as the costs of complying with a freedom of information regime would be relatively small. The Government, for example, estimate that the total compliance costs for local bodies will be £4.43 million. The cost of freedom of information compliance will be considerably less than that, especially since, as the Minister has pointed out, auditors will have to set up some form of statutory and regulatory compliance regime anyway. In addition, there will a relatively small number of firms doing this work and they will be able to amortise the central costs of compliance over a relatively large number of contracts. In these circumstances, I would guess that the costs of Freedom of Information compliance will be significantly south of £1 million, but if Ministers have a better guess I would be very happy to accept it.

Subject to that, it therefore looks as if the compliance costs will be significantly less than 1% of the revenue available. Are Ministers seriously suggesting that large accountancy firms, operating with the margins that they do, would regard such costs as precluding them from taking on such lucrative and recurring public sector work? If they are, I simply disagree with them.

In conclusion, all these arguments were available to Ministers when they published their consultation document for this Bill. If they did not know the arguments then, they should have done. Also, when they published that document, Ministers stated in paragraph 4.55:

“We propose that auditors should also be brought within the remit of the Freedom of Information Act to the extent that they are carrying out their functions as public office holders”.

What could have changed the Government’s minds about that when all the evidence that has emerged about the merits of transparency in the mean time should have confirmed to them the merits of their original position?

I am afraid I am unpersuaded by the Government’s arguments against these amendments in the light of all the arguments for greater transparency; the democratic argument that taxpayers should have the right to know about the work they pay for and that citizens should have the right to know about the work carried out on their behalf; and the argument that, on the grounds of good government, transparency is a weapon against corruption, fraud, incompetence and inefficiency. We have seen how important that can be from the revelations made by Secretary of State for Justice last week about the work carried out by G4S and Serco for the Ministry of Justice.

The scandals of the past few weeks are regrettably unlikely to be the last such abuses in the public sector and in its relationship with the private sector. These are things that I hope Ministers will consider. In future, taxpayers and voters will wonder why, when Ministers had the opportunity to improve the transparency of these relationships, they refused to do so. Therefore,

15 July 2013 : Column 580

I urge Ministers to reconsider their position and get on the side of transparency. I fear they will come to regret it if they do not.

Lord Shipley: My Lords, I remind the House of my vice-presidency of the Local Government Association. I was unable to discuss this matter when it was raised by the noble Lord, Lord Wills, in Committee, but he is making a very powerful case. I hope Ministers will be able to respond in a way that meets the issues that he has so rightly raised.

It is clear in Amendment 18 that a private company that is contracted, let us say, to run a refuse collection service or to run a leisure centre will appoint its own auditors to carry out an audit of the service that it undertakes. However, I do not think that that will prove sufficient. The public interest requires, where public money is being spent on a service, that the auditor on behalf of the public sector should have access to information that lies with the body that is providing the service through a contract. This appears to be an attempt to prevent a local government auditor having access to information that would assist the undertaking of that audit because a service has been provided by a private sector company. That does not stand the test of public accountability.

The noble Lord, Lord Wills, has got it right with Amendment 18. It is reasonable to say:

“A local auditor has a right of access at all reasonable times to audit documents from private companies that the local authority have contracted services to during the last financial year”,

and it is reasonable to say:

“Local auditors only have a right of access to audit documents from private companies … that relate to the service provided to the local authority by that company”.

In both respects, that is a reasonable requirement for a local auditor to expect. The public interest is best served by the auditor having those powers because this is about contract compliance in financial matters and service delivery. It is a basic requirement if an audit is to be undertaken successfully. How else can the general public have confidence that public money is being efficiently and properly spent on their behalf? I hope that we will hear from the Minister something that will convince us that Amendment 18 is not necessary.

On Amendment 23, there should be no diminution in the rights under the Freedom of Information Act. When it comes to transparency, particularly in view of the matters that have occurred recently, of which the noble Lord, Lord Wills, reminded us, your Lordships’ House has a duty to ensure that transparency in public expenditure and the delivery of the public interest actually happen. I hope that the Minister can give us the assurance that the noble Lord, Lord Wills, is seeking.

Lord Palmer of Childs Hill: My Lords, this is a very interesting amendment. I just wanted to add one other perspective. Any local authority worth its salt, particularly in this time of outsourcing, when so much is being outsourced to outside companies and bodies, will insist—as I have always insisted in my own local authority—that it has a right within the contract with the outside contractor to be able to audit the documents of the outside contractor. The place to do all the

15 July 2013 : Column 581

things that my noble friend has suggested is very often within the contract between the local authority and the contractor.

How that works in practice is that the local authority and its internal auditors need to see what the audit processes are within that outside contractor. The idea that the auditor of the local authority will go in on a normal basis and delve into the detailed books and records of the outside contractor is probably stretching the imagination a bit. The trouble with audits—this is where the noble Lord, Lord Wills, really hits the nail on the head—is that they are, in general, historical and you are looking at what went wrong. The noble Lord, Lord Wills, gave two good examples of what went wrong. The question to the noble Lord, Lord Wills, is: if the Government or the local authority had the ability to go in and audit the sort of companies and organisations the noble Lord described, would they have found these particular problems at that stage?

The noble Lord, Lord Wills, is on to a very important point. But I believe—as I hope that my noble friend the Minister will tell your Lordships’ House—that those protections of being able to audit should be more properly contained within the contract between the local authority and the outside body to which it is contracting.

The Earl of Lytton: My Lords, I have some knowledge of procurement issues. I, too, declare my interest as a vice-president of the LGA, but my knowledge comes mainly from the All-Party Group for Excellence in the Built Environment, which last year looked at the question of public sector procurement.

One of the things that we identified was the difficulty that many local authority and public sector bodies have in getting these very complicated contractual arrangements right. If they were not got right, you had some form of mission creep. You had this wall of contractual arrangements that could not be looked at until long after the event; for instance, the provision of a sports centre or a school over quite a number of months. Things had gone wrong in a number of cases because there was not the ability to oversee the thing properly or the knowledge of these very complex matters within the particular procuring body—not necessarily local government—to get a real grip on these things. The question was raised as to whether there should be an external procurement adviser to steer the body through. As I say, it might have been a local authority or it might have been a charity or something like that.

The noble Lords, Lord Wills and Lord Palmer, have hit on a very important point here: at which point can you see through into the detail and at which point do you get to “thus far and no further” in terms of the audit not running into some sort of mission creep? It is plain to me that there must be safeguards. Some very significant sums of money are involved. The earlier that problems are picked up and the process can look at structures and get feedback, the sooner they can be put right or something put in place to limit damage.

If not necessarily for the same reasons, I think that the noble Lord, Lord Wills, has raised an extremely important point, and I hope the Minister will feel able to respond positively to that.

15 July 2013 : Column 582

Lord McKenzie of Luton: My Lords, we are sympathetic to my noble friend’s amendments and supportive of the intention behind them, which is to improve transparency in the new arrangements for local government. As I said in Committee, these open up a very important area of discussion.

Freedom of information legislation has played an important part in opening up government to the public. With some local authorities now outsourcing large portions of their services to firms such as Capita, questions must be asked about how to hold such firms accountable, given the significant amounts of public money that they now manage; for example, some councils will be handing over control of critical council services such as planning, licensing and environmental health to private, for-profit companies. This will make it harder for local residents to get answers and action on issues affecting them. It will also make it harder for elected councillors to monitor and scrutinise these services on behalf of local people. It will make it almost impossible to change services if councillors and residents decide that they want things done differently. My noble friend and others have mentioned the G4S and Serco revelations of last week, which have rightly caused much outrage. We have called for freedom of information legislation to be extended to the delivery of public services by the private sector in order to give greater accountability and transparency.

6.30 pm

This Bill may well mean that there is a small coterie of large auditors that take the lion’s share of public auditing duties. These firms have multiple relationships with authorities. They provide other consulting and advisory services, and it is understandable that concerns would be raised about perceptions of conflict of interest or actual conflicts of interest.

My noble friend’s amendment raises a range of questions, and I look forward to the Minister’s reply. In particular, will he agree that there needs to be a public right to information to ensure that the auditing of tens of billions of pounds of public money is beyond reproach? Does he agree that auditors must be able to look at how private companies spend the billions of pounds of public money that they are currently handed to perform outsourced services? Finally, does the Minister not believe that where companies are propped up by huge contracts, in the case of G4S and Serco, the public should be able to hold them to account and that the public, above all else, have a right to know where their money goes?

Lord Wallace of Saltaire: My Lords, this has been quite a wide-ranging debate and I recognise the importance of the issue that is being raised. I thank the noble Lord, Lord Wills, for the discussion that we had the other week and for the determination with which he is pursuing this. The Government are not persuaded that these amendments serve the cause. It seems to us that the current arrangements provide the requirement for transparency in outsourcing, but I recognise the much wider issues that the noble Lord is raising, such as the growth of outsourcing over the past 25 to 30 years, the potential conflicts of interest that then arise and the rise of substantial amounts of public money that are now being spent by private contractors. The current

15 July 2013 : Column 583

and recent cases of alleged fraud and error that have arisen in a number of areas of outsourcing of the work programme have not been mentioned. However, noble Lords will also remember that there have been a number of worrying cases.

This has grown up over a long period, from well before this Government took office, but it is with us now and we certainly need to look at it. I promise the noble Lord, Lord Wills, that if he would like to pursue this we are open to further discussions. This is the sort of subject that is perhaps appropriate at some stage for a committee of one or other of the Chambers to look at, to see whether the current rights of freedom of information, rights of access, and challenges from electors and others are adequate, or whether there is a systemic problem that needs to be addressed by legislation.

Local authorities are covered by the Freedom of Information Act and information is directly available from the auditor through the right for local electors to ask questions and raise objections. These cover contractual arrangements with private contractors. The DCLG consulted on bringing local auditors into FOI in spring 2011, when the consultation asked whether local auditors should be brought into the FOI Act. The conclusion was that they should not be brought within the Act, because it was believed that doing so would add little to local authorities being covered in the FOI Act, and because provisions in the Bill retain,

“rights for electors to inspect the statement of accounts and audit documents, and to raise questions and objections with the local auditor”.—[

Official Report

, 24/6/2013; col. GC 203.]

As I said in Committee, all respondents to this question said that bringing auditors into the FOI Act would increase audit fees. I shall not repeat the argument that I presented in Committee in resisting these two amendments, but the Government’s door is not closed on this. It is a matter that affects all parties and all those in charge of local authorities, future Governments, this one and past ones.

A previous Prime Minister said that the FOI Act was the single biggest mistake that he thought he had made. We disagree with him. It is painful, but necessary. The universality of outsourcing across a range of areas means that from time to time we need to look at this overall, but we are not persuaded that on this particular occasion in this particular Bill these amendments are necessary or appropriate. With that assurance, I hope that we are open to further discussions and that the noble Lord may be willing to withdraw his amendment at this stage, recognising that the question is not therefore necessarily closed.

Lord Wills: My Lords, I am grateful to everyone who has contributed to what has been a valuable debate and from all sides brought to it a wealth of experience and expertise. I am grateful to the noble Lord, Lord Shipley, for his support. The noble Lord, Lord Palmer of Childs Hill, and the noble Earl, Lord Lytton, brought invaluable experience to bear on these issues, and I am grateful to them. They both made a valid point about the fact that the audit can discover problems only after the fact, and the noble Lord, Lord Palmer, asked me directly why I thought that these amendments would still be valuable in the light of that. They would be valuable for many reasons. Perhaps

15 July 2013 : Column 584

the most important one is that knowing what you do will be subject to public scrutiny is a powerful incentive to getting it right. If you know that what you are doing can be covered up successfully, that is more likely than anything else to ensure fraud, incompetence and inefficiency. I hope that that reassures the noble Lord, Lord Palmer. I am also grateful for the support of my noble friends on my own Front Bench.

I am particularly grateful for what the Minister said; I am grateful to him and his officials for the way that they have engaged with this issue so far. I hope that I am not wrong in detecting just the slightest imperceptible budging from their resistance to these amendments that I saw in Committee, or at least a willingness to carry on engaging with the issues. I welcome this. I also disagree with the view of the former Prime Minister on the Freedom of Information Act and agree with this Minister.

I shall withdraw the amendment today, but I hope that we can return to these issues at Third Reading. The Government have said that they are prepared to look at this again and I welcome that. Even if they do not accept these particular amendments, if they can come up with something better I am happy to discuss that with them. I also ask the Government to look at two issues between now and Third Reading, because they bear on the whole purpose. First, in his response the Minister did not really address my arguments about the inadequacies of the current regime. With all respect to him, he just repeated the arguments in the noble Baroness’s letter to me. I have said why I took issue with those arguments, and I hope that he will look at Hansard and look again at the problems that I have with the regime that is proposed.

Secondly, there is the question of cost. This has not been the time to get to grips with this, but I still think that the argument about costs is unpersuasive. The fact that a consultation produced a predictable response from the predictable vested interests is no argument for government policy to be made on that basis. So I hope that the Government will look at what the actual costs of compliance are likely to be, how much of a deterrent they are likely to be, how far those costs can be absorbed by auditors and how far they would have to be passed on.

I am happy before Third Reading to extend to the Minister and his officials the invitation that he so kindly extended to me in Committee of meeting them again, discussing these issues and seeing if there is a way that we can find some common ground. If not, we will probably have to return to the matter at Third Reading. In the mean time, I beg leave to withdraw the amendment.

Amendment 18 withdrawn.

Schedule 7 : Reports and recommendations

Amendment 19

Moved by Lord Wallace of Saltaire

19: Schedule 7, page 60, line 13, leave out “before” and insert “as soon as is reasonably practical after”

Lord Wallace of Saltaire: My Lords, this amendment makes a small change to paragraph 1 of Schedule 7. It slightly changes the requirements on a local auditor

15 July 2013 : Column 585

when issuing a public interest report. The Bill currently places a duty on local auditors to inform the auditor panel before making a public interest report. The amendment changes that duty to a duty to inform the panel,

“as soon as is reasonably practical after”

making a public interest report. The noble Lord, Lord McKenzie, moved a very similar amendment in Grand Committee. At that time we agreed with the intent of the amendment that the auditor panel should not influence the auditor’s decision as to whether to issue a public interest report. After further reflection, we consider that such an amendment would be a helpful clarification and would reduce the risk that the auditor panel could be perceived to be influencing the auditor’s judgment. I beg to move.

Lord McKenzie of Luton: My Lords, we have Amendment 20 in this group. Obviously, we support the government amendment because it is in keeping with the amendment that we moved in Committee. In Committee we sought to strengthen independent around the process of an auditor issuing a public interest report, and without sight of the government amendment we have retabled our Amendment 20. The sequence has been: in the draft Bill, a requirement to consult with the audit panel; in the current Bill, a requirement to notify the panel before the public interest report is issued; in our amendment, a requirement to notify when it is issued; and now, in the government amendment, to notify as soon as is reasonably practical. This is a progression with which we could not possibly disagree, and we thank the Government for accommodating this point.

Amendment 19 agreed.

Amendment 20 not moved.

Schedule 8 : Advisory notices

Amendment 21 not moved.

Schedule 9 : Data matching

Amendment 22

Moved by Lord McKenzie of Luton

22: Schedule 9, page 74, line 1, at end insert—

“(d) to assist in the prevention and detection of maladministration and error.”

Lord McKenzie of Luton: My Lords, this, too, is a re-run of the amendment moved in Committee, which we consider is unresolved business. Its intent is to add to the purposes for which data matching can be used the prevention and detection of maladministration and error. At present, data matching can be used for the prevention and detection of fraud. The relevant Minister can add certain specified purposes by regulation, but only after a consultation exercise. The prevention and detection of maladministration and error is not currently one of these additional purposes. Accepting the amendment would not immediately bring this purpose within the scope of data matching but would allow it to be included in future after due process.

15 July 2013 : Column 586

The Audit Commission currently undertakes data-matching exercises for the purpose of the prevention and detection of maladministration and error but does so under its audit powers. I refer again to the national duplicate registration initiative relating to GP lists and the role played by data matching. When we asked about how this would proceed in future, we did not receive an answer. Perhaps we can have an answer today. How would that initiative go forward with the Audit Commission having been abolished?

The amendment is only about preserving opportunities for tackling maladministration and error, not extending them, a matter on which I would assume we had common cause. In Committee on 26 June, the noble Lord, Lord Wallace, said:

“I understand that the Audit Commission has already run exercises looking at error rather than fraud, using its other powers and that furthermore, following the abolition of the commission, such exercises might not be possible. I am, therefore, interested in better understanding the outcome of such exercises … and … the risks and benefits of including a power such as that proposed”.—[Official Report, 26/6/13; col. GC 223.]

Will the Minister share with us the conclusions of the further deliberations and discussions with the Audit Commission on this point? I remind him that the amendment enables only the introduction of a power. Further steps would have to be taken before it could become effective.

6.45 pm

We have also discussed before the important role of the national fraud initiative, data matching and the need for the NFI to have a secure home in future. In Committee the Minister said that he hoped to be able to announce by Report what the arrangements would be. We wonder whether he has any news on that front.

We acknowledge that data matching quite properly raises important issues of privacy and the need for there to be robust safeguards. Schedule 9 to the Bill includes these and a requirement on the relevant Minister to prepare and keep under review a code of practice. However, if the Government are to reject this amendment, then it is incumbent on them to explain which powers and processes are to be used in future after the closure of the Audit Commission to replace the efforts to prevent and detect maladministration. I beg to move.

Lord Wallace of Saltaire: My Lords, I begin by informing the House that, following careful consideration of all options, the Cabinet Office will assume responsibility for the national fraud initiative, subject to the passage of this Bill. The transfer to the Cabinet Office will allow the national fraud initiative to continue and develop its effective and important work to complement wider government activities to tackle fraud.

Officials are continuing to discuss transitional issues over the coming months to ensure a smooth handover once the legislation is in place. Perhaps it would be appropriate to remind noble Lords that I am the Lords spokesman on the Cabinet Office. I was indeed being briefed by the Cabinet Office fraud and error team some weeks ago. We are considering whether or not to draft a data-sharing and data-matching Bill for the consideration of the House. We face some very large issues at national as well as at local level, which involve issues of data privacy and identity assurance,

15 July 2013 : Column 587

all of which we need to discuss within the wider framework of national and international consideration of this as well as consideration by local authorities. Noble Lords may remember that in Committee I expressed some surprise at just how far local authorities and the Audit Commission had gone in this direction when the national Government were being very hesitant about how far it would be appropriate to go in some of these areas.

On this Bill, it is the Government’s intention that the data-matching clauses should, before we move towards discussing the much larger issues in the changing digital revolution that we are concerned with at present, remain consistent with the provisions in the Audit Commission Act 1998 to ensure continuity and stability on its transfer to its new home. Amendment 22 would insert a fourth potential purpose for data-matching exercises: to assist in the prevention and detection of maladministration and error. The noble Lord, Lord McKenzie, made a very persuasive case for this amendment in Committee and provided some helpful examples of the types of exercises that the Audit Commission had already run, looking at error rather than fraud, using its other powers.

My noble friend Lord Palmer of Childs Hill rightly highlighted the issue of function creep in relation to data-matching exercises. In doing so, he brought to the House’s attention the need for very careful consideration of these matters, Perhaps I should say that as a liberal in every sense, I am battered on both sides on the question of the convenience that the digital revolution provides us with but also the enormous threats that it offers to individual privacy if we are not careful about how we manage data holding, data sharing, data matching and data mining. I am sure that all noble Lords are aware of the distinctions between all of those. This is a very difficult area, and while the detection of error as well as of fraud is inherently valuable, it would allow the new owner of the national fraud initiative to continue the Audit Commission’s work. Any amplification of ministerial powers in this area therefore requires careful consideration. I assure the noble Lord that my officials are working with a range of interested parties to gain an in-depth understanding of past and potential future uses of this power. This includes representatives from the Information Commissioner’s Office, and I will be meeting the Information Commissioner before the summer on this matter.

My officials are also seeking further advice from the Audit Commission about exercises it has carried out using its other powers and the risks and benefits that such an extension might entail. I look forward to meeting the noble Lord in due course to update him on progress in this area, recognising that we are tip-toeing around the edges of one of the major issues that any future Government will be facing in the next three to five years: how we cope with the explosion of digital information available on cloud computing. I hope with those assurances that the amendment can now be withdrawn.

Lord McKenzie of Luton: My Lords, I must express some disappointment with the Minister’s response. I am grateful for the information on the transfer of the

15 July 2013 : Column 588

NFI to the Cabinet Office and I am reassured that it will be in the safe hands of the noble Lord as the Minister in your Lordships’ House. I share the concern about the enormity of some of the data holding, data sharing and data mining privacy issues. I took it, perhaps from what the Minister said, that there was the prospect of some broader legislation not too far down the track. However, I hang on to my point that this amendment would not extend one little bit what happens at the moment. In fact, the amendment would not even take us as far as we are today with the Audit Commission because it would need those further processes before it came into being. Whatever else is going on and whatever the scale of these other issues—I share the noble Lord’s concerns over those—I fail to see why this provision cannot be taken forward. It seems to me that there is a diminution in the Government’s task of tackling maladministration and error without these powers being available. I do not think the noble Lord explained how they would be dealt with differently once the Audit Commission goes out of existence and how this range of opportunities would be replicated under the new arrangement. I do not know whether the noble Lord would like another go at trying to convince me on that, but it would be helpful if he could. What will happen to the Audit Commission’s current audit powers to deal with maladministration and error? What will replace those just to have an equivalent process when the Audit Commission goes?

Lord Wallace of Saltaire: The Cabinet Office is looking at the issue of fraud and error in government as a whole in a wider context and would like to examine the experience of the Audit Commission further and to feed that into our wider discussion about the future of data sharing, data mining, data matching and that whole area. We do not intend to leave a long-term hole but to treat this within the broader context of what is happening. Some of us have been concerned in rather a different context with the shift from household electoral registration to individual electoral registration, where, as it happens, some of the same issues arise.

Lord McKenzie of Luton: I am grateful for that further explanation. I take the point that this will not just be left lying fallow but that there will be some active consideration of it. I still hang on to my point that the active consideration could take place without implementation by having the amendment in the Bill. If not, we will need primary legislation of some sort in the future to bring it into being as part of the data-matching process, if that is what the conclusion is on further analysis. Having the amendment in the Bill does not mean that it has to be activated, because the Minister has to go through a consultation process to do that. As there is going to be this broader look, it seems to me that the Government have reached the wrong conclusion. They could have adapted the Bill to include this amendment even if they never implemented it. I think we have probably been around this enough, unless the Minister wants to say something further.

Lord Wallace of Saltaire: I note the noble Lord’s preference for belt and braces. I have some doubts about how many pieces of legislation we have passed

15 July 2013 : Column 589

that have not been commenced, so perhaps I am slightly in the other area on this. However, I promise to write to the noble Lord further about how the Government intend to take this forward.

Lord McKenzie of Luton: I am grateful for that. I recognise that the Minister sees this as extremely poor, as, indeed, do the Government. I beg leave to withdraw the amendment.

Amendment 22 withdrawn.

Clause 35 : Disclosure of information

Amendment 23 not moved.

Clause 38 : Code of practice on local authority publicity

Amendment 24

Moved by Baroness Hanham

24: Clause 38, page 23, line 37, leave out “a local authority” and insert “one or more specified local authorities”

Baroness Hanham: My Lords, in June, the Delegated Powers and Regulatory Reform Committee published its report on the Local Audit and Accountability Bill. The report made a recommendation regarding the provisions in the Bill to prevent local authority newsletters unfairly competing with local newspapers. We have considered the recommendations in this very useful report carefully, and this group of amendments is the result of those considerations.

The committee said that in certain circumstances it is inappropriate for powers to make the code mandatory to be exercisable by directions rather than by statutory instrument, and subject to no parliamentary procedure. The committee recommended that, where the Secretary of State wishes to exercise his power to issue a direction to all local authorities in England or to a specified description of authorities, the affirmative resolution procedure should apply. While recognising that there can be circumstances where it is appropriate for the Secretary of State to be able to give directions to a class of, or to all, local authorities, we accept the committee’s recommendation that the exercise of this power in relation to classes of, or to all, local authorities, should be by affirmative statutory instrument.

We also agree with the committee’s implicit view that, where the power is exercised in relation to a single authority that the Secretary of State believes is not complying with the code, it would be appropriate for this to be by way of direction. However, we do not agree with or accept the committee’s recommendation that, where the power is exercised in relation to a single authority otherwise than where the Secretary of State believes the authority is not complying with the code, this should be by negative statutory instrument.

Our aim is simple: to be able to take effective action against those authorities that are giving rise to concern about their publicity, particularly relating to the publication of newspapers. Above all, in the case of such authorities, quick and effective action needs to be taken. These amendments ensure that the Secretary of State can

15 July 2013 : Column 590

continue to take that quick action against individual authorities. In cases where groups of authorities or all local authorities in England are being required to comply with some or all of the publicity code, we agree that this should be by order, subject to the approval of both Houses of Parliament. I beg to move.

Lord Beecham: My Lords, we are now coming to that part of the Bill that reflects several of the obsessions of the Secretary of State, not necessarily of the Minister. It is interesting that the draft Bill committee had, of course, no opportunity to consider these matters because they were not part of the original Bill; they were tacked on to the Bill at a later stage. I suppose we should be grateful that at least the Delegated Powers Committee has had an opportunity to comment on it. In fairness, I am grateful to the Minister and to the Government for accepting at least part of its recommendations, the part that referred to directions given to all local authorities. However, I find it difficult to follow the reasoning for the rejection of the second recommendation about directions to an individual authority.

The committee indicated that a power does not merely afford a specific and targeted enforcement mechanism but could—and would, if the relevant subsection is relied on—have the character of a legislative power. It took the view that it is inappropriate for powers of this kind, to make the code mandatory, to be exercisable by directions rather than by statutory instrument. Hence the two recommendations it made; in fairness, the Government have accepted one of them, although they did not accept the other. That decision was communicated to the committee and is reported in its sixth report, which was printed as recently as 11 July. In fairness, the report was written in June, but it does not indicate exactly when. However, it was considered by the committee only a matter of a few days ago—or at least, its report was published only a few days ago.

7 pm

I do not understand the logic of the Government’s position on the alleged urgency of being able to direct a specific authority, presumably not to publish newspapers or whatever. The report says that if it had been made subject to a negative resolution procedure,

“this could inhibit the policy of being able to take quick, targeted, and effective action against an authority where there were concerns about its publicity”.

I am not sure what concerns the Government have. In introducing the government amendments the noble Baroness spoke to the competition offered to local newspapers by local authorities. That is an issue to which we will return a little later, probably at some length; I am looking at the noble Lord, Lord Tope, at this point. However, competition cannot be stopped, or indeed produced overnight. It is an ongoing process.

Later on in her speech the noble Baroness seemed to hint at the other aspect, of some impropriety about the nature of the publications. In other words, presumably, she meant that it would be wrong for political propaganda to be published at public expense. Again, we will return to some of those issues. I do not follow the urgency in this context. I do not see why censorship—

15 July 2013 : Column 591

which is effectively what this becomes—should take place without parliamentary approval or at least the possibility of Parliament negating such a step. After all, what is the recourse to be? We might find ourselves in a position of judicial review. Fortunately, councils would not have to apply for legal aid, which presumably will not be available under other of the Government’s measures. Nevertheless, one can see the scope for litigation here.

I do not see the urgency that the noble Baroness adduces as a reason for the Government’s stance. Perhaps she could exemplify some of the instances in which, had the Government had the power, they would have used the power they are now giving themselves to intervene in a particular situation. Are there examples of this or is there evidence of the kind of abuse—whether that is competitive or political abuse—to which presumably the Government’s proposals are directed? If that evidence is not there, the Government should rethink their position. This is a significant incursion into the responsibilities of local government, given the existence of a code, and given the steps that could be taken by a variety of sources—to which we will, no doubt, refer again later—if breaches are carried out by authorities.

The other aspect is, as I understand it, that the directions could be given to a number of authorities at large, without specific reference to their particular concerns. I and my colleagues on these Benches are extremely sceptical about both the motivation and the effect of this, and we think that the Delegated Powers Committee’s proposals should have been accepted in full rather than in part. Parliament and not a Minister should be given the unfettered right to determine steps of the kind envisaged by the Bill as it would stand if the Government’s amendments are carried.

Baroness Hanham: My Lords, as the noble Lord knows, on the code of conduct, as regards publicity, and in general, it would be fair to say that the code is probably reasonably well observed among the majority of authorities. There could be occasions—I say “could be” because that is how we need to put it—in which a number of authorities breach all or part of that code, in which case it would be essential that the Secretary of State was able to take action. If it is a large number, there would, presumably, by definition be some really serious element that had come about so that the Secretary of State needed to be aware of it. However, this could do with a further look at in Parliament, and further consultation. We fully accept that that would need parliamentary time.

We already know of local authorities that are breaching the code in terms of a number of publications—what is in the publication and what relates to them at the moment. Since we now know about these it would not be sensible to have to wait and waste a lot of time in delaying taking the direction to stop them, getting them to comply, getting that matter dealt with and moving on.

We have responded in as straightforward a way as we can to the DPPRC’s recommendation, except for on this one area. Indeed, it may be that these individual directions to these individual authorities and would be the most that would be applied. I do not expect there

15 July 2013 : Column 592

to be many; as always, with these things, there are those who breach and cause trouble for the rest. However, there is no doubt that we would expect or hope to continue with the provisions in the Bill as have been outlined and, for the reasons that I have said, that it makes sense to get individual local authorities to stop what they are doing as quickly as possible. They are probably just breaching individual aspects of the code.

Amendment 24 agreed.

Amendment 25

Moved by Lord Tope

25: Clause 38, page 23, leave out line 38 and insert “where the Secretary of State is satisfied that a local authority has failed to comply with the code under section 4”

Lord Tope: My Lords, I shall also speak to Amendments 28, 30, 33, 35, 36 and 37. Before doing so, I must, for the first time in your Lordships’ House, declare my interest as a vice-president of the Local Government Association, now for very nearly two weeks. It gives me great pleasure to do so, and to begin by not doing what the LGA will not wish me to do. The LGA remains resolutely opposed to Clause 38; we will have an opportunity very shortly to look at that. The preferred position of the LGA—and, I think I am right in saying, of all the political groups in that body; it most certainly is the position of my own Liberal Democrat group there—is that it would prefer to see the deletion of the clause entirely.

I have tabled this collection of amendments because I recognise that the Government will not be able to agree to do so because the terms of the coalition agreement state:

“We will impose tougher rules to stop unfair competition by local authority newspapers”.

That is what is in the coalition agreement, and the Bill is the vehicle that the Government have chosen to implement that part of the agreement. I accept that I, too, am bound by that agreement. My clutch of amendments is therefore an attempt to meet the terms of the agreement which I personally signed up to, as did my party. However, it is targeted, rather than the broad-brush approach that the Government seem to have at present.

The problem with Clause 38 is that it is rather more than a catch-all, although it does apply to all local authorities. It gives the Secretary of State power to intervene, regardless of whether the local authority is complying with the code or not. That is not in accordance with the coalition agreement which is quite specific about dealing with unfair competition. In reality, it means that those authorities—if there is more than one—which are producing a weekly newspaper, paid for by commercial advertising that arguably might have gone to a local commercial newspaper, are in competition with that local newspaper. That part of the agreement attempts to give some protection to local newspapers going through a difficult—probably terminal—period. Whether that is a correct analysis of the situation for local newspapers—and it certainly is not a complete analysis, nor is it a subject for debate today—that is the position we are in.

15 July 2013 : Column 593

Amendments 25 and 28 seek to limit the rather wide-ranging power that the clause currently gives to the Secretary of State and to target it on those authorities deemed to be in breach of what is, at the moment, a voluntary code. That gives the Secretary of State the power—which he feels is insufficient at the moment—to deal with a real problem and not just the threat of a possible problem. We all accept—and the Minister has said many times that she accepts—that the overwhelming majority of local authorities, regardless of their political complexion, are complying with the code, have shown no signs of not doing so and are certainly not coming under the terms of the coalition agreement.

Amendment 25 and Amendment 28 are the targeted approach. Amendment 30 and Amendment 36 simply extend the period in which the Secretary of State has to give notice of a direction from a very short 14 days, which includes non-working as well as working days, to 28 days. This is in accordance with best practice; it is certainly in accordance with common practice. It gives a local authority a reasonable, though not a long, time to make its case if it feels that the direction is misplaced—as any local authority in that position is very likely to do; otherwise it would not have put itself in that position in the first place.

Amendment 33 and Amendment 35 state the method by which the Secretary of State has to inform an authority. At the moment the clause is silent on how this is to happen. I have a horror that it is likely to be done via a press release from the Secretary of State—something for which he is quite well known. The first the local authority might know of the fact that it is the target would be if it were to receive something through the media in the language that the current Secretary of State is renowned for using. So these amendments state how the Secretary of State must issue that direction.

7.15 pm

Amendment 37 asks the Secretary of State to take into account whether acting outside of the code is in the best financial interest of the local taxpayer. When the Minister replies, I hope that she will say a bit more about what exactly is to be caught by making this code statutory. Local authorities seem to have a lot of concerns that restricting their publications is inadvertently going to cause them to spend more money promoting policies or matters not of political but of public interest—such as public health. There is quite a lot that a local authority has and will have to do in raising and publicising such issues and in campaigning. The briefing quotes examples ranging from job advertisements to information about bank holiday opening hours of recycling facilities. I find it hard to believe that the Secretary of State is going to intervene because he believes that a local authority is in breach of a publicity code over the bank holiday opening hours of recycling facilities. However, this is an example of the sorts of concerns—real or exaggerated—that local authorities have about making a code statutory.

Since we all agree that very few local authorities are currently or likely in the future to be caught by this, I hope that the Government will consider what more they can do. Perhaps the Minister can give further

15 July 2013 : Column 594

reassurance that—as things stand, and as we expect them to stand—the vast majority of local authorities which comply voluntarily with a voluntary code and are not a cause for concern, will not be affected if and when this becomes a statutory provision.

I am proposing this group of amendments to try to remove the blunderbuss approach that seems to be worrying a very wide range of authorities. That is why all parties in the LGA are concerned. It is not because their local authorities are in breach of the code; it is because of the wide-ranging powers that it is giving to the Secretary of State. These are entirely contrary to the much talked about—but not so often seen in practice—localism to which my Government, and many of us in my Government, are committed, which is a targeted approach. I think that most of us here would accept that there is a problem with the activities of one or two local authorities going too far perhaps with a commercial weekly newspaper, or occasionally in party-political rather than in general political terms, and that that problem needs to be dealt with. Clearly the Secretary of State feels that the powers he has at present are inadequate—although I do not recall the Minister telling us why they are inadequate—and the coalition agreement implies that this is so.

I would like to take this a little further and obtain some clarification about what exactly may be caught by these provisions. I have seen it said that when this is enacted it will mean that local authorities will no longer be able to lobby their own local MPs. That has been said, although I find it hard to believe. Perhaps I may ask the Minister what will be the position for those local authorities that, for instance, might wish to oppose a third runway at Heathrow Airport, should that become a probability or even a government policy. Are they able in the interests of their own local taxpayers to express a view, which is almost certainly an all-party view within that local authority, even if it is contrary to government policy? Will the local authorities on the line of HS2 be allowed to express a view—again, I suspect that it is likely to be an all-party view as well as the view of an overwhelming majority of residents in that area—which may not comply with government policy or with views that I personally hold, although that is not material?

If they are able to speak on behalf of their residents in opposition to government policy, how far does that go? Before long, we would come to welfare reform issues. Of course all of us accept that a council should not use public money to operate on a party-political basis, but how far can it go in being able to reflect the views of local residents on an issue of wider national concern, regardless of party politics? I suspect that all of us would say that it is the responsibility of the local authority to represent and to argue the views and interests of its local residents, and if it did not, or it felt inhibited in doing so, then it would be failing those residents. So these are the sorts of issues that the move from a voluntary code, with which the overwhelming majority of local authorities comply willingly, to a statutorily backed code—with all the accompanying concerns, issues and fears, groundless or otherwise—starts to raise.

15 July 2013 : Column 595

This batch of amendments is an attempt to target the remedy, where remedy is needed, and not to cause the widespread concern that is currently held. I beg to move.

The Earl of Lytton: My Lords, I willingly gave my name to the amendments in this group. Like the noble Lord, Lord Tope, I did not feel that this was the right stage of the Bill to argue about whether Clause 38 should stand part, although I am aware of the LGA’s concern on that. It leaves hanging the question of justification, to which the noble Lord, Lord Tope, referred. The rule seems to be designed to deal with the very few, to the potential disadvantage of the many. That is a questionable approach. The purpose of Amendments 25 and 28 is to address this.

On Amendments 30 and 36, the period of 14 days is manifestly too short for the sort of notification and response that is required in this situation. I am advised that 28 days is regarded as appropriate and the norm. Will the Minister be kind enough to explain why the norm must be cut in half?

Amendments 33 and 35 concern the basis on which the Secretary of State will inform an authority—perhaps he might choose to do so by text message to the chief executive, or something like that—and the clarity of the procedures for that confirmation, which are worthy of being tightened up. I hope that there will be a favourable response to that suggestion as well.

On Amendment 37, it seems that the present code allows for latitude in what the authority shall “consider” or “have regard to”. It might be a value-for-money consideration or something like that. The question is whether, in transition from the current voluntary code to the proposed statutory code, the latitude will continue to be there. That is the nub of the question, and the bit that has not yet been answered satisfactorily. Having said that, I very much support the thrust of the amendments in this group.

Lord Beecham: My Lords, as I listened to the noble Lord, Lord Tope, moving his amendment—which, given an opportunity, we would support, faute de mieux—I was reminded of the remarkable film of the man who walked on a high wire between the Twin Towers in New York. It was an extraordinary experience. With this amendment, the noble Lord is navigating the gap between the Bill and the coalition agreement. I do not recommend that he emulates the high-wire artist, because he is very likely to fall precipitately to the ground, judging by what he has advanced tonight.

To begin with, the noble Lord assumes—he may be right—that the Government’s proposals are directed at unfair competition. That is the term used in the coalition agreement. It may be the case, but what constitutes unfair competition is far from clear. What the evidence is for unfair competition existing is even less clear. I will quote, as I did in Committee, from material supplied by the National Union of Journalists. One might have thought that it would be fairly sympathetic to the Government’s point of view, since journalists’ jobs are presumably more at risk if there is unfair competition in the newspaper industry than are the jobs of a handful of local government press officers. The NUJ pointed out:

15 July 2013 : Column 596

“The last select committee charged with investigating the matter, observed that there was no evidence of a link between high-frequency local authority publications and the decline of ad revenue, circulation etc of the local press in the local authority catchment area”.

It also pointed out that the Audit Commission—perhaps this is one of the reasons that it is being abolished—in 2010,

“effectively debunked the assertion of newspaper proprietors that local authority publications represented unfair competition and were commercially damaging to other local newspapers”.

The Audit Commission found that the money spent by councils was not unreasonable, that few council publications were published sufficiently frequently to be a viable media for most local advertising, and—a matter to which no doubt we will return—that the current accountability framework would ensure that any misuse of public money could be dealt with.

Those are fairly strong views by an interested party that, one might have assumed, would be sympathetic to the Government’s position but is not. Its evidence is substantial in that respect. It also points out that the press began reducing its workforce many years ago, and that already something like 61% of local newspapers in the area it contacted had closed or struggled. One reason was the decline in advertising revenue, but it was not to be attributed to local authorities including advertising in their publications, because, as the Audit Commission pointed out, in almost all cases the publications were too infrequent to have that impact. Some 55% of newspapers cited competition from the new media.

It does not stop there. There are free newspapers in circulation. The Evening Standard is a free newspaper. I am not sure about the new paper launched by the Independent. It may be free, or cost a nominal amount. Some of the newspaper groups themselves publish freesheets. Metro is published by a newspaper group and carries advertising. Therefore, the notion that somehow local authorities are responsible for the difficulties is ludicrous.

Even if local authority publications constituted competition, to what extent would it be unfair? Is it unfair because the publication is free, or in some other way? Are advertisers not able to make a commercial judgment about what would suit them better? I should have thought that that was central to government policy. The proposal to dismiss the Government’s suggestions here would not constitute a breach of the coalition agreement because there is no evidence that the unfair competition part is at all relevant to what the Government are trying to do.

There is another issue. The Government’s proposals would apply to the code, but the code can change. We do not know what restrictions the next code will bring in. Most of the code, as it stands, is fairly reasonable and acceptable. I dispute the necessity to limit titles to four publications a year, but most of the rest is fairly balanced. What is to stop the Government tightening the code and deciding on a range of things beyond those that they now say should not be published—or, conversely, should be published—in local newspapers? This would give a blank cheque to a Secretary of State to tie the hands of democratically

15 July 2013 : Column 597

elected local authorities in terms of how they communicate to their electorate, who, after all, should have the final say in what is done locally.

Of all Secretaries of State, the present one is the last person I would like to see entrusted with those powers. I would be quite happy, or relatively happy, for the noble Baroness to have that power but I would not be at all happy to have the present Secretary of State exercising it. Nothing in the Bill would prevent him tightening up the code and using this mechanism to ensure that it is enforced. My preference is for the whole clause to go. I am anticipating what may be said, perhaps rather more briefly, in a subsequent debate. The noble Lord’s amendment would moderate the damage but in my view he should have stuck to his guns and his party’s principles and recognised that he would not breach the coalition in so doing. Then we could have perhaps exercised a bit more leverage on his coalition partners, for the time being, and improved the Bill rather than allowing it to go forward to the statute book in its present form.

7.30 pm

Baroness Hanham: My Lords, I am probably in danger of saying the same thing three times as there is no doubt that these amendments stray into each other. We have heard some pretty wide comments on the code as it stands, which probably go slightly wider than the intention behind the noble Lord’s amendments. None the less, we should be very clear that we are talking about the publicity code. I think that guidance is given to local authorities on seven aspects of the publicity code, their behaviour in relation to it and what it involves. It is a statutory code but compliance is voluntary at the moment. If the Secretary of State had to intervene, it would become mandatory only as regards the aspects on which he gave directions, if that was done across the board. If the Secretary of State gave an individual direction, that would be mandatory only for the relevant local authority. This is not a case of putting the whole code on a mandatory basis but of directing local authorities where they are seriously breaching the current code. We are interested only in those local authorities—and there are some—which are giving rise to concern about their publicity because they are producing far too many weekly or fortnightly publications—the terms of the code are three monthly—or are going beyond the reaches of propaganda or stepping outside what they should be doing and producing publicity which is too political. Those are the areas we are dealing with. As I have said several times, I totally accept that the majority of local authorities comply with the code without thinking about it. It is part of their lives, as it were, and they do not set out to breach it. However, some do and this Bill gives us an opportunity to make sure that they are put under some constraint.

Amendment 25 would require the Secretary of State to be satisfied that a local authority had failed to comply with the code under Section 4. The amendment is not necessary and inappropriate. It would needlessly complicate and risk delaying the exercise of the power of direction, which, as I have explained, needs to be quick. Having the making of a direction formally

15 July 2013 : Column 598

conditional on this simply opens the door to even more debate, argument and delay. That is not compatible with our aim of rapid, targeted action.

Amendment 28 would remove the power for the Secretary of State to give a direction to an authority whether or not he thinks that authority is complying with the code to which it relates. This would remove the Secretary of State’s power to issue a direction where there was doubt over compliance with the code in the future. It is right, when legislating for a new provision, to ensure that as far as possible the provisions cater for different eventualities so that you do not have to keep coming back to the various aspects but cover them so that they do not need to be followed up.

Amendment 30 would lengthen the period a local authority might continue not to comply with the publicity code. The noble Earl, Lord Lytton, agreed with my noble friend Lord Tope that the 14-day period was too short. Local authorities will know perfectly well when they are breaching the publicity code, so a two-week notice period is perfectly reasonable under those circumstances. The notice must be given in writing. A text message or an e-mail will not do. A formal notification must be given, marking the start of the 14 days’ notice. I am sure that the local authority concerned would have plenty of time to raise its concerns.

I return to the important point made by the noble Lord, Lord Beecham, on the form of the code. The Secretary of State cannot just change the code any old how. Any changes to the code would have to be approved by both Houses of Parliament, and any revision to it can be made only through the negative resolution procedure, so it would have to come before this House. The noble Lord shakes his head but a negative resolution can be turned into a proper debate in this House, as he knows as well as I do. The revision must be laid in draft before each House of Parliament and cannot be laid until after 40 days. This is the norm. If you laid the changes before 40 days, the noble Lord, Lord Beecham, who keeps an eye on these things, would leap on it after day three. If either House votes against the proposed change, it cannot go ahead. I think that is more or less the situation with any such proposal.

Amendment 35 is similar to the amendment on the notification. I think it is intended to require the Secretary of State to write to individual local authorities—I have already indicated that he will—modifying or withdrawing a direction. Any notification between the Secretary of State and a local authority would have to be in writing.

Our amendment, which makes provision that the exercise of the power by the Secretary of State to ensure compliance with the code in relation to all local authorities in England of a specified description, or to all local authorities in England, should be made by an affirmative statutory instrument, removes the need for these amendments. It would be highly unusual for an order-making power to be subject to a requirement for the Secretary of State to bring it to the attention of relevant authorities. To make special provision for the publicity code in this instance would bring confusion to other order-making powers, and is unnecessary.

Amendment 36 would build on Amendment 30 which, as I have said, would lengthen the period a local authority might continue not to comply with the

15 July 2013 : Column 599

publicity code. For the reasons I have set out and because we wish to move swiftly where there is an abuse of taxpayers’ money, I see no reason to extend the 14-day period.

Finally, Amendment 37 would require that a direction must take into account whether the authority has demonstrated to the external auditor that acting outside the code is in the financial interests of the authority to whom a possible direction may apply. This amendment would, I am afraid, once again delay the process. Local authorities know when they are spending too much money. In some circumstances, local authorities can act outside the code and issue notices, leaflets and newsletters as long as they are straightforward. I think that we will discuss that later.

This is also unnecessary. The provisions already allow local authorities to make representations before a direction is made requiring them to comply with the code. The 14 days does give them an opportunity to comply. Those representations could include a view from the auditor if the local authority wants it, but we would not require it. Taken as a whole, we do not consider the amendments necessary. I do not suppose that the noble Lord will be entirely reassured by what I have said but we have other amendments and we will no doubt consider them even further. I hope that from what I have said so far, the noble Lord will be happy to withdraw his amendment.

Lord Tope: My Lords, I am grateful to the noble Earl, Lord Lytton, for clearly supporting my amendments and putting his name to them. I am not entirely clear whether the noble Lord, Lord Beecham, was supporting them, grudgingly or not, but I am grateful to him for at least recognising my high wire act. I shall endeavour to remain on the wire. I am grateful to the Minister for at least a detailed reply on the amendments. To say that I am disappointed would imply that I had higher expectations in the first place. I am sad to say that I probably did not.

I was surprised at the Minister’s dismissal of the issue of the 14 days to 28 days notice, as 28 days is normal, good practice. It is hard to understand what is to be of such urgency that it can be dealt with under the 14-day notice but is so urgent that it cannot be dealt with in 28 days. I am surprised more than disappointed. The Minister will know that these provisions are causing widespread alarm, much of which I believe to be understandable but misplaced. I hope that in her further replies, which she herself said she will have to make, she will give greater reassurance on a number of the examples that I gave in moving the amendment—whether they are of the more standard publicity-type notices that local authorities issue, such as bank holiday recycling arrangements or notices about public health, or the rather more difficult ones concerning the third runway or HS2. I hope that we can get some reassurance on that.

A great majority of authorities cope within the voluntary code but we know that most local authorities are risk averse. They need to be and should be risk averse. They are advised by lawyers who are by nature risk averse. I fear that the consequences of what we are doing here will be far greater than even the Secretary

15 July 2013 : Column 600

of State intends. We will continue with this issue. I am quite certain that it will continue throughout the passage of the Bill. I hope that the Government will be willing not to dig in their heels but to look at how they can better and more specifically achieve their objectives than is currently the case. I beg leave to withdraw the amendment.

Amendment 25 withdrawn.

Amendments 26 and 27

Moved by Baroness Hanham

26: Clause 38, page 23, line 38, at end insert “or those authorities”

27: Clause 38, page 23, leave out lines 39 to 42

Amendments 26 and 27 agreed.

Amendment 28 not moved.

Amendment 29

Moved by Baroness Hanham

29: Clause 38, page 24, line 11, leave out from “a” to end of line 17 and insert “direction to an authority, the Secretary of State must give the authority notice in writing of the proposed direction.”

Amendment 29 agreed.

Amendment 30 not moved.

Amendments 31 and 32

Moved by Baroness Hanham

31: Clause 38, page 24, line 20, leave out from “it” to end of line 22

32: Clause 38, page 24, leave out lines 25 to 28

Amendments 31 and 32 agreed.

Amendment 33 not moved.

Amendment 34

Moved by Baroness Hanham

34: Clause 38, page 24, line 30, leave out from “section” to end of line 35 and insert “by notice in writing to the authority or authorities to which it was given”

Amendment 34 agreed.

Amendments 35 to 37 not moved.

Amendments 38 and 39

Moved by Baroness Hanham

38: Clause 38, page 24, line 44, at end insert—

“4B Power to make order requiring compliance with code

(1) The Secretary of State may by order made by statutory instrument impose a duty on all local authorities in England, or all local authorities in England of a specified description, to comply with a code issued under section 4 that applies to those authorities.

15 July 2013 : Column 601

(2) An order under this section may impose a duty to comply with—

(a) one or more specified provisions of a code, or

(b) all of the provisions of a specified code.

(3) A order under this section may—

(a) specify the steps that an authority to which the duty applies must take to comply with it;

(b) specify the time within which such an authority must comply with the duty.

(4) The Secretary of State may make an order under this section which applies to an authority whether or not the Secretary of State thinks that the authority is complying with the code to which the order relates.

(5) An order under this section—

(a) may make different provision for different cases or classes of case, including different provision for different descriptions of local authority;

(b) may make incidental, supplementary, consequential, transitional or transitory provision or savings.

(6) A statutory instrument containing an order under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.

(7) In this section “specified” means specified in an order under this section.”

39: Clause 38, page 24, line 45, leave out “section 4A” and insert “sections 4A and 4B”

Amendments 38 and 39 agreed.

7.45 pm

Amendment 40

Moved by Lord Beecham

40: Clause 38, page 24, line 46, at end insert—

“(3) In section 4 of the Local Government Act 1986 (codes of recommended practice as regards publicity) after subsection (8) insert—

“(9) In respect of the characteristics set out in section 4 of the Equality Act 2010, nothing in section 38 of the Local Audit and Accountability Act 2013 shall restrict the rights of authorities in pursuance of their obligations under section 149 of the Equalities Act 2010 to publish at any time factual material by way of correction or rebuttal of inaccurate statements which promote discrimination, harassment or promotes or constitutes other unlawful acts.””

Lord Beecham: My Lords, this amendment stems from concerns raised at a meeting of the all-party group inquiry into electoral conduct, to which I referred in Committee. Doubts have been expressed about whether it would be possible for local authorities at any time, but even during elections—perhaps especially then—to correct mis-statements of fact that could give rise to problems in relation to the Equality Act, such as racist or discriminatory statements that might apply to particular groups.

The noble Baroness said that she would look into this and write to me to clarify the position. I am grateful to her for doing that. She confirmed that it is permissible for local authorities to do exactly that, even during an election period, which is probably the most urgent time, provided that it is a factual statement. The purpose of the amendment is simply to allow the Minister to repeat for the record and Hansard the assurance that that is the position. That would be of some comfort to electoral officers and local authorities

15 July 2013 : Column 602

that might be confronted with this situation. Given some of the things that are being said up and down the country by various groups, it is likely that at some point local authorities will feel constrained to issue material of that kind, perhaps during an election period. It would be good to have that assurance on the record. I am extremely grateful to the noble Baroness and indeed to the Government for acknowledging that perhaps there was a doubt and for clearing it up so comprehensively.

Baroness Hanham: I am happy to confirm what I have written to the noble Lord and I will read it out. The publicity code explicitly provides for a local authority to correct or rebut misinformation, making explicit provision in the sections about objectivity and care during periods of heightened sensitivity. Moreover, it contains provisions about equality and diversity, specifically allowing local authority publicity to seek to influence the attitudes of local people or public behaviour in relation to matters including equality, diversity and community issues.

During an election period, for example, local authorities may publish factual material. A local authority should take care when issuing publicity and should not be issuing publicity that seeks to influence voters. However, this does not prevent an authority from fulfilling its role in seeking positively to influence people in terms of equality and diversity. Hence if there is disinformation in circulation promoting harassment, a local authority may take action to correct it at election time or indeed any other time. The provisions in the Bill do not change the contents of the publicity code that have been agreed by Parliament. Rather they give the Secretary of State the power to ensure that taxpayers’ money is not being wasted by local authorities by disregarding the publicity code. Nothing in the publicity code prevents local authorities addressing issues of discrimination or harassment and tackling them head on. No local authority can claim that the provisions in the Bill to tackle non-compliance with the publicity code prevent them complying with the Equality Act.

In short, this amendment is not necessary and I hope that, with the reassurance that I have given the noble Lord and what I have said in the House today, he will be willing to withdraw the amendment.

Lord Beecham: Indeed, I am, and I repeat my thanks to the Minister for making the position clear. Now it is on the record. I beg leave to withdraw the amendment.

Amendment 40 withdrawn.

Amendment 41

Moved by Lord Beecham

41: Clause 38, leave out Clause 38

Lord Beecham: My Lords, in the parallel universe occupied by the Secretary of State, Pulitzer prize-style municipal correspondents can no longer haunt the corridors of town halls, rigorously holding local authority leaders and councils to account. They have now been supplanted in his imagination by what he describes as

15 July 2013 : Column 603

“town hall

Pravda

s”. To adapt a phrase, it seems that the local authority devil wears

Pravda

. In so doing, the local civic newspapers disseminate propaganda at public expense.

As I have demonstrated, there is very little evidence to support any of that, still less that the effect has been damaging to the local media. On the contrary, local media have very consciously and over many years withdrawn from reporting local government. I remember in the early 1980s, when I was leader of Newcastle City Council, urging the BBC to appoint a local government correspondent. They had a very good reporter there who has now made a national reputation, Mr Michael Blastland, who covered local government and much else. That was rather unusual for a local television and radio station, but it was not by any means a full-time job and the idea did not seem to catch on.

Furthermore, at a later point, the local papers in Newcastle, the Journal and the Evening Chronicle—which, strange to say, my constituents and those of the noble Lord, Lord Shipley, when he was a councillor and leader of Newcastle City Council, were able to distinguish from the city council newspapers occasionally distributed, contrary to what the Government appear to think happens in the real world—apparently decided that they would reduce the amount of coverage of local affairs. They attended meetings and contacted members of the council, me and others, less frequently.

I raised the point with them and made it nationally as well. The Journal in Newcastle, the morning newspaper, said that it had conducted a survey and its readers were not interested in local affairs. Therefore, it ceased to be to any extent a paper of record, which is what good newspapers ought to be. It did this not because of competition from half a dozen issues of Newcastle City News but because, in its judgment, the readers were not interested. Some of us like to think that the virtue of local media is that they seek to educate and inform the local community. They have abdicated that responsibility; they have done it of their own volition and it is ridiculous to suggest that that has been caused by local authorities.

The conflation of a variety of issues that have been adduced to support the Government’s position on the whole issue of a code of publicity is entirely unconvincing. There is no significant cost to local authorities. There is no evidence, as I have already reported, via the National Union of Journalists, that it has had an impact on the circulation of local papers and the decline of revenue. On the contrary, there are many other explanations, which I will not rehearse again. As for the other main argument, that there is a danger of political abuse by some of these papers advocating a party line or support of the authority in control of the local council, of course that can and should be dealt with without a code, because it would be unlawful as matters stand to conduct propaganda in that way.

We have debated at considerable length the role of the auditors. The auditors have a responsibility in this and other matters. They are entitled to look at whether council expenditure, in the area of publicity, for example, is lawful and appropriate. In addition, there are other sanctions that can be applied, including, in extremis I suppose, judicial review. Therefore, both props of the

15 July 2013 : Column 604

Government’s case fail. It is not necessary to emulate the man on the wire to deal with these matters. It is simply the case that the Government are overreaching themselves.

I have to comment on the hypocrisy of a Government who allow, possibly promote, their Civil Service spokesman to make statements using the personal pronoun. Therefore, government spokesmen—not Ministers, or even MPs or Peers—in the form, presumably, of press officers or civil servants are all too often quoted as saying, “We are taking action on it”. It might be on welfare benefits or whatever. That is a politicisation of the Civil Service that is a step too far. It happens all too regularly. I do not say that it did not happen under the previous Government. I cannot recall such events, but it may still have happened. Under any Government, it is wrong for that to happen. If that were to happen in local government, there would be a legitimate outcry. It would be quite wrong for a chief executive or an officer of an authority to use the personal pronoun on a political issue, as opposed to saying that it is the council’s policy.

In addition to all the other grievous sins of omission and commission that the Government commit in this area, this is something that they ought to look at on their own account before they descend on local authorities in the way that they propose in the Bill. Again, I remind your Lordships that the draft Bill committee was given no opportunity whatever to discuss matters of this importance. It is not surprising that the Local Government Association is completely united across the political divide about this, hence my amendment opposes that the clause should stand part.

Baroness Hanham: My Lords, the trouble with clause stand part debates is that they tend to come after everything else has been said. The danger is that one says it all over again. As I said, three groups of amendments have all covered more or less the same ground. I must ask the Chamber to forgive me if I cover some things that have already been said. It is clear that the Government do not see the situation in quite the same way as the noble Lord, Lord Beecham, has laid out tonight, nor as the Local Government Association has seen it in wanting all these provisions removed. We do not believe that should happen. We accept, as I said, that the great majority of local authorities will never breach the code. They will always do, and be guided by, the right thing.

I shall not say which local authorities we already know are breaching the code. I have them. I could do it, but I think it is probably not helpful. I hope noble Lords will accept my assurance that at least a dozen are breaching it at the moment. Either they are publishing publications, very frequently, outside the terms, or they are including propaganda or their own political statements. It is there and it is wrong; that is not what was meant to happen. As I say, with legislation the opportunity comes to try to put that right. Once again, it is putting it right for a minority—I totally accept that—but put it right we must. The Secretary of State is not taking very draconian powers. If the Secretary of State would have to put a broad direction out to a whole lot of authorities, we would be very worried about what local authorities were doing. That

15 July 2013 : Column 605

provision is there in case it is needed, but we are much more concerned at the moment about the individual authorities doing individual transgressions.

There are two elements of this, as I have said right from the outset. The provisions are necessary to make sure that taxpayers’ money is not abused; to see that local authorities produce publicity, not propaganda; and to ensure that local newspapers—which the noble Lord, Lord Beecham, slightly downgrades—hold local government to account. They are often full of what is going on; they are the proper means by which that should be done. The provisions do not change the publicity code itself; the guidance remains the same, allowing local authorities to communicate effectively with their communities. However, the clause provides the Secretary of State with the power to direct one or more authorities, as I have said. The clause also sets out the procedure to be followed, as we discussed—14 days’ notice in writing—and provides for a direction to be modified or withdrawn in writing.

8 pm

We believe that these provisions are necessary. A recent Ofcom ruling criticised one local authority for spending taxpayers’ money on political advertising, which showed that weekly local newspapers are not the limit of ambition, nor the limit of disregard, for a publicity code agreed by Parliament. The provisions are balanced, because once a Secretary of State gives notice of issuing a direction, the local authority has the opportunity to make representations about the need for that direction but has a default two weeks in which to do it. They are sensible, because the clause, along with these provisions, includes provision to withdraw or modify the direction.

The provisions give the Secretary of State the flexibility to make a direction requiring compliance. As there is currently widespread compliance, we hope and expect that these measures will not be necessary, although effectively they may be. We are not opening the door to action that could be detrimental to local authorities. As I have said, if local authorities are complying with the publicity code, they have nothing to fear. There is certainly nothing to prevent local authorities combining to oppose something which is not in the interests of their communities.

The noble Lord, Lord Tope, asked about lobbying. This is about written publicity in terms of advertising or leaflets. Local authorities have the responsibility to look after their communities. If they feel that there is something detrimental, they can do that. As for lobbying Members of Parliament, if any leader worth their salt is not able to contact their local Member of Parliament, it seems to me that somewhere along the line there is a rotten relationship.

We believe that these provisions are necessary, even though they are for a small group of authorities at present which may very well, by the time the Bill is passed, be complying automatically. I ask the noble Lord to withdraw his amendment and leave the provisions in the Bill, where we believe they belong.

Lord Beecham: I thank the Minister for her reply, of course, but I simply do not recognise the world she describes. I am in my 47th year as a councillor in

15 July 2013 : Column 606

Newcastle and have seen very successful journalists, now on the national stage, cutting their teeth as municipal correspondents on both the morning and evening papers in Newcastle. I have seen them coming to council and committee meetings and telephoning and speaking to members of the council, leaders and opposition leaders over the years. There was then a gradual decline, from about the late 1980s. Journalists now very rarely attend council meetings and hardly ever attend a scrutiny meeting—a function that ought to be made more of in local government and in the local media. As I understand it, they rarely contact officeholders.

We all agree that the local broadcast and print media should be informing people and helping to hold local government, and indeed other public organs, to account. However, the fact is that they are not doing it and they are not doing it because they are facing a cyclical decline as they are overtaken by other forms of media, to which I fear most of us are contributing these days on our BlackBerrys or iPads. The world has moved on, which is unfortunate, and it seems entirely wrong that the Government should seek to restrict what councils themselves can do to explain what is happening to their communities in the way that is being described. It would of course be wrong for them to use these publications for political purposes; as I have already indicated, that can and ought to be dealt with under existing audit procedures or otherwise. However, it is clear that the Government are not going to move on this—the entire Government, as the coalition partners are unfortunately united—and, in that case, there is no prospect of this amendment carrying. I therefore beg leave to withdraw it.

Amendment 41 withdrawn.

Clause 39 : Council tax referendums

Amendment 42

Moved by Lord Beecham

42: Clause 39, page 26, line 14, leave out subsection (15)

Lord Beecham: My Lords, this amendment refers to the Government’s proposal—which, again, was not subjected to scrutiny by the draft Bill committee—to introduce, effectively, an element of retrospection into the question of whether a referendum should be held. The Bill affects councils that have set council taxes for 2013-14 that would have been excessive if the clause becomes law, by virtue of the change that the Government are imposing in relation to levies by other organisations. Fortunately, it turns out that only a small number of authorities would be affected by the Government’s proposals. Those authorities are Wandsworth—an authority well known to the noble Baroness and other noble Lords—Bolton, Bury, Manchester, Oldham, Rochdale, Stockport and Tameside. There is clearly a clutch around the Greater Manchester area, which presumably relates to some joint organisation in that area which collects a levy. Why Wandsworth should be affected, I really cannot say, although that does not really matter.

15 July 2013 : Column 607

In Committee, the Minister indicated that councils had been notified by, I think, 31 January, that this might happen. However, that is a very late stage in the budget-making process, and it would have been very difficult at that stage to have reduced their council tax to the level which, if the Government were to apply the new rules, would have been operative. I repeat that the problem is not about the council’s own budget, it is about the levy imposed by other organisations. Had it been a precepting authority, the precepting authority itself could have had to call and finance a referendum on its own budget.

Many of us are extremely unhappy about the whole concept of these compulsory referendums, which of course do not apply when the Government increase taxes, with a considerably greater effect on the household budget than a corresponding increase in council tax. A 2% VAT increase takes a lot more out of people’s pockets than a 2%, or even slightly higher, council tax increase. Be that as it may, the effect is curiously different between a levying body and a precepting body; a levying body simply passes the cost on. The total amount of money is not enormous and would seem to amount to some £7.3 million. If the councils had been able to reduce their council tax to match the levy that they have had to impose, that would have been the cost to them, to be taken out of services. Nevertheless, it is a significant encroachment and, of course, if that were now to trigger a referendum—because the referendum limit becomes lower in future and councils may feel that they have to go for one—the cost of that, across these authorities, is likely to be pretty much the amount of the total levy across all those authorities. It is a bizarre situation. Given that it is now clear that it applies only to a very small number of authorities, in one particular cluster—in what, by the look of it, must be the special circumstances of Greater Manchester—I hope that the Government will reconsider this matter.

I suppose the Government do not have to apply the provisions of the Bill. If they do not want to amend the Bill and they want to reserve the power, so be it, but I strongly urge the Minister to think again about imposing this. It is wrong in principle, and it is an unnecessary reaction to what turns out in any event to have been a pretty small problem in terms of the number of authorities and the cash affected. It would be a statesmanlike move on the part of the Government to accept that perhaps, in the circumstances, they rather overreacted, fearing worse than has actually transpired, and to indicate that at the very least they would reconsider whether to proceed with the implementation of the clause, if they insist on its standing part of the Bill. I beg to move.

Lord Shipley: My Lords, I speak in support of Amendment 43, and will be brief. I agree with the noble Lord, Lord Beecham. I think it is bad policy to backdate the definition of an excessive council tax rise so that it includes a levy from April 2013. I understand that in January this year letters were sent out to local authorities suggesting that the Government might take this course of action. I will say two things about that. The first is that it is simply not enough notice. Council

15 July 2013 : Column 608

tax-setting takes much longer than just a few weeks. There is a requirement that council tax is effectively set by the beginning of March, so that bills can be sent out. In my view, given the lengthy periods of consultation that local authorities are required to undertake, a period of six months would have been more reasonable.

My second reason for objecting to the Bill as it stands is that one should have respect for the law at the time at which the law is applied. I believe that councils and levying authorities abided by the law at the time. As the noble Lord, Lord Beecham, quite rightly pointed out, it is a comparatively small problem. Retrospective change, whether or not there was a warning, seems to me to be wrong in principle, and should therefore be resisted. The noble Lord, Lord Beecham, said that he felt that the Government were overreacting. I concur with that, because I believe that it is an overreaction to backdate in the way the Government propose.

The Earl of Lytton: My Lords, since my name is to Amendment 43, I would like to voice my support for the point that has just been made, and was also made by the noble Lord, Lord Beecham, about the undesirability of retrospection. Notwithstanding the comments made by the Minister at a previous stage of the Bill, there is no question in my mind that Clause 39(15) and (16) are, beyond peradventure, retroactive in their effects. Apart from the self-evident difficulties that that will create within the continuum of local government finance, one supposes that there must be some reason why this has been put in the Bill. I would like to inquire what that reason is, because to date we seem to have had reassurance that there is no intention that this should be retrospective. I do not wish to work out how many angels dance on the head of a pin between retrospection and retroactivity, but I prefer the term “retroactive”.

It seems to me that this is almost calculatedly destabilising, and I cannot believe that that was really the intention. It seems to me that there is a necessity for some further words of qualification, so that the clause is targeted at whichever particular issue needs it, and it is not capable of any sort of generic destabilisation of previous years of local government finance settled business, or what should be settled business. I hope the noble Baroness will be able to give an explanation.

8.15 pm

Baroness Hanham: My Lords, Amendments 42 and 43 would remove subsections (15) and (16) from Clause 39. Amendment 45 allows for transitional provisions to be made in respect of previous arrangements or contracts entered into prior to 2013-14. As noble Lords have said, subsections (15) and (16) are not linked and they fulfil different purposes. However, I understand that the noble Lord, Lord Tope, originally tabled these to address a single concern, although he has not spoken tonight. It was made clear in Committee by the noble Lord, Lord Tope, and now the noble Lords, Lord Beecham and Lord Shipley, that Clause 39 and subsection (15) in particular have a retrospective effect, and that the clause would be impractical and councils would have insufficient time to take account of the changes.

15 July 2013 : Column 609

With respect to the noble Lord, Lord Shipley, I must restate the Government’s disagreement with this view. Neither the clause nor subsection (15) is retrospective. They do not interfere with the council tax and levies set last year. Those increases have been made and are in authorities’ tax base for future years.

Subsection (15) simply allows the Secretary of State—should he so choose—to set a referendum principle for 2014-15 focusing on authorities where the council tax, including levies, increased by a large amount in 2013-14. The Secretary of State will consider whether he wishes to do this later in the year as part of the usual round of principle-setting. Authorities and levying bodies will have an opportunity to make representations on principles, which will be put to the other place for approval.

Furthermore, authorities will have the opportunity to set an overall increase in council tax and levies in excess of the principles, making the case to the local population in a referendum if that is where they need to go. If noble Lords work it out—as I think the noble Lord, Lord Beecham, has done—they will find that very few authorities are likely to be affected because the combination of the levies and the council tax potentially gives a bigger pot for the percentage increase.

The approach proposed in the clause is entirely consistent with previous and current practice. Perhaps I may go back to the unhappy word of capping. As part of the setting referendum principles, the Secretary of State considers all relevant factors. These always include council tax decisions taken by authorities in previous years. It is worth highlighting that 2012-13 and 2014-15 have been the only two years since the 1980s when levies have not been part of excessiveness considerations. We are simply reverting to the definition of excessiveness used by successive Governments from 1984 to 2010. This approach resulted in some smaller authorities with a history of lower council tax being set more generous referendum principles in 2013-14. No one accused the Government of taking retrospective action when they took this approach.

The possibility of the Secretary of State setting specific principles for those authorities where substantial levy increases resulted in substantially higher bills in 2013-14 should come as no surprise to them. His speech to the New Local Government Network and his Written Statement of 30 January 2013, and letters to all authorities, could have left them in no doubt as to the possibility. Council tax and levies for 2013-14 were set in full knowledge of the Government’s intention for 2014-15—that is, a year later on.

The Government have been clear from day one that council tax payers should be protected from excessive increases, and this clause will extend that protection. It will also increase fairness for local authorities by ensuring that all the money raised through council tax is potentially subject to a referendum if it is in excess of the principles. At present, there are areas where more than 50% of the local council tax bill is made up of levies and is therefore not subject to a referendum.

The legislation is not retrospective. We have been clear about what the situation is since January this year. Existing legislation already gives powers to the Secretary of State to determine different categories of authority, so the measures will not necessarily be across the piece.

15 July 2013 : Column 610

Amendment 43 would remove subsection (16) from the clause. It may be helpful for me to explain the purpose of that subsection, which is not, as noble Lords have already admitted, directly linked in purpose with subsection (15). To be able to determine whether an excessive increase has been set in 2014-15, all authorities will need to make a like-for-like comparison between the council tax in 2014-15 and that set in the previous year. The principles will be based on an amount including levies in the next year, so the removal of the provision would not be helpful for many local authorities. It would mean that their previous year’s relevant basic amount of council tax would be at a much lower level than that of the subsequent year, against which it was being compared. Subsection (16) simply means that the 2014-15 figure can be compared with the one for 2013-14, which includes the levies that were set for that year. Without subsection (16), authorities would be effectively required to compare apples with pears, and the whole clause would be unworkable. I am sure that that was not the noble Lord’s intention.

The Government have been entirely open with authorities about their intention to bring levies within the scope of the referendum legislation and to take into consideration the previous increases when setting future referendum principles. A Statement approving the referendum principles for 2013-14 was laid in the other place on 13 February—so between January and February plenty of notice was given. Amendment 43 would undermine the Government’s commitment to protect council tax payers and prevent all authorities and levying bodies being subject to the same kinds of accountability and financial discipline. In view of the comments that I have made, I hope that the noble Lord will not press the amendment.

Amendment 45 replicates one which was proposed in Committee, so I shall expand on the response that I made then. The issue here is city deals and the levies that are envisaged by combined authorities in future years following the agreement between the Government and local authorities, particularly in West Yorkshire. The city deal implementation plan agreed between government and the Leeds City Region included the following summary text:

“Leeds City Region will establish a £1bn West Yorkshire … Transport Fund overseen by the new Combined Authority. The Fund will be financed by a levy that the Combined Authority will place on individual councils”.

In Committee, the noble Lord, Lord Tope, read into the record an e-mail from the director of finance at Bradford Metropolitan District Council. Bradford’s contribution to the city deal is funded by a £1.2 million increase to its levy each year.

We have looked at these figures carefully. These levy amounts would produce a council tax increase in Bradford of 0.7% in 2014-15, falling to 0.5% by 2023-24. We have also established that similar percentage figures apply across authorities in West Yorkshire. There is therefore no need for any transitional or other provisions to be made for contracts already entered into, as the levies envisaged by the authorities in the Leeds city deal area are substantially below the current 2% referendum threshold. I therefore hope that the noble Lord is willing to withdraw his amendment.

15 July 2013 : Column 611

Lord Beecham: My Lords, it comes to this, it seems to me: you have a system which takes no account of levies, you change that system weeks before the statutory date for the budget so that the levy in that year can be taken into account in settling a referendum limit for the following year—and yet that is not considered retrospective. I seem to speak a different language from the Minister and the Government, and the dictionary speaks a different language as well. It is simply a semantic quibble to say that it is not retrospective.

It is a complicated matter for authorities. The noble Baroness referred to the city deal in West Yorkshire. This was entered into months before the budget. The Minister, with respect, rather airily dismisses the impact of the potential application of the principle in terms of the referendum limit. She quoted Bradford. Leeds is the largest authority in the area. It will gradually build up a contribution until it reaches £15.5 million. That represents a council tax increase of 0.2%, then 1% in 2015-16 and 0.7% per annum right up to 2022-23; 0.7% is a third of the referendum increase threshold. That is quite a substantial chunk, given the pressures that we all know are—and will continue to be—visited on local authorities, as envisaged by the LGA. The Minister’s successor by one or two as leader of Kensington and Chelsea is, of course, the LGA’s chair. As a percentage it does not sound large, but as a percentage of what is committed by way of an increase, it is very large; and that is in the case of a group of authorities of roughly comparable size, function and budget.

It gets worse than that if, for example, one looks at the position of the Lee Valley Park area. This runs along the Lee Valley, through east London and the Hertfordshire-Essex border. It gets its money from 32 London boroughs, the Corporation of London—which will probably not miss a few bob here or there—Hertfordshire County Council, Essex County Council and Thurrock unitary authority. So there is a vast number of authorities there, not all of which are represented on the board.

In fact, the riparian authorities are limited to Essex, Hertfordshire and other councils and only one member from six of the London boroughs—whereas the total cost is met by 32 London boroughs. Two of their representatives sitting in this Chamber tonight can confirm that. So here is a levying body which individual authorities cannot really influence, yet what it does will have an impact on their referendum.

That is objectionable in principle, but I urge the Government to realise, particularly in relation to the levies that accrue as a result of a deal entered into by the Government—the city deal proposal—that a transitional arrangement would be desirable. I hope that the Government will revisit that. They may not need legislation to do it—I would not imagine that they would—but I hope that they will look at this again. It seems unfair that an arrangement with the Government could precipitate difficulties of that kind. However, in the light of tonight’s debate, I beg leave to withdraw the amendment.

Amendment 42 withdrawn.

Amendment 43 not moved.

Consideration on Report adjourned.

15 July 2013 : Column 612