HC Deb 10 March 1933 vol 275 cc1503-63

Order for Second Reading read.

11.7 a.m.


I beg to move, That the Bill be now read a Second time."

A private Member who is so fortunate as to obtain a place in the ballot for private Members' Bills has several courses open to him. He can chase a rather spectacular hare and can introduce some Measure which is controversial, and he may, indeed, have a grand Debate on his Second Reading, with all the big batteries being brought into action, and, even if he does not have any success in obtaining a Second Reading, he often has the effect, by obtaining a long Debate, of reminding the country and the House that hares have an odd habit of running in circles. He can adopt another course and introduce some Measure of a humanitarian nature in which he is particularly interested and a Measure perhaps of an entirely non-controversial character in the ordinary party sense, but such measures have a habit of provoking more active controversy than purely party Measures. He may adopt another course and endeavour to search round for a Bill which may provide for a really useful, if modest, measure of reform. I have, in bringing forward this Bill, adopted the last-named course.

I feel that perhaps the title of the Bill may have misled some of my hon. Friends who have been actively endeavouring to persuade an iron-hearted Chancellor to reduce the taxation on beer. I think that I owe them some apology for the disappointment which I must have caused them, if, encouraged possibly by the title of the Bill, they have read it through only to find that Audit refers to accounts and not to ale. The object of the Bill is simply to provide for a better system of supervision of the audit of accounts of municipal corporations in this country. It is only right and proper at this juncture to pay a tribute to the magnificent system of local government which we have in this country. For generations, and, indeed, for centuries, hard working and loyal men and women have slaved day in and day out in order to build up the structure of local government which at present we enjoy in Great Britain. I believe that everything that this House can do reasonably and properly in order to help them in their labours should be done.

There are at the present time three systems of audit of local government accounts in this country. There is, first, the district audit system, there is the elective system, and there is the professional system of audit. I will discuss the present position for a brief period and will then go on to say a few words about the Bill itself, and, finally, try to answer some of the objections to the Bill which may possibly be raised by hon. Members. The district system of audit had its origin in the District Auditors Act of 1879, and under that Act the President of the Local Government Board, now, of course, the Minister of Health, was empowered, with Treasury sanction, to appoint district auditors to audit the accounts of those local authorities which might from time to time be made subject to district audit. The duties of these district auditors are similar to those of the ordinary professional chartered accountant. Their duties are, firstly, to examine all the accounts—the revenue and the expenditure—to see that everything is correct and according to the law, and then they have to make a report to the local authority concerned and also a report to the Minister of Health.

The question may be raised as to how the district auditors are paid. They are paid directly by the Ministry of Health, but the expenditure is recovered from the local authorities by means of Stamp Duty, so that the charge does not fall upon the Exchequer. They are, in fact, self-supporting. As to the question of personnel, the staff of the district audit office are recruited in the ordinary way by Civil Service examination. They are subjected to a training similar to that of an articled clerk in a chartered accountant's office, and after a period of a few years, when the training has been considered adequate, they are entitled to go in for an examination, and, if they are successful, they are then put on to the outdoor auditing staff. It may be claimed that the district auditors do their work extremely well.

They have very onerous duties, and they carry them out in the main extremely satisfactorily. Of course, no organisation can be 100 per cent. efficient. I have even heard certain people so bold as to say that the National Government is not 100 per cent. efficient, but I believe sincerely that it is the best Government we have had for many generations. At the same time, I feel that the district audit staff is a very able and capable body of men, and if, as a result of this Bill, their duties are extended, we may take it that they will carry them out extremely well.

With regard to the powers of the district auditor, this is a very important point because the district auditor has certain important powers which do not appertain to professional auditors, that is to say, chartered accountants, or to elective auditors, about which I shall have something to say in a few minutes. He has the most important power of surcharge and disallowance. If unauthorised expenditure has been incurred by an officer or a member of the council of the borough and the district auditor discovers this in the course of his duties, he is entitled to disallow the amount and to surcharge the amount upon the delinquents. Without any appeal, that might be an extreme power, because he is an independent statutory authority, but the person who is surcharged has a right of appeal to the King's Bench, the High Court if the amount is more than £500, and if it less than £500 he has a right of appeal to the Ministry of Health or to the High Court. Over a period of years more and more accounts of local authorities have been brought under the system of district audit. There have been many Acts, such as the Public Health Act, 1875, the Local Government Acts of 1888 and 1894, and the Rating and Valuation Act, which have brought various forms of local authorities' accounts under the system of district audit. At the present time something like 11,000 local authorities are subject to the system of district audit.


11,000 or 1,100?


Eleven thousand. In the main, the accounts which are subject to this system of audit are those of the county councils, the urban district. councils, the rural district councils and various other minor forms of local authority. The accounts of the London County Council and the boroughs in London are also subject to the same system of district audit. In the main, the boroughs outside London are not subject to this system of district or government audit, but many of their accounts are directly subject to it. For instance, the education accounts, the various housing accounts, the public assistance accounts and the Catchment Board accounts under the 1930 Act are all subject to district audit. The object of the Bill is to enable the borough councils that are not so far wholly affected to bring the remainder of their accounts under the system of district audit or professional audit, if they so wish.

The remaining boroughs that are not subject to district audit are either subject to elective audit or professional audit. The system of elective audit had its origin in the Municipal Corporations Act, 1882, which laid it down that the boroughs were to appoint elective auditors in the following manner. The Mayor was to nominate one and the burgesses, two. The Act, furthermore, lays down their duties and powers. The elective system of audit, although in many ways it may have worked fairly satisfactorily, has very few defenders, because the elective auditors need have absolutely no professional qualifications of any sort or kind, although they may be very eminent, respectable and efficient men, in their way. It is not usual for anyone who is suffering from influenza or some other disease to call in, say, a pork butcher, or a professional cricketer, or a politician in preference to a physician. Obviously, in a highly technical matter of this kind if you wish your accounts to be properly audited you call in the very best auditor that you can get. The elective system of audit is archaic and utterly out of date, and I sincerely hope that if this Bill becomes an Act of Parliament the many boroughs all over the country which are at present subject to elective audit will opt either for district audit or for professional audit. The elective auditors have absolutely no powers of surcharge or disallowance. All that they can do, I understand, is simply to make a note and to make representations, but their powers are practically nil.

A few words with regard to the professional audit. As the result of many local Acts certain boroughs have, at considerable expense and a great deal of waste of time, freed themselves from the obligations imposed upon them under the Municipal Corporations Act, 1882, by asking Parliament for powers to appoint professional or, in some cases, district auditors. These powers have been granted. Some boroughs prefer ordinary chartered accountants rather than district auditors, and their views are worthy of respect. They may act on personal grounds. They may know certain professional accountants in their district in whom they have extreme confidence and they may wish to appoint that particular firm to audit their accounts, or they may have some prejudice against the district auditors on the ground, perhaps, that the staff in their particular locality may not be large enough to cope with the accounts of a really important borough. Whether these arguments are right or wrong they do not affect the case, because this Bill gives the right to employ professional accountants to audit the accounts.

The professional accountant has no power of surcharge or disallowance. The system of audit by professional accountants of the accounts of boroughs is of comparatively recent origin. Many boroughs have seen fit, as I have said, to adopt this system by arranging for the passing through Parliament of Local Acts, giving them the necessary powers. It is, however, obviously unfair and unsound to expect local authorities, borough councils, to expend considerable amounts of money and to waste their time in putting these Local Acts through Parliament, and a reform is long overdue to give them the option of employing either professional accountants or district auditors, as the case may be. The Bill enables them to do that.

I need not explain the Bill at length. Clause 1, Subsection (1, a) gives authority to the borough councils to adopt the system of district audit, and paragraph (b) indicates certain repeals which are necessary in previous Acts which no longer apply. Sub-section (2) gives authority to boroughs to adopt the system of professional audit. Sub-section (3) provides a perfectly simple method by which those boroughs which wish to opt for one or the other, for the district or the pro- fessional audit, to do so in a very brief space of time. In the Schedule may be found the names and duties of certain associations and institutes of Chartered Accountants but it is not necessary for me to discuss it, although some hon. Members may wish to bring up a point in regard to it.

Finally I believe that the Bill will fill a long-felt want. It is purely permissive in character; it does not force anybody to do anything. It enables borough councils, if they wish, to adopt a better system for the auditing of their accounts than the outworn elective system. That is a point which cannot be too strongly emphasised. Local authorities, partly due to general conditions and partly to Acts of Parliament for which this House is responsible, have quite enough to put up with as it is, and we do not want to force them to do something which they do not want to do.

Let me deal with some possible objections which may be raised. The main line of criticism will probably be that the Bill does not go far enough, some hon. Members may say that the elective system should be done away with altogether. My answer is that we do not wish to coerce local authorities who are doing their work very well and, secondly, that if the elective system is eliminated entirely there would be an immediate rush of borough councils to take professional or district auditors. A district auditor's staff must, in the nature of the case, be limited, and if there was a great rush of borough councils asking the Minister to give them facilities to have their accounts audited by district auditors either the service would not be sufficient or adequate to meet the demand or else it would be necessary for the district auditor to take on, in a panic, a large additional staff. If the Bill is permissive it gives an opportunity for borough councils over a period of years to decide whether they wish to have a district or a professional audit, and if they so choose then there would not be a rush, but a slow movement in that direction and, consequently, the Minister would be able to arrange for a gradual and orderly extension of the district auditor's staff.

The other objection comes from a slightly different standpoint. The majority Report of the Committee on Local Expenditure recommended that all re- maining accounts of borough councils, which are not already audited by district auditors, should be subject to such audit. I have answered that objection; but there was a minority reservation which seems to indicate that all accounts not subject to district audit should be made absolutely subject to professional audit. My answer to that is in the main the same as I have already given. It is unwise and unfair to force local authorities to adopt a professional audit if they do not wish. I am not decrying the system of professional accountancy. We have in this country a system of chartered accountancy which is second to none, and this is indicated by the fact that our big firms of chartered accountants have branches, not only in this country, but in the Dominions and in foreign countries. The Bill will, I believe, produce a very much needed, if modest, system of reform. It will conduce to economy, and economy of the kind which we all desire, non-controversial economy in administration. It will also tend to a much sounder system of auditing the accounts of borough councils, which also hon. Members would like to see brought about. I hope the Parliamentary Secretary will see his way to grant facilities for the passage of this Bill, and I commend it to hon. Members of all sections of opinion in the House.

11.31 a.m.


I beg to second the Motion.

My hon. Friend has explained the complicated and somewhat technical provisions of the Bill in a speech of so much lucidity and force that there is very little I need add. I propose to take only a few moments in putting before the House some general considerations in support of the Measure. The system of district audit is already fairly general in the country, but there are some notable exceptions, and I suggest that these exceptions are wrong not only from the point of view of expediency but wrong in principle. The principle of elective audit is thoroughly vicious. It is one of the cardinal principles of sound administration that any office which is purely technical in character and which has no sort of political or representative aspect at all should be filled on considerations of technical and professional merit, and should not be subjected even to the possibility of political influence. That is altogether foreign to the spirit of our constitution. It is one of the least happy features of the constitution of the United States that it is almost exclusively permeated by the electoral principle. In that country it is not only the President and Governors, senators and congressmen, who are elected, but, judges and postmistresses as well. The principle extends throughout the American constitution. We have managed to rid ourselves of that principle, and when we find it in operation, as we do in this case, it is our duty to do what we can to rid ourselves of it.

With regard to expediency my hon. Friend has shown quite conclusively that the system of elective audit is not likely to lead to an efficient kind of audit. Apart from that the process of the election of an auditor is cumbrous and expensive. There is the preparation of the election and the nomination papers, and the ballot papers, which is liable to lead to considerable expense. Apart from the fact that it is cumbrous it is liable to lead to considerable expense, and it may be condemned on that ground.

My hon. Friend referred to the general efficiency of district auditors. He said that the, system had been in operation for a number of years and had given considerable satisfaction. On that point I would refer to the very striking decrease there has been in the last two years in disallowances and surcharges and appeals. In the year 1919–20 there were 1,302 disallowances and surcharges, and 143 appeals. In the year 1924–25 the number of disallowances and surcharges had been decreased to 838, and the number of appeals to 67. I think the House will agree that those figures imply that the system of district audit is efficient and that it is working with increasing smoothness and satisfaction to the various bodies who are using it.

On the question of the cost of district audit the figures that are available show that the cost is very reasonable. The, total expenditure which is subject to district audit is approximately £500,000,000 and the cost of the audit is,£200,000. That cost is very reasonable and would compare very favourably, think, with the cost of the ordinary audit of a commercial concern. If the system of district audit is both efficient and economic it is something that should be encouraged by this House.

I think the House will agree to the principles of this Bill, and that such objections as there are to be raised will not be raised to the principles but to certain of the incidentals. My hon. Friend referred to some of the objections which may be raised, and I would like briefly to refer to one other kind of objection. It will be seen in the Schedule to the Bill that the number of societies named as suitable for professional audit is limited to four. It may well be that there are other societies of accountants who feel that they should be included also. But these four societies are those which are already recognised by Parliament as being fitted for the audit of this kind of account. The attitude of Parliament has been defined by the Chairman of the Local Legislation Committee, who said in 1914: We are not prepared to give an absolutely unlimited power to any Corporation to have an audit by any person who may be selected. There must be a standard of some sort. The House will agree with that principle. There is a standard, but it is a flexible one. The fact that these four societies are mentioned in the Schedule does not mean that only these four societies will be able to audit the accounts of corporations in perpetuity. The list can he added to in future, as it has been added to in the past. The fact that any society is not specifically mentioned in the Schedule does not mean that it is debarred in perpetuity from the operation of the Bill. That objection is one which will inevitably be remedied in particular instances as time passes. My hon. Friend has shown with very great force the advantages of the Bill, and that the objections to it are in no sense fundamental objections, and I very much hope that the House will see its way to give the Bill a Second Reading.

11.42 a.m.

Lieut.-Colonel CHARLES KERR

I beg to move, to leave out the word"now,"and at the end of the Question to add the words"upon this day six months."

As a humble petitioner on behalf of three Scottish societies of chartered accountants I crave the sympathy and the well-known sense of fair play that is so characteristic of the great English nation. I am pleading for the three great Scottish societies of accountants, the Society of Accountants in Edinburgh, the Institute of Accountants and Actuaries in Glasgow, and the Society of Accountants in Aberdeen. I ask that these societies should be added to the Schedule. I am sure that there is no intention that injustice should be done to the Scottish accountants. If the House will turn to Paragraph 2 of the Schedule, it will be found that the English societies are the only ones mentioned as being able to carry out the provisions of the Bill. It will be readily admitted that the Scottish accountants are severely penalised.

Scottish accountants practise in England and many of them are partners in English firms. Members of these societies who are Scottish accountants in an English firm are debarred from appointment as auditors in the manner mentioned in the Bill. I would like to congratulate the promoter of this Bill on his speech. He has followed the ordinary course in presenting Bills of this nature. As I said, there are many Scottish accountants practising in England and in the world, some of them of the very highest distinction. In pleading for the extension of the Schedule I plead for a fundamental extension of the scope of the Bill, and therefore I have been so bold as to raise the matter on the Second Reading.

In the past there has always been the happiest relationships between the English and Scottish chartered accountants societies and those relationships continue to-day. That fact will, I think, be made evident by what I am about to tell the House. Last year mutual arrangements were reached between the joint council representing the three Scottish chartered societies, and the representatives of the four bodies specified in this Bill under which it was agreed that the latter would not object to the inclusion of the names of the three Scottish societies in any English Bill in which there was a model audit Clause, the Scottish societies similarly agreeing not to object to the inclusion of the names of the four English societies in the audit Clause of Scottish Orders in Council.

In the present Session, seven Bills containing the model audit Clause have been promoted by municipal authorities. These are the Middlesbrough, Salford, Wigan, Colne, Bridlington, Norwich and Dewsbury Corporation Bills. Petitions were lodged against all those Bills on behalf of the three Scottish 'societies, claiming that their names should be included in the audit Clause in each case. In every instance, a settlement has been come to with the promoters of the Bill under which the audit clause is to be amended to include the names of the Scottish societies and the petitions therefore have been withdrawn. I think that shows that anyhow the relationship between the two countries, as regards accountancy, are of the happiest character. Again, I would like to 'mention that there is nothing to prevent the appointment of members of the four societies named in the Bill to practise in a public authority audit in Scotland. Therefore what I am asking for to-day is mutual reciprocity in regard to accountancy between the two countries.

Perhaps it may interest the House to hear a little of the history of these three Scottish societies. The Edinburgh Society was incorporated in 1854, the Glasgow Society in 1855 and the Aberdeen Society in 1867. The Scottish societies, I understand, are the earliest—in point of the date of their constitution—of all incorporated societies of accountants. They were established—as I know the House will readily appreciate—not for the purpose of gain, but to protect the profession and to ensure that only qualified and thoroughly educated professional men should be members. It is provided by the rules and regulations of the societies that their members shall be styled"chartered accountants"and that this shall be indicated by the use of two letters"C.A."after the name of the member, but that no firm shall be permitted to designate themselves a firm of chartered accountants, unless all the partners in the firm are qualified chartered accountants.

The qualifications for membership of these Scottish societies are based on the very highest standard and are similar to those prescribed by the Institute of Chartered Accountants in England and Wales. I feel that what I have said will show the House that these societies are in every way qualified, suitable an worthy to be included in the Schedule of the Bill. The Bill is of great importance and if it is extended in the manner which I suggest it will obviate any future necessity for petitions, which are always expensive things. It will show for all time that the chartered accountants of the two countries ipso facto have the right to work in both countries. I have done my best to show how strong is the case in favour of extending this Schedule in the manner suggested, and I sit down with the conviction and hope that I shall have the sympathy and support of the House in my plea that, if this Bill is eventually passed, it should include the Scottish societies which I have named.

11.53 a.m.


I beg to second the Amendment.

The hon. and gallant Member for Montrose (Lieut.-Colonel Kerr) has so well covered the ground in moving this Amendment and presented the case so fully that it is not necessary for me to occupy much time. He has not dealt with the merits of the Bill itself and I do not propose to do so. What we object to in connection with the Bill is that it should be so definitely stated in the Schedule that only the four societies of chartered accountants mentioned in it, are to be allowed to deal with the matters with which the Bill is concerned. Three other societies of British chartered accountants—whether we call them Scottish or English does not much matter because the fact is that they are all British chartered accountants—are not included. After hearing the very able speech of the hon. Member who moved the Second Reading of this Bill I cannot think that that has been done on purpose. I believe that if greater thought had been given to the matter before this Schedule was composed the three societies which my hon. and gallant Friend the Member for Montrose has named would have been included in the Schedule.

There were two phrases in the speech of the hon. Member who introduced the Bill of which I took note. He said the Bill would provide for a better system of auditing; that it would help auditors in their labours and that there were 11,000 of these audits. The House will, I think, readily agree with me that if a better system of auditing is to be introduced, and help is required in the labours of 11,000 audits in this country, you can hardly do without the Scots. In every other industry in England the Scotsman has to be applied to for help. Therefore, in this notable work I can hardly think it was the intention, or shall I say the fear, of my hon. Friend that the Scots would invade chartered accountancy to such an extent as really to preclude the four associations which he has here named. There is no such disqualification in any other society, whatever it may be, with which Scotsmen are connected. For instance, the medical profession of Edinburgh, Glasgow, Aberdeen, and even Dundee are considered gentlemen of the highest standing. [An HON. MEMBER:"Why even ' Dundee?"].—I say"even"with great respect, because it happens to be my native town. In all these towns the medical men have qualifications, and when they come to England they are not disqualified in the manner in which this Bill would seem to disqualify Scottish chartered accountants.

As I said earlier, the ground was so well covered in detail by my hon. Friend who moved the rejection of the Bill that I really have nothing further to say, other than to urge the House not to disqualify Scottish chartered accountants but to give them that opportunity, which I am sure the House will readily wish to give them, and which I believe it was not the intention of the hon. Member who introduced the Bill to withhold from them.

11.58 a. m.


Speaking entirely on my own behalf, I am glad to support this Measure, and I trust it will ultimately be passed into law. I join with other hon. Members in congratulating the Mover of the Second Reading on the excellent way in which he put his case, and the Seconder as well. My speech will be very short, because I gather that many hon. Members are anxious and keen to get on to the second Measure on the Paper, the Gift Coupons Bill. They want that Bill to pass too, and I will do nothing at all to prevent those desires being crystallized to-day. I agree also with the remarks of the two hon. Members who moved the rejection of the Bill. I thought at first that their designs were very much deeper than they have proved to be, but I think they will have to square their accounts with the Duke of Montrose and with Mr. Cunning- hame-Graham over what they have said to-day, because all those who believe in Scottish Home Rule not only desire to prevent our people going to work in Scotland; they now object to Scottish people coming here at all, except, of course, to rule us.

I support the Bill, as stated, and I can see no reason why the point expressed by the two last speakers should not be put into the Schedule in due course. We should not however be bothered at all with this problem from Scotland if the accountants of England and Scotland had done what the doctors had done —all joined together in one trade union organisation. The accountants had better take that step for their own sakes. It was very pleasant this morning to hear so many supporters of trade unionism among hon. Members, and I hope those expressions of opinion will spread out a little and down to the working people of this land. We shall then probably get them on our side.

I support this Bill because it is a local option Bill; it leaves each municipal corporation, the right to decide the type of auditor it will appoint. I see in the House the hon. Member who was chairman of the committee on local expenditure, which made a recommendation on this very subject. That recommendation is contrary to the spirit of this Bill, because it is to the effect that all the accounts of all the municipalities should be audited by the district auditor. I hope I shall not be unfair to the hon. Member who was chairman of that committee when I say that they are anxious to secure the audit of municipal accounts by district auditors merely because the district auditor is concerned, not only as to the accuracy and clarity of the accounts, but very largely also as to the policy of the Government in power for the time being. Of course they had Poplar and other districts in mind when they made that proposal. The auditing of accounts ought to be free entirely from any question of policy. Hon. Members may be surprised to know that I am subject to a very keen annual audit as secretary of my small society, and, in fact, I am liable to be surcharged too. I ought to say at once that I have never been surcharged yet. There is a way, of course, or not being surcharged and that is to be honest, and every Welshman is honest.

It is not commonly known that the Civil Service, even the accountants and auditing departments, will not admit at all qualified chartered accountants into the Civil Service. That is not commonly known, and I have only found it out myself very recently. Consequently you could never get a district auditor who is also a qualified chartered accountant to do the work as recommended by that Committee. The adoption of the recommendation of the hon. Gentleman's committee would mean that the highest qualified chartered accountants in this country, who can never become district auditors would never be appointed by any municipality. If we are going to allow auditors to do this work, the field of selection ought to be open to all types of qualified accountants, and Parliament should not come down in favour of the district auditors alone.

I will explain how it all works out. A boy is articled to a chartered accountant at 16 years of age, and there is generally a premium paid of £100 or £200, with no salary. At 21 years of age he will be a fully qualified chartered accountant after he passes his final examinations. That young man however is not entitled to enter the Civil Service at all on account of his 21 years of age, and I think the Civil Service Commissioners are very selfish in that connection. What they do is to debar every chartered accountant, except, I believe. for inspectorships of Income Tax, from entering the Civil Service at all. Some day I hope to have something more to say on that point.

As I have said, this is a local option Bill. I happen to live in the city of Manchester, where we have elective. auditors. I think they are elected once a year. I am proud of my connection with the city. The only criticism that I have to make against elective auditors is that all that I remember them doing was to abstract some paltry items from the accounts, sometimes of 2s. 6d., paid too much on a deputation to London. Then there was hullaballoo at the rate-payers' association meetings. Surely a great corporation handling millions of pounds per annum should not be subject to that tomfoolery. Its accounts ought to be audited and clarified and a balance sheet exhibited to the community providing the ratepayers with a proper picture of the finances. I have seen persons elected as auditors in some parts of the country without 'any qualifications whatever in accountancy. They may be very eminent politicians, but some of them I know could not keep the accounts of a toffee-shop. I am therefore opposed to the idea of the elective auditor. We ought to have the accounts of great corporations properly 'audited by qualified persons.

The public representative who is afraid of a competent and qualified auditor is not fit to be trusted with the control of a parish. There is nothing that destroys the confidence of the people in democratic government more than to believe that the accounts of a public authority are not properly kept and audited by independent and qualified persons. I am not very enamoured of the district auditor either, because he is in fact bound up with policy. When a Tory Government is in power the district auditor somehow develops the psychology that he must be little more critical of a Labour than of a Tory local authority. When we get power as a Labour Government we do not adopt those tactics. That is, of course, plain to anybody. It is a very foolish practice to allow the politics of the Government of the day to perlocate into the audit of local accounts, and every hon. Member of whatever party will, I feel sure, 'agree with that. I am of opinion after keeping accounts in a small way myself for many years past, that the worries of mankind would be considerably reduced if 'accounts were properly kept and rendered.

I do not think that with the march of science and progress in industry the accountant has yet found his proper place in society. I am confident that the machinations of the Hatrys and Kreugers would not be possible if the controllers of industry and the directors of companies gave his proper place to the accountant and auditor. New Zealand and South Africa have laid down legal regulations, and nobody can practice accountancy in those two Dominions unless they are on the State register. Of course, on some occasions somebody must also audit the accounts of the auditor. That does not require any explanation. The science of accountancy and auditing ought, as I have stated, to have a better place in the sun, I trust that for the sake of clarity, cleanliness and honesty in public affairs, this Bill will become law very soon in order that the people of the municipalities shall continue their faith in democratic government.

12.10 p.m.


I should like to congratulate the hon. Member who introduced this Bill on the extremely useful and lucid speech that he made, and the hon. Member for South West Hull (Mr. Law) on the able assistance which he rendered. It must come as a great surprise to most hon. Members that three systems of audit are in existence, unless one understands the history of the haphazard way in which it has developed. The Government approve of the principle of the Bill. We would certainly like it to have a Second Reading. My hon. Friend will know that there are four Fridays after Easter for Bills that have passed through Committee, and, therefore, if the House passes this Bill to-day and it goes through Committee, it stands a very good chance of becoming law. I need not go into the merits of the Bill again, except to say that the elective principle is obviously an anachronism. It has come to my knowledge that in the course of elections of auditors persons have been chosen with no qualification whatever. They include a sanitary inspector, a coal merchant's clerk, a suspended rate-collector and a platelayer, and, although these are very honourable professions, they are not professions necessarily involving a knowledge of accountancy. I know that it is the boast of English public life that leaders of industry and politics have some hobbies outside their business. We should look down on a bank manager who could not write Greek verse or a politician who had not a knowledge of Middle Whites and Blenheim Oranges, but it does not follow that a platelayer or a sanitary inspector with a flair for accountancy is as able as a professional or qualified accountant to audit the accounts of a corporation of a borough.

The need for this Bill is obviously shown in that out of 346 boroughs that would, apart from special legislation, enjoy or suffer by statute this principle of elective auditors, 45 have been to the trouble of obtaining a private Bill or Provisional Order in order to get district audit. The House will remember the Middlesex County Council Act of 1930, which gave powers to any boroughs in the county to change their system of audit. Since then four of those boroughs have accordingly adopted district audit. There are a score more boroughs who would like to change their audit and have asked the Ministry how they can do it, and when they are told that they must go through the expense of a private Bill they are discouraged from proceeding. My own constituency has at this moment a private Bill to get the system of elective auditors changed. With regard to the point raised by the hon. and gallant Gentleman the Member for the Royal and ancient burgh of Montrose (Lieut.-Colonel Kerr) who spoke with all the dash of a Highland chieftain, the lines of Scott ran through my head as he spoke— He sought by many a winding train To lure his sullen guest to show Unasked, the news he longed to know. I agree with the hon. and gallant Gentleman that there may be in this country several old established firms of chartered accountants whose language of accountancy may be English, even though their language of reminiscence—and abuse—may be Scottish. He has shown that there is a measure of reciprocity between the professional bodies in Scotland and those in England. I think the Committee might well consider whether they could not extend this provision. The hon. Member for Southampton (Sir C. Barrie), who intervened, assured the House that there would be no undue invasion of England by Scottish accountants. [An HON. MEMBER:"It has taken place already."] It has taken place already, but we English must remember that the invasion is not all on one side. I am told that there are more Englishmen living in Scotland than Scotsmen living in England.


During the shooting season.


I think this point is very important. Will the hon. Gentleman tell the House what are the proportions?


I am afraid that I have introduced, unwittingly, a red herring in this Debate. I understand that in the shops of a city like Glasgow they always prefer an English shop assistant, because it is well known that, owing to the nice manners of the English, the Englishman is the only man who can ever sell anything to a Scotsman. Be that as it may, I think that the hon. Member has made out a very good case for consideration during the Committee stage of the Bill whether we should not extend the same facilities to Scottish accountants as are now extended to the British bodies. With that short blessing, I hope that the House will agree to the Second Reading of the Bill.

12.17 p.m.


May I say, in the first place, that it is not my intention to object to the Second Reading of the Bill? I believe it is more or less on correct lines, and I believe that in Committee certain details could be added which would make the Bill a very useful Measure indeed. It is perfectly true that the report of the Committee on Local Expenditure, over which I had the honour to preside, recommended that in future the accounts of municipal corporations should be carried out by district auditors, and I would remind the hon. Member that the report was based on things as they are, and not on things as we hope they will be, or may be. As far as one can see, I dissent entirely from the view of the hon. Member for Westhoughton (Mr. Rhys Davies) that the accounts of local authorities should be dealt with only from the point of view of the correctness or otherwise of the figures provided. That may be true in regard to a voluntary association of shareholders in a company, but when it comes to the compulsory rating of individuals as ratepayers who may dissent from many of the acts and policies of the local authorities in whose areas they live, I maintain that a totally different conception of the duty of an accountant and auditor is to be found between the individual who is a voluntary shareholder in a company and the unfortunate ratepayer who often disagrees with the line of policy his local authority adopts.

In that recommendation of the Committee, from which there were four dissentients, it was felt that in the days to come, in reviewing the accounts of local authorities, advantage ought to be taken of the experience and the knowledge of the Ministry of Health in regard to many things upon which they could give advice to local authorities. A professional auditor or a Government auditor ought to be in a position not merely to examine accounts, but should have a knowledge of local government. A professional auditor appointed to this kind of work should have some knowledge of the intricacies of local government. He should be not merely a figure man, but a man who is able to say that such-and-such an authority, by means of standardisation or centralisation, and a hundred and one things, can to-day reduce its expenditure and improve its efficiency. I maintain that the auditor in question ought to be able to point out the advantages which have accrued in the conduct of affairs by other authorities, to the authorities with whose accounts he is dealing.

That was one of the reasons why the Committee on Local Expenditure advised that accountancy in future should be done by the district auditor, but if there is provision in the Bill for a course, say, in local government administration as a qualification for an auditor and accountant in the days to come, I believe that that would meet one of the great objections. But it is rather out-of-date to-day to say that, in gigantic organisations such as municipal corporations have become, the duties of the auditor only refer to the correctness or otherwise of the accounts. In the Committee stage I want provision to be made in regard to the power of surcharge, and Ministry of Health recommendations in regard to expenditure. I want something to be done in regard to the money that is uselessly and needlessly spent on conferences, not at Locarno, but which are dotted over pleasant places in England. I want attention to be devoted to the amount of money spent on printing, advertisements and so on, and, unless the accountant in question has power to deal somewhat with policy, I am afraid that we shall not get that examination of accounts which, to my mind, is essential in the interests of the ratepaying public.

One last word, again to the hon. Gentleman who would divorce policy altogether from the examination of accounts. I would remind the House that this House is as much interested in the examination of the accounts of local authorities as are the ratepayers themselves. After all, it is only a period of 10 years during which Government grants on local services have increased from £48,000,000 to £107,500,000. It appears to me that Members of this House are interested a little more in services which have grown over £60,000,000 in expenditure from Government grants in 10 years than in the mere correctness of figures. It is because of matters of that kind that I, and those who work in local government, feel that in the annual audits there ought to be a vastly different idea in the minds of those who are conducting the audit than that they are merely connected witch one and one making two. I am not in the least objecting to the principle of this Bill. If we can devise some means of arming the professional auditor with powers in regard to some of these things which are essential, I am with the pro-motors of the Bill from beginning to end. I suggest that the examination for an accountant's certificate should include something which would require that the candidates should have some knowledge of the magnitude of local government operations.

12.25 p.m.


I join with those who have referred to the considerable service which has been rendered by the hon. Member who moved the Bill and put his case in so lucid and amiable a way. There is one statement, however, with which few of us on this side will agree. As I understood him he drew a comparison between the efficiency of the National Government and the efficiency which would follow if his proposal were adopted. If the value of his measure is to be judged by that comparison, I am afraid it will be a conclusive argument with many of us against giving it a Second Reading. We have also had an interesting and informative speech from the hon. Gentleman who is chairman of the committee on local expenditure, and who occupies a high position in local government; but it seems to me that if he had his way he would take away a great many, if not all, the powers which local authorities at present possess. He desires to see officials in the person of the auditors running the local authorities, while those who were elected as members of those authorities have little or no power.

Sir W. RAY

Oh, no, far from it.


The hon. Member certainly gave me the impression that he was in favour of something in the nature of a minor dictatorship of the local councils of this country; and if we got any suggestion from the Mover of the Bill that it was likely to be amended to that extent we on these benches would certainly take a much stronger view against it than we may take. The Mover of the Bill gave us an interesting résumé of the three classes of auditors who at present deal with the accounts of local authorities, but I must protest against what I regard as the unjust criticisms passed by him and the hon. Member for South West Hull (Mr. Law) upon elective auditors. The hon. Member for South West Hull thought the elective principle in regard to auditors was a vicious principle. The Mover of the Bill said the system of elective auditors had been in force since 1882, but I think I am right in saying that it has existed since the Municipal Corporations Act, 1835, and was reenacted in more or less identical terms in the Municipal Corporations Act, 1882. The office is, therefore, one of some little antiquity, if 100 years can be regarded as antiquity, and I am a little surprised at the avidity with which hon. Members have suggested that an office which has presumably commended itself to local authorities and to Parliament for so long a time should be abolished without, if I may so say, very much consideration.

While undoubtedly there are instances in which local authorities have appointed the baker, the candlestick maker and so on as elective auditors, other authorities, to my knowledge, have taken a serious view of their responsibilities in this connection, and have appointed men well qualified to represent the ratepayers and to inquire into and prepare appropriate informative accounts. One ought not to criticise all elective auditors, or even the system of election, because some few local authorities may not have taken their responsibilities very seriously. I think it ought to be admitted that there are some very definite advantages in the system of elective auditorship. An elective auditor is usually a man with some local knowledge, and, in so far as he is the mayor's auditor, he must be a member of the municipal authority itself, and presumably he has a complete knowledge of the ramifications of the various undertakings of the authorities.

It is also an advantage that an individual who is not in a real sense in the pay of the local authorities or of the Government should perform these duties. I think it is true that under one of the Sanitary Acts or Sanitary Orders—not under the Municipal Corporations Act—payments are made to elective auditors. In one city I know the payments amount to £20 a year each. The criticism against the elective auditor system on the ground of expense is not, I think, very substantial. No doubt some expense is involved by the actual election itself but I understand that the poll is usually a small one and the outlay is not very great. Another advantage of the system of elective auditors is that it provides an opportunity for a change from year to year. The electors have an opportunity of changing the elective auditor and presumably will do so where he has not acted to their satisfaction. District auditors, like other Government officials, are changed from time to time, moving from area to area, but there is not the same opportunity of changing them as in the case of elective auditors—indeed, there is no opportunity for the electors to bring about a change. In ordinary affairs when a firm are appointed as auditors the appointment is regarded as something in the nature of an annuity. Professional accountants have considerable advantage over the lower branch of the legal profession. They can audit for one year either a municipal authority or a private concern, subject to good behaviour. That work is something in the nature of an annuity and may continue for almost all time. In that way, the system of elective auditors has an advantage over the district auditor system or the appointment of a professional accountant.

Something has been said by one of my hon. Friends with regard to the reports which may be issued by elective auditors from time to time. He seemed to attach little importance to them. It is perfectly within the competence and the province of an elective auditor to issue a report giving such details as he may think fit. That report, if published, has to be published either at his expense or the expense of someone else, and not at the expense of the local authority. I think that if the elective auditors are retained, the expense of publishing a proper report might very well be borne by the local authority. The reports are most informa- tive, and they are usually couched in non-technical language. In cases that I have known, the reports have given a. good deal of information. Most electors have not a very great or precise knowledge of the detailed operations of the large municipalities of this country, and those reports provide in small compass very useful information which can be read and appreciated by the electors of the municipality. That is another advantage.

It is extremely difficult, as we all know in our own dealings with public affairs, to appreciate fully the magnitude of the details of the operations in which each Government Department and the local authorities now enter. It is difficult to appreciate, even in one's own town or city, the enormous capital that is invested in the commercial undertakings of the city, and to have any general appreciation of the facts of the situation. In that connection, an elective auditor can serve an extremely useful purpose, which is not served quite to the same extent or in the same way by either the district auditor or the professional accountants. I should like to see this Bill altered so as to permit local authorities to retain elective auditors, in cases in which they require to do so.


The Bill is already purely permissive.


The hon. Member will probably correct me if I am wrong, but I understand that in Clause 1, Subsection (1), the accounts of the county borough treasurer shall, instead of being audited by borough auditors, be audited by district auditors.


I am sorry to interrupt the hon. and gallant Member again, but he will see from the long title of the Bill that it is to enable municipal corporations to provide for the audit of their accounts. That means that it does not force them to do so, but merely enables them to do so if they wish. Sub-section (1) of Clause 1 merely says in any borough in which the provisions of the Sub-section are adopted. That clearly implies that they can do so if they choose.


I am glad to have the hon. Member's assurance on that point. If he will forgive me saying so, I am very doubtful whether his interpretation is correct. Speaking from memory, I believe that Section 25 of the Municipal Corporations Act, 1882, which this Bill, in Clause 1, Sub-section (1, b), says shall cease to be in force, is the authority for the appointment of elective auditors. I may be wrong in that, but I am glad to have the hon. Member's assurance that he would be willing to have this Bill altered, if necessary, so that the principle of elective auditors shall be preserved in cases where a local authority prefers that system.


I am sorry to interrupt again. I think that Section 25 of the Municipal Corporations Act, 1882, provides for the appointment of elective auditors. The hon. and gallant Member should realise that, if the borough opts to take district auditors, it is obvious that Section 25 of the Municipal Corporations Act, which provides for the appointment of elective auditors, should be repealed, but that does not in the least indicate that, if they wish to remain on the elective system, they are unable to do so.


I am glad to have my hon. Friend's assurance on that point. Leeds has elective auditors and also professional accountants. I see no reason why that situation should not continue, and should not be adopted in other places which decide to have professional accountants in the place of district auditors. There is another advantage in regard to elective auditors that I have not mentioned. By their local knowledge, and by being, as they frequently are, representatives of ratepayers' or other associations, they have special local knowledge which enables them to inquire into specific matters. We all know cases, without mentioning names, that have been before the courts, in which discrepancies of one sort or another which have come before the courts have been discovered and brought to light by elective auditors. The small expense incurred makes the principle worth while, and it ought to be retained.

There is one argument which may appeal to those who look at the matter from the point of view of saving what money can properly and reasonably be saved in the proper place. It is that, at the present time, the district auditors audit a certain proportion of the accounts of local authorities. As we know, they audit the accounts of the London County Council, of rural district councils, and of district councils. They also audit all those accounts of municipal authorities where contributions are made by the State; the education accounts, the housing accounts, and so on. It is therefore fair to say that, to that extent, they are already associated with this work, and that it would not be very difficult or expensive to extend the scope of that work so as to include other accounts drawn up by local authorities.

The arguments in favour of the appointment of district auditors are fairly substantial. There is the argument that I have just mentioned, and there is also the argument that has been put to me—I think that this was mentioned by the hon. Member for Richmond (Sir W. Ray), who was chairman of the Local Expenditure Committee—that district auditors have a much wider and greater knowledge of the rules, regulations and laws by which local authorities ought to be guided. They have the opportunity of auditing the accounts of local authorities of all kinds, and of making full use of the knowledge which they gain in that work. That, of course, is not the case with all firms of professional accountants. Professional accountants, for the most part, audit the accounts pf commercial firms, and while, no doubt, when the opportunity offers, they transmit the knowledge they obtain in that way to local authorities, it is not quite the same sort of knowledge, and not quit such necessary knowledge, if I may use the expression, as that obtained by district auditors.

One very strong objection which I feel to the wholesale adoption of auditing by district auditors is that they are very much over-burdened with work, and they are not in the least expeditious. I have known them, in the case of ore local authority with which I was associated, not to come to audit the accounts of the authority until over a year after the expiry of the period in respect of which the accounts were drawn up; and frequently their audit extends over a long period, though I must admit that that has not always been their fault, but is possibly due to local authorities not having the papers, receipts and books all in order. Professional accountants are much more expeditious, and they are able to carry on A continuous audit throughout the year, which I think is very valuable. District auditors, in the nature of things, are not able to do that. They come along, perhaps a month, or it may be some months, after the completion of the accounting period, and take up the work at that stage, whereas, if there is a continuous audit, matters can be dealt with and cleared up while they are fresh in the minds of officials and members of the Council. With a continuous audit there is the advantage that any discrepancy or matter which ought to be brought to light is brought to light at once, before any very serious or considerable damage has been done.

An objection to the extension of the principle of having district auditors which has been urged upon me is that an extra staff would be required, that there would be an extension of bureaucratic control, as it is termed. Personally, I do not regard that as a very serious objection. If the audit were handed over to professional accountants, they would have to increase their staffs, and, if many authorities preferred to have district auditors, no doubt the district auditors' department of the Ministry of Health would also have to be increased. That seems to me to be rather an advantage than otherwise, in view of the considerable degree of unemployment.

There is, however, one very serious objection, which we on these benches have to the district auditor system. Hon. Members will recollect that the matter has more than once been before the Courts. By law, district auditors are bound to disallow payments which in their judgment ought not under the law to have been made, and they are able to surcharge the members of the council who are responsible. I would remind the House that there was considerable litigation on this subject some six or seven years ago in connection with the Poplar Borough Council. I must say frankly, on behalf of my party, that they take a very serious view of the law as defined in that case in regard to this matter of surcharge and disallowance. It will be remembered that the case was one in which the local authority, a duly elected local 'authority, decided to pay a certain wage—I think £4 a week—to certain individuals in their employ. The district auditor overrode the decision of the local authority, 'and the courts decided that it was his duty to surcharge and disallow such payments —that he was the judge as to the reasonableness or otherwise of the council's decision in the matter.

We submit that the giving of that power to district auditors, who are Government officials, enables them to override the duly elected representatives of the people, and we should take a very serious view of the matter if some modification were not made so that the local authorities were the real authorities in matters of that sort, and would not be overridden by Government officials and by administrative law in cases such as that to which I have referred. In regard to that matter, as I said at the beginning, we take an entirely different view from that of the hon. Member who was the Chairman of the Local Expenditure Committee. Unfortunately, during the period of the last Conservative Government, in 1927, an Act of Parliament was passed, the Audit (Local Authorities) Act, which inflicted, as we think, further penal provisions on the members of local authorities who were surcharged or disallowed; and that again, if auditing by district auditors is adopted by local authorities, is a matter which in our view should have attention during the Committee stage of this Bill.

With regard to the professional accountants, I, as a professional man, always think it is best to be perfectly frank about these matters, but I do not think anything has been said as to whether they had any part in any way in the instigation of this Bill. I think that the House ought to be fully informed on that point. I can quite understand that the societies whose names are included in the Schedule to the Bill may have expressed their approval of it, but, as a professional man, I do not think, in view of the importance of this matter, that we ought to agree to give a Second Reading to the Bill unless we are assured that those societies or associations have not themselves instigated or drafted or backed this Bill. I am quite sure that my hon. Friend who introduced the Bill, or some of his supporters, will be able to give us some assurance on that point. I am well aware that all of these four societies are societies of the highest standing, and that they all prescribe very high standards for their members; and I may say that I am entirely in sympathy with the hon. and gallant Member who moved the rejection of the Bill when he expresses the hope that authority will be taken to add any other societies of equally high standing which may properly be added, in the event of the Bill receiving a Second Reading. I may remark in passing that there is an association of accountants who are known as certified accountants, whom it may be right and proper to add to the Schedule, and whose name ought to be considered. Otherwise, there would be something in the nature of unfair discrimination in this matter.

In regard to professional accountants, there are undoubtedly certain disadvantages in their wholesale appointment. They are appointed and usually continue for a large number of years, and it will be admitted, without reflecting on them in any way, that they have not the knowledge which district auditors must of necessity have. They certainly have not the knowledge of the rules and regulations of local government law, unless they have specially applied themselves to the subject. I agree fully with what my hon. Friend on the Front Bench has said with regard to the necessity of meticulously auditing the accounts of all local authorities. I think I should either have a district auditor or I should appoint a particular firm of chartered or incorporated or other duly qualified accountants for a year at a time. I am aware that, in fact, local authorities do that, but in practice it means continuous appointment, subject to good behaviour, for a long period of years as a rule. It is desirable to have period appointments because there should be opportunities of changing, and it is not advisable in my view to treat an appointment of that sort as a matter of course, when perhaps they will not give the attention to business which they otherwise might do. It might perhaps be considered in Committee how far it might be laid down that professional accountants, if and when and where they are appointed, should have to make rather fuller reports than by law is at present the case. They merely give the ordinary accountant's report such as is given in the case of a public company. It may be that they are entitled to draw attention to other matters, but I think there ought to be something rather stronger and fuller than is included in the Schedule. It merely says that any auditor so appointed, that is, one of those belonging to any of the four associations mentioned. Shall include in or answer to any certificate given by him such observations and recommendations (if any) as he thinks necessary or expedient. He ought by law to have to do something rather more fully and in more detail in some particulars, and accounts ought certainly to be put forward in summary form, as some auditors do in practice at present, so that the ordinary man in the street can understand them. It would be an advantage, also, if professional auditors had to meet the finance committee. The business of finance committees in municipal bodies is conducted very much as a matter of routine. Their work is largely dominated by the individual who happens to be the chairman for the time being, who takes it upon himself, for the most part, to settle a great many matters with the City Treasurer and recommend them to the finance committee. In some places—I believe Manchester is one—the chairman of the finance committee does not necessarily change with the political complexion of the party having power at the time. At Manchester some years ago the chairman of the finance committee had occupied that position, notwithstanding the comings and goings of various polital parties, for some years. If the members of the finance committee as a whole were bound by law to meet the professional accountant and have an opportunity of going in some detail into the accounts, it would be an advantage. I think they have the power to do that to-day, but there ought to be some obligation of that sort. The district auditor's duty is to render such a report as I have indicated, but, unfortunately, he does not render it in any great detail. It is merely submitted to the clerk of the council, whose duty it is to bring it before the council, but it is not generally communicated to the electors.


Does not the hon. and gallant Gentleman think it an advantage in many cases that the chairman of the finance committee should not change with the political complexion of the council. In many cases there are men of experience who have given many years of service to local bodies.


I cannot agree with the hon. Gentleman. I think it is essential that the member of the council who has charge of finance should be the nominee of the party having power at the time. I do not think there is any disadvantage in that, because, as a general rule, the outgoing chairman remains on the committee, and they have the advantage of his knowledge and experience. I think it is right and proper that those who have the power should have the responsibility in conducting the affairs of the finance committee as well as other committees.

Something has been said in regard to the recommendations of the Departmental Committee on Local Expenditure. It ought to be made clear that, while there was a general recommendation, as I understand it, that local authorities should adopt district auditors and do away with elective auditors, that recommendation was dissented from by all four representatives of municipal authorities, who expressed the opinion that the elimination of professional auditors was not in the interest of local government nor of economy and efficiency. They recommended that the municipal accounts, other than those which now come under the jurisdiction of the district auditors, should be audited by chartered or incorporated accountants. The Bill gives an option to local authorities to make a choice between district auditors and professional accountants. No hard and fast line is drawn and regard is paid, quite properly, to the necessity of deferring to the decision of local authorities in deciding which of those two alternatives is to be adopted.

There are one or two things that I should like to know from those responsible for the Bill. I understand from the mover that local authorities would still, under the Bill, have the opportunity of retaining the elective audit principle. I should like to know whether the terms of the Bill have, in fact, been agreed to by all the professional societies whose names are included in the Schedule, and, if so, whether the promoters of the Bill would agree to other societies, such as the Scottish societies and the certified accountants in England, being considered with a view to their being added to the Schedule?

The question of double audit ought, also to be considered. There are district auditors at present who do a large proportion of the work of municipal authorities, and if you have that work done over again by professional accountants you will have considerable expense and double work imposed upon the officials of the council and all concerned. That is something which we should all wish to avoid. The Bill is one of considerable importance and of great public interest. The work of local authorities is something of which we are all very proud, and I only wish that the National Government exhibited half the capacity and knowledge in conducting their affairs which the local authorities of this country undoubtedly show. As far as my party are concerned, if we are satisfied on one or two points which I have raised, I do not think that we shall take very much exception to the Bill going forward to Committee, but there are certainly a number of details upon which we should have to be satisfied before we could fully associate ourselves with it.

1.8 p.m.


The hon. and gallant Member for South East Leeds (Major Milner) has subjected the Bill, of which he approves in the main, to a very long, close, detailed and critical examination. As he was speaking the reflection passed through my mind what a powerful opponent the hon. and gallant Gentleman would be if he happened to oppose a Bill. I am not sure, seeing the ability and skill with which he formulated his speech, if his opposition was really directed against this Bill, when I glance at the Order Paper and see lower down a Measure which excites strong disapproval. I think that when we come to that Measure I shall feel very uncertain and doubtful about it passing into law.

I have only two points to make. The first is about elective auditors. I would respectfully point out to the hon. and gallant Gentleman that the system of elective auditors is obsolete. It is nearly 100 years old. Elective auditors do not do anything. All the work has already been done and no big corporation could possibly depend upon elective auditors. Though they exist nominally in the case of some of the larger corporations, the work is done either by district or by professional auditors. Does he not think that they are rather a figurehead, which fact rather deflects the criticisms which might otherwise be applied, and that the auditors think "Oh, well, we must be all right so long as we have two sets of auditors"—the elective auditor and also the professional one. Does not the hon. and gallant Gentleman think that criticism is rather stifled by that fact?

The only other point with which I wish to deal is the report of the Departmental Committee on Local Expenditure and their recommendation that all the audits should be by district auditors. I do not agree with the hon. Gentleman the Member for Westhoughton (Mr. Rhys Davies). He has been extremely unjust to the district auditor. I do not think that the district auditor is a sort of chameleon who changes his colour with the party in power at Westminster. I do not think that he could do so. He carries out his duties as laid down by Statute. On the other hand, I do not agree with my hon. Friend the Member for Richmond (Sir W. Ray). It is very difficult to draw the line between the control of the operations of a big local authority and the audit of the 'accounts of that authority. I do not want them to be mixed up. The auditor is not concerned with policy, but he may be concerned with the propriety of expenditure and with irregularity. If he sees that charges are made at more than the proper or standard price he ought to have the power to call attention to the fact, but we must not think that the auditor can ever do, or ought to do, what really is the proper work of the finance committee of the borough council. It is not his business to look into the financial operations of the borough council, except to the extent of the propriety of the expenditure in accordance with the orders of the borough council. and, consequently, to see that there is no irregularity in the price paid or in any other matter in which money is spent.

I welcome the statement by my hon. Friend the Member for Richmond that he will not oppose the Bill because it gives the borough a choice between a district auditor and a professional auditor. The fact that 51 boroughs have chosen the professional auditor and not the district auditor—and many of those boroughs are important ones, such as Newcastle, Bolton, Bradford, Hartle- pools, Bristol, Stoke-on-Trent, Portsmouth and Liverpool—shows the extent to which the boroughs choose the professional auditor, and you must give them the choice. I agree entirely with a great deal of what my hon. and gallant Friend has said and with a great deal of his powerful analysis of the Bill, and especially in the praise which he accorded to the work of our great local authorities. It is most admirable work. I do not in the least agree with the attacks which are made upon them. They certainly ought to have the supervision or the oversight of the Minister of Health in so far as it is given by Statute, but they are to be trusted, and in nearly every case the work of the larger local authorities is carried out admirably.

1.15 p.m.


I should like to join my right hon. and gallant Friend the Member for Ripon (Major Hills) in his references to the hon. and gallant Member for South East Leeds (Major Milner). It is very clear that the hon. and gallant Member for South East Leeds had very strong views on this question, but it was rather unfortunate that the strength of his conviction was so great that it was not until the last sentence of his remarks that I appreciated that he was really supporting the Measure. One of his observations was to the effect that we are considering this Measure at rather short notice and that we do not, perhaps, appreciate the significance of the changes involved in the passage of the Bill. May I remind the House that it was just 30 years ago, in 1903, that a Joint Select Committee of both Houses gave very detailed consideration to this question of the audit of local government accounts, and came to the conclusion in that year that all the accounts of local authorities should be audited by members of the Institute of Chartered Accountants or of the Society of Incorporated Accountants and Auditors.

May I at once inform the House, in view of a question asked by the hon. and gallant Member, that I am a member of one of the bodies named in the Schedule, but as a non-practising accountant I shall derive none of the benefits which may accrue to the members of that society in the event of the Bill going through. That does not, however, prevent me, as an accountant and as one who has had some experience of local government, from making a few observations which may perhaps be helpful to the House. From some observations that have been made it seemed to me that there was misapprehension as to the functions of accountants with regard to the audit of municipal accounts. Reference was made to the question of the arithmetical accuracy of the figures which the accountants are auditing, and there seemed to be in some quarters the impression that the beginning and end of an audit is in fortifying the arithmetical accuracy of the figures. If anyone is going to misappropriate funds which do not belong to him he does not immediately write on the page of his passbook:"I am sorry that I have used for my own purposes monies which do not belong to me, and the following is an account of what has happened."

In point of fact, the difficulty in regard to accountants are not so much in the verification of the arithmetical accuracy of the figures which they are examining, but rather in satisfying themselves that the accounts do, in fact, give a true record of the transactions which have taken place. So in regard to the auditing of municipal corporation accounts we must take a much wider view of the responsibilities than that which have been submitted in the Debate. As I understand it, it would seem to me that the auditors of municipal accounts have at least three or four points in view, there may be more, which are all important. It is important that emphasis should be laid, as it has been this morning, on the relationship between the local authority and the Ministry of Health. That relationship is defined often enough by Statute. The district auditor in his examination of the accounts is guided by Statute as to the relationship between the local authority and the Ministry and has no dfficulty whatever in deciding during the examination of the accounts whether or not that relationship has been properly, efficiently, effectively and reasonably carried out.

I was not very much impressed by the hon. Member's suggestion that a surcharge is a terrifying experience. That is rather an over-rated assertion, in this sense, that if the district auditor does surcharge any members of the council for an improper transaction they have the right of appeal to the Minister of Health.

Another important function is, that when you are examining the accounts of an authority you have to take into account the relationship between the council and its employés, the various undertakings in which the council is engaged and also the propriety, in general terms, of the undertakings upon which the council decides to embark. Therefore, the real auditing of municipal accounts has a much wider application and a much wider responsibility than the mere checking of figures. There is also the influence which comes from the fact that you have an independent person looking into the accounts of the authority, having in mind all the implications which are involved in such examination.

My hon. Friend is to be congratulated on introducing the Bill, and I am glad that in such happy terms it has received the blessing of the Ministry of Health. I have the authority of my hon. Friend for saying, in answer to a question put by the hon. and gallant Member, that the institutions named in the Bill are in no sense responsible for its introduction. If I am asked whether or not they are in. favour of it I would say yes, but my hon. Friend has asked me to say that he had no communication with any of them and did not hear from them until a day or so ago.


Yesterday afternoon.


With regard to the question of district auditors and professional auditors, the hon. Member for Richmond (Sir W. Ray) referred to the recommendation of his Departmental Committee and stated quite clearly that when that recommendation was made there were four dissentients representatives of the borough councils, who expressed the view that they would prefer to have professional rather than district auditors. I think the hon. Member's contention that in these days, because of increased expenditure in local administration, you must have to examine your accounts someone of experience from the Ministry of Health, the answer is that, because of the very fact that local expenditure has increased so much and that the activities have been multiplied so many times, it is important to get the most experienced people to audit the accounts. There is no question that there should be brought to bear, for the benefit of the authorities, advice and experience which comes from practising members of the accountant's profession, not so much the departmental view but a view which, because of their experience, is of great value and would conduce to the general usefulness of the council whose accounts they are auditing.

The hon. Member is quite right in giving local authorities an option as to whether they will have district or professional auditors. My experience has been similar to that of the hon. Member in regard to local authorities. The staff at the Ministry in connection with these duties is about 150, and it is the inevitable result that they are always in arrear in their auditing of accounts. It is much more difficult to detect irregularities 12 months after they have occurred than if the accounts are examined at the time when they are being committed. There is this advantage that professional auditors make a more or less continuous examination of the books, and that acts as a deterrent. There is a good deal to be said for professional auditors who come along at certain times and examine the accounts when the transactions are taking place rather than six or 12 months afterwards, which is the case in the audit of a district auditor. I am glad the Bill has been introduced, and I hope it will find its way on to the Statute Book.

1.27 p.m.


Having had the opportunity of seeing something of the system of elective auditors I make no apology for taking up a few minutes of the valuable time of the House, and I shall probably be much quicker if I give an outline of the system in practice in my own town. It is the largest non-county borough in the whole of Lancashire and the third largest non-county borough in the whole of England. The boundaries of the Parliamentary constituency are the same as those for the elective auditors. I oppose the system of elective auditors on the grounds of expense and, therefore, I am thoroughly in favour of the Bill. I make a distinction in the case of the mayor's auditors and the elective auditors, because the mayor just appoints an auditor and he receives no payment for his services. The report he sends in is generally worth the amount he receives. But the elective auditors are different. Generally on the 1st March two elective auditors have to be appointed. They need not have any ability for the kind of work they have to do. They are generally nominated by the political parties, and although in a General Election we have 40 polling stations in my constituency in an election for the elective auditors there is only one. People walk a considerable distance and when they arrive at the poll, and there are three nominations, they can only vote for one although two have to be elected. The expense of the elective auditors election is so great that, taking all the municipal corporations of England, this Bill if it is passed, will effect a very great saving. On Wednesday of last week an elective auditors' election took place in my constituency, and out of 27,500 electors just over 1,000 took the trouble of going to the poll. The cost of that election was over 2s. per vote, and in these times we cannot afford to spend 2s. per vote on an appointment to an office which is out of date. We have in the town professional auditors, we have had the same firm since the year 1875, who are paid hundreds of pounds a year for conducting the audit. Is it likely that two political agents who are paid six guineas per annum can make an audit of the books which will be of any value? Some hon. Members may think that I have overdrawn the case, but take the last election which took place in the City of Sheffield for elective auditors in 1925. On that occasion the number of local government electors on the register was 208,111, and out of that number only 1,248 voted, or less than one per cent. That shows what interest people take in elective auditors' elections. The following year the Sheffield Corporation promoted a Bill and did away with the elective auditors' election, thereby saving a large amount of money. I understand that the votes recorded in 1925 cost over 5s. each. That is ample proof that this method of appointing elective auditors is out of date; they are of no practical value and I trust that the Bill will be passed.

1.33 p.m.


In the first place, I should like to congratulate my hon. Friend the Member for Penryn (Mr. Petherick) on having brought in the Bill. I have known him for a long while, and I should like to say that I have seldom heard on a Friday afternoon a private Member's Bill brought in with greater skill and a greater desire to smooth away those rough people who may desire to oppose the Bill either on the Second Reading or upstairs. As one who has a considerable interest in the part of the country from which he comes I congratulate him on having shown a skill which is in complete contrast to the hon. Member for the Eastern part of the county, whose inefficiency is at times almost abnormal. It is very rare that a Bill is brought forward on a Friday afternoon which could meet with my approval. I had hoped during Lent to escape from having to speak on a private Member's Bill on a Friday afternoon, but I Lave been led away from that good resolution, and as far as this Bill is concerned I hope it will be passed.

There are three main reasons why the average private Member's Bill is bad, but those reasons are 'completely absent in regard to this Measure. The first fault from which nearly every private Member's Bill suffers is a desire to cut down the liberties of the subject. The budding legislator who comes out with a private Member's Bill thinks that he must stop some poor harmless fellow doing this, that or the other. It may be buying something or selling something. If the Secretary for Mines wishes to interrupt me I am quite willing to give way.

The SECRETARY for MINES (Mr. Ernest Brown)

I have not the slightest desire to speak.


The hon. Gentleman says he has not the slightest desire. All I can say is that I congratulate him on something fresh. When one finds a private Member's Bill which does not interfere in any way with the liberty of the subject, one can support it. A second point about private Member's Bills very often is that they place some extra burden on the taxpayer or the ratepayer. This Bill, however, is purely permissive it does not compel any local authority to change from the present system. In these days, with local authorities handling vaster and vaster sums of money, it is clearly impossible that for any great length of time they can escape having the very best of audit systems. My hon. Friend who spoke last gave several good illustrations of the waste of money arid time and energy in local authority areas. He spoke in favour of the Bill. On that second point we can support the Bill as containing a principle which in the main is sound. There is a third sign to be found in almost all private Member's Bills. They not only put an additional charge on local authorities, but require some additional work to be done by the local authorities. This Bill does not add to the work of the local authority. There is another point.


Before my hon. Friend leaves that point, surely it would be true to say that there is a fourth requirement in a private Member's Bill, and that is that they should afford him an opportunity to speak.


And there is a fifth point, and it is that they should give my hon. and gallant Friend an opportunity to interrupt, and a sixth that he should make a speech explaining why re intended never to make another speech, and in that speech to charm every Member of the House. I have been interested to notice to-day that two Scottish Members have put in a petition for Scottish accountants. They have disappeared from the House. I suppose that, like other people, they are now eating large and substantial lunches. They pointed out that, in the Schedule there were mentioned four excellent accountants' societies, which were to be, as it were, on the panel of this Bill. They made an appeal on behalf of the Scottish societies. I am sure that the Scottish accountants are very efficient and quite capable of doing their jobs. Although the hon. Members may have a very good case from their point of view, they did not produce between them a single instance of a Scottish local authority employing English accountants from London, and until they have made out such a case and put it very strongly I hope there will be very strong resistance to their proposal to allow the Scotsmen to come in under this Bill. Scotsmen already have a considerably larger share than they ought to have in these matters.

Earlier to-day I was interested to see a Front Bench representative of the Socialist party and a representative of the Government Front Bench make strong appeals for the abolition of the elective system. I know that Front Benchers are not very democratic as a whole. I was delighted to hear the hon. and gallant Member for South-East Leeds (Major Milner) stand up for real democracy. Naturally his own leaders are dull, dismal and absolutely prehistoric. But he at any rate stood up for the principle of election. The only real case to be made out for the Bill is its elective principle. I have been looking up various Acts which are to be repealed by the Bill. We go back to 1882, and to an Act of the first year of Queen Victoria. We are undoubtedly telling the local authorities that we as Members of the House of Commons do not wish them to move too rapidly. We are doing away with a system which has been excellent in the past, which may have been excellent in the early days of Queen Victoria. Local authorities should realise that the Bill gives them a cheap and easy way of getting the best form of auditing.

I hope that the Bill will meet with success, and that its promoters will not be led up by-paths by Scottish or other people, but will keep the Bill in the form in which it is now, with the four societies of accountants that are mentioned. I hope the Bill will have an easy and pleasant passage into law, and I congratulate my hon. Friend who moved the Second Reading.

1.45 p.m.


I was interested in the reference of the hon. Member for Torquay (Mr. C. Williams) to the speech of my hon. Friend the Member for Westhoughton (Mr. Rhys Davies). I do not often agree with the hon. Member for Torquay, but I rather agree with his reference to my hon. Friend's speech. My hon. Friend claimed that this Bill was in every way a good Bill and that it gave power to local authorities to choose the type of accountant whom they wished to appoint. It does no such thing, or at all events, it only does so in a very limited sense. What it really does is to give a monopoly to certain organisations of accountants which, in my view, is harmful and dangerous. I do not know why any particular organisations of accountants should be selected. I do not see why, if public accounts are to be audited in the way suggested in the Bill rather than by elected auditors these particular organisations should have a monopoly of the duty and privilege of auditing public accounts. I was also interested to note the very narrow nationalist point of view which has been expressed in this Debate by some who at other times talk very widely and largely about the unity of the Empire. The hon. Member for Torquay suggested that accountants with Scottish qualifications ought not to come under the Bill. I thought the hon. Member favoured a very wide Empire view. Would he say that a man should be excluded, because he had a qualification—which might be equally good from a professional point of view with an English qualification—from Ulster, let us say? The other part of Ireland has not been mentioned yet in this Debate.


We have not yet been told, but I do not think the Bill applies to Scotland. They have their own special audit system, and I gather that it is a very close system. My point is that in Scotland they seldom, if ever, have English auditors, but I am quite willing, if you take away the sort of prohibition which exists in Scotland against English auditors, to make it open in both cases. I do not think the point as to Northern Ireland arises in connection with this Bill.


I do not think the hon. Member has appreciated my point. If in other similar matters, we consider the whole Empire, why should we not do so, in this case? When I was a member of a local education authority we had a case of a teacher from Canada, whose qualifications were as good as those of any of the other teachers in our service, but because his qualifications were Canadian, he was not permitted by the Board of Education to get the same opportunities and facilities as those who had British qualifications. Being an internationalist, and, at the same time, believing that there should be real Empire unity instead of mere talk about it, I believe that a position such as this should be open to any person who has qualified within the Empire. Why should a local authority be compelled to appoint a member of one of these organisations, if they desire to appoint another auditor whose qualifications are equally good, although taken out, let us say, in a University in Northern Ireland, or Canada, or Australia? Why should we support that the doctrine of narrow nationalism and confine these appointments to persons qualified within our own country?

That appears to be a fault in the Bill. Personally I would not vote against the Second Reading but I should like to see the scope of the schedule widened when we come to deal with it in Committee. The hon. Member for Westhoughton also said that qualified chartered accountants were not able to enter the Civil Service and he rather inferred that the accountants in the Civil Service were not as efficient as those belonging to these four organisations. As a member of a local authority and chairman of a finance committee I have had a little experience in connection with the auditing of public accounts, and I am familiar with the type of people who do these audits. I have also a little knowledge gained by experience of the auditors in the Civil Service who qualify by their service in the Civil Service and not by the examination to which these organisations subject their members. I say without hesitation that the Civil Service auditor is quite as qualified as any member of these organisations. I am surprised at the attitude taken by the hon. Member for Westhoughton. He tells us that nobody could become a qualified accountant without paying a fee of £100 or £200. I do not think that the hon. Member ought to support the view that only those able to afford heavy fees should be allowed to enter this profession. All these professions ought to be open to people of poor family whether they are able to pay heavy fees or not and the hon. Member for Westhoughton appears to be lending his support to the continuance of a system which places a wall round this profession and makes entry to it difficult by imposing heavy fees.

It, has been said that this is a local option Bill. It is 'a limited local option perhaps, but only very limited. There are many qualified auditors in organisations other than the four mentioned in the Schedule. The local option is only local option to the extent that permits local authorities to select their officers from one of the four organisations which are now, through this Bill, endeavouring to secure a monopoly of a very lucrative part of their professional work. I hope the associations that represent the local authorities will, if the Bill goes before a Committee, make a strong protest against this attempt to limit their powers in the selection of the people who shall audit their accounts. I want to see accounts properly audited, but I hold the view that the people who happen to be members of these four organisations are not the only people who can audit accounts properly.

I have had a little experience of elective auditors, and I agree entirely with some of the things that have been said to-day against them. There have been, no doubt, scores of cases where the person elected through the system of elective auditors has, as the Parliamentary Secretary said, been entirely unqualified for the job. On the other hand, there have been very many eminent people, fully qualified, doing the work through that system. In my own borough, for instance, we had two fully qualified accountants, one a chartered accountant and the other 'a member of one of the associations mentioned in the Schedule, who were elected through the system of elective auditors, and they did the work very well. We had, in addition, a mayor's auditor, a member of the council, who was able to help very materially in regard to policy, because he was perfectly familiar with the policy of the council. I think the question of policy ought to be considered in connection with auditing, and in that connection I believe that the elective auditors have done good work in many towns and that it would be a pity entirely to abolish them.

There is one matter in the Bill that has rather puzzled me, and I should like to be enlightened upon it. We are told that a council may, if it so desires, do away with the system of elective auditors and institute the new system suggested in the Bill; and if that is so, the Act of Parliament under which the present elective auditors system is conducted will be repealed by the Bill, but I do not know if it would be permanently repealed. Take the case of, say, the Manchester Corporation deciding, by the requisite two-thirds majority, as suggested in this Bill, to abolish elective auditors and to go in for the system under the Bill. They appoint a district auditor, or one of the firms of chartered accountants living in their area, who does the audit for them for some years. Suppose the policy of that council changes, and after an experience of four or five years of the new system they come to the conclusion that the old system of elective auditors, under which they have carried on their work for 30, or 40, or it may be 100 years, was in fact the better system. How then are they to get back to the old system again Can they get back to it by just passing a resolution to do so?

I am not at all clear on the matter, not being a lawyer, and probably if I were a lawyer I should be less clear still. At any rate, I have tried to understand what the position is, and it appears to me that if they once adopt this Measure there is no going back.


As a matter of fact, that is so. If a borough council decides to employ a special or a district auditor, it cannot go back.


I am glad the bon. Member has put me right on that point, but, after all, that is only his opinion. In his opinion it is permanent, but if you asked the opinion of the lawyers in the House, you would probably get the same differences between them on this matter as on most other matters. However, I will assume that the hon. Member is right, and the wording of the Bill indicates to me that that is so. Elective auditors have been employed for about 100 years, or at any rate for all my working lifetime, and I wonder whether many of the local authorities would not like to experiment with the new system and see whether, after four or five years' working, it was an improvement on the old system. If they desired to make that experiment and adopted the new system, and then afterwards desired to go back to the old system, presumably they could not do it. But there must be some way, surely, by which they could change back; and the only way of doing it that I can see would be by the introduction of a private Bill into this House. That is a very expensive matter, and I should not like to impose on local authorities the expense of such a change-over. It occurs to me that the matter might be made permissive and that the Clause in the Bill which repeals the relevant portion of the Public Health Act might perhaps, with advantage, be taken out or altered in some way. The only other matter to which I wish to refer is the question raised by the hon. Member for Richmond (Sir W. Ray), who apparently wants to give to auditors a power that I, personally, should be very sorry to see them possess. He rather demurred when the hon. and gallant Member for South East Leeds (Major Milner) suggested that the meaning of his words was the setting up of a sort of dictatorship. I listened to the speech of the hon. Member for Richmond very carefully, and I came to the conclusion that he wants power to set up a number of miniature Mussolinis, who could impose their will upon local authorities by a suggestion to the Minister of Health. I must say, frankly, that if these powers were conferred on auditors, and these suggestions were made to the present Minister of Health, or to one or two other Ministers of Health of whom we have had experience recently, I think they would be rather glad of the excuse of seriously limiting the powers of local authorities and hampering them in their work.

I do not desire to vote against the Bill, but I should like to see it go to Committee and get the full consideration which it needs. I think it can be improved in Committee, and I think there is very much room for improvement, but it has certain merits that ought to be considered in Committee, and perhaps, after it came back from the Committee, I might find that I desired to support it. At any rate, I would like it to get full consideration in Committee.

2.5 p.m.


There must be one Member here who is pleased with the way in which the Debate is going on; he is the hon. and gallant Member for Wallasey (Lieut.-Colonel Moore-Brabazon), because all the Members who have spoken seem to have taken his advice to heart and to have been very brief. If he will, therefore, allow me about five minutes, I will do my best to follow the example which the hon. and gallant Gentleman always sets us. This is almost an event in my life, because I find myself supporting a private Member's Measure. That does not happen very often, but this is a rather unique Measure in that there is only one name on the back of it, namely, that of the hon. Gentleman who so ably introduced it. It is because I can trust anything that he does that I find it fairly easy to support this Bill. There are, however, some difficulties that I can see, and I agree with the hon. Member for West Walthamstow (Mr. McEntee) that we should send the Measure to a Committee for further investigation. The hon. Gentleman is in this great difficulty as Socialists always are in regard to Measures of this kind, that on the one hand he sees that Civil Service auditors are possible, but, on the other hand, he cannot see anything derogatory in choosing auditors from a. panel of trade unionists. Therefore, he says, send it up to a Committee—which, we know from previous experience, is the perpetual solution of Socialists for all problems.

I am glad that the hon. Member has not surrendered his political views or prejudices in giving the modified support that he has given. While he was speaking, there appeared from the remark by the hon. Gentleman who interrupted him that there is a blot on the Measure in as much as once you decide to change the system of audit it has to he permanent. I do not think that that is right, because you might want to change again, and it would be hard if we had to have another Measure introduced to make that possible. Hon. Members must have had experience of local authorities which have changed from the direct system of rating to the other, and backwards and forwards. Practically all our affairs in this House are based on change, and it seems very hard that in a changeable world the one thing that should be immutable is the system on which municipal corporations should have their accounts audited. It seems strange that that should remain the one fundamental question in this country which can never be altered again. I hope, therefore, that the hon. Gentleman who introduced the Bill will reconsider the rigid attitude that he has adopted, and make some provision to enable corporations to have an alteration if they demand it.

The hon. Member for West Waltham-stow dilated on weaknesses of the arguments about local option, and there I entirely agree with him. If there is one thing which causes false arguments, it is when anybody introduces the two words "local option," because, according to the mind of the speaker, they seem to cover a great multitude of different things. No one could possibly think that there was any connection between local option for the drink trade and the kind of local option in the modified choice which this Bill gives to municipal corporations. Therefore, I hope that whatever happens in Committee, we have heard the last of that argument. I am sorry that the hon. and gallant Member for Ashton-under-Lyne (Colonel Broadbent) is not here, because I want to give him the opportunity of explaining away something which he inadvertently said. The hon. and gallant Member, who made such an informative speech, told us that unpaid auditors were of no value. I am sure that he would be the first to take back any impression created by that remark, because we know what an enormous amount of work is done on an unpaid basis in local authorities in this country particularly. Therefore, I do not think that he should let it go out that anybody, even in a casual word in a short speech, really believes that unpaid work in this country is of no value.

The fundamental object in this Bill is to enable municipal corporations to provide for the audit of their accounts. It seems to me that, on the whole, the new system which is presented to the House to-day will make it possible for those accounts to be better audited. I cannot go into the technical arguments that have been put up because I am not an auditor, and I do not understand all the methods by which these obstruse calculations are carried out, but when we see and hear—I hope hon. Gentlemen opposite will not object to my referring to this—the kind of thing which Socialist ex-Ministers have been telling the country will happen when we have a Socialist Administration, both national and municipal, we had better take time by the forelock and take care that we get the best possible auditors for the accounts of public bodies. It will strengthen the argument in the development of this point if I may be allowed to quote the sort of thing which I understand that ex-Ministers want to see happen. Then I am certain that everybody will agree with me in saying that we must, at all costs, have the best possible auditors.

An ex-Minister told my constituents not very long ago what things he would like to see done under a Labour Administration. He said that they could not happen under the present Administration. They could not happen under anybody else's really, but this is what he hoped to see under a Labour Administration, and, if anything of this kind should take place, we shall have to have very good auditors. He wants to secure three good meals a day for everybody; a healthy house for each family and no two families in one house; sanitary conveniences; a child in every home as far as possible; and a good many other things such as a newspaper every day, a new book a month, and a good word for all every morning. There, I suppose, the auditor would function. Then he wants work schemes in every municipal borough and county; a hundred thousand old folks' homes; a load of coal in every cellar every six months; and no more family quarrels.


Is not the hon. and gallant Gentleman reading from the rules of the Rotary Club?


The hon. Gentleman is mistaken. The ex-Minister is one of the hon. Member's late colleagues, who is no longer here. [An HON. MEMBER:"What is his name?"] He is Sir Ben Turner. Hon. Gentlemen will recognise that in any system of Government which is going to ensure all these extraordinary and delectable results at public expense, the accounts will require very careful auditing on the part of municipal and every other kind of corporation. If, as I understand, the whole purpose of this Measure is to make certain that we have the best possible auditors, whether civil servants or trade union accountants, and if the House can be assured that the system will produce the best possible accountants, I think that we might very well give the Bill a Second Reading. I should not have thought it was necessary to divide even about that, but also I would add the proviso that it should not be considered by anyone, least of all the hon. Gentleman, to be the law of the Medes and the Persians that once this system is adopted there should be no looking back. Sometimes it is necessary to look back. Sometimes this House does legislate in a hurry, as to-day perhaps, on matters of importance, and it is not always practicable to have amending bills brought in. Therefore, in the Committee stage I hope there will be an equally full discussion as we have had this morning on the point as to what should be done should the system not be found to work adequately. But for the present, for my part, although I was not asked to put my name on the back of the Bill—nor, apparently, was anyone else—I should like to commend it to the House.

2.16 p.m.


The hon. and gallant Member for Gainsborough (Captain Crookshank) and the hon. Member for West Walthamstow (Mr. McEntee) drew attention to the rigidity of the Bill. I hope that the promoter, who made such an admirable speech in introducing it, will give consideration in Committee to limiting this rigidity, which goes further than the hon. Member indicated, because there are three possible systems —elective auditors, district auditors and professional auditors—and they only discussed the possibility of returning to the elective system if one of the other two systems were adopted. It is quite conceivable that a council might desire to change from sub-section (1) to sub-section (2) or vice versa, but that is obviously impossible as the Bill stands, and I urge my hon. Friend to give consideration between now and the Committee stage—to which I assume the Bill will go—to that point, which, I think, is one of real substance.

The hon. Member for West Waltham-stow took strong exception to the monopoly feature of the Schedule, but not for quite the same reasons as the hon. and gallant Member for Montrose (Lieut. Colonel Kerr). His objection was to making it a monopoly. I think he is really on rather unsound ground. The sole purpose of putting societies in the Schedule is to ensure that auditors are effectively qualified by some test. I imagine it to be the desire of every hon. Member that the Schedule should be enlarged to include all properly qualified people by reference to membership of some organisation, and I think it was my hon. Friend the Member for Torquay (Mr. C. Williams) who objected to Scotsmen being brought in. It is not a question of bringing Scotsmen out of Scotland for the purpose of auditing English accounts. The actual fact is that there are practising in England a large number—I believe at least 1,000—members of some of these Scottish organisations. I have one or two living in my constituency. They are resident in England, earning their living in England, and would be debarred from carrying on their normal occupation in one direction if the Bill went through in its present form. No one would suggest that a medical doctor who qualified in Edinburgh University should be debarred from acting as a medical officer in an English town. We have not had any definite declaration from any supporters of the Bill that they will, in substance, meet the principle raised by the hon. and gallant Member who moved the rejection, but if there is any indication that that is so, I hope he will see his way to ask leave to withdraw his Amendment.

There has been some discussion as to whether this Bill applies to Scotland and Northern Ireland. By implication, I think, it only applies to England and Wales, because it refers to municipal corporations, and I think they call them something different in Scotland. It could only apply to organisations which exist in England, but I do not think that that necessarily excludes its application to Northern Ireland, unless that is automatically excluded under the Act which set up the Northern Ireland Parliament. which I have not had an opportunity of studying. The hon. Member for West Walthamstow took strong exception to the practice of requiring premiums from those studying for the profession of accountants. Whether it is a good or bad principle, it is very general, and not quite so undemocratic as the hon. Member thought. He will find it in the trade union world if he looks close enough.

Mr. DEPUTY-SPEAKER (Sir Dennis Herbert)

The hon. Member would not be in order in going into that.


I agree, but the hon. Member for West Walthamstow raised the point as a point of principle, and I wanted to show that the point of principle did not apply only to accountants, but is to be found in many other occupations.


That is where the hon. Member is getting more out of order.


I am sorry. I am, as a rule, I hope, not one given to disorderly remarks. The Parliamentary Secretary made a statement which was a little irrelevant to the Bill, but which, I think, was not quite accurate when he said there were more Englishmen in Scotland than there were Scotsmen in England. That is not so. There are twice as many Scotsmen here as there are Englishmen there, but the proportion of Englishmen in Scotland is four times as great as the number of Scotsmen in England.

The hon. Member for Richmond (Sir W. Ray) spoke with great weight of authority to-day as chairman of the Committee on Local Expenditure which was responsible for making the recommendations on which this Bill is founded. I do not often differ from my hon. Friend the Member for Richmond, who has been my guide, philosopher and friend in many political matters. But he suffers from one disability in this matter, because his great municipal experience has been confined to the London County Council and a Metropolitan borough council, and I think both in the London County Council Act, 1888, and the Metropolitan Councils Act, 1898, it was required that their accounts should be audited by district auditors, and therefore they have never had a chance of finding out the other method of auditing. If the hon. Member for Richmond had had the same kind of experience that other members engaged in municipal government outside London have had, he might have taken a different view, and might have found himself in accord with the four dissentient members, who, I think, were all representatives of the precise class of municipal authority to which this Bill applies.

We had a very long and interesting speech from the hon. and gallant Member for South-East Leeds (Major Milner), who, as far as I could make out, was alone in desiring to retain the system of elective auditors. I wish to dissent from his point of view. There is no more firm believer in the democratic principle in its right place, but the selection of persons to do specific jobs is not a matter for democracy, but of selection by the few. Nothing is administered effectively by a committee. It always boils down to some person or other doing the effective administration, and if you are choosing people to do things, you cannot elect them wisely. You elect a general body of people to decide on general principles, and elect them on general principles, but in practice the attempt to elect people to carry out detailed jobs, as in the case of the United States, is very had,. When you think of the interest taken in the election of these elective auditors, and when you think quite frankly of. some of the people who get elected—qui,te,a number of friends of mine have at one time or other, to please their vanity, put up for elective auditors —you find that very often they have had no training or experience for the job. I know one particular town where a gentleman who approached the standard of being the village idiot always used to put up for the past, and was always successful. His election was a periodical joke. We really want, to bring that kind of thing to an end, and I am amazed that a gentleman with the experience and knowledge of the hon. and gallant Member for South-East Leeds should desire to perpetuate a system which seems to be so entirely indefensible.

There are certain wider considerations about this Bill which make it of rather greater importance than has been realised by some of those who, if I may say so with great respect, have been making rather frivolous speeches. Before I deal with those considerations, however, I want to challenge the hon. Member who roved the Bill for deceiving me in some degree. He stated that the accounts of 11,000 local authorities were audited by district auditors: I remember looking into the question some little time ago, before the last local government Act was passed, and noting that there were 1,750 local authorities, and as a number of them were wiped out by that Act, there are now about 1,400. In view of this fact I have made some inquiries and I have discovered that the hon. Member has included Mr. Gladstone's favourite child, the parish council, amongst the 11,000 local authorities.


Surely Mr. Gladstone's children have to be audited?


Quite obviously it is not a very important matter that the trifling accounts, as they are in most cases, of the 10,000 parish councils come under the control of district auditors. Those councils are not great administrative bodies. Many of them have a very nominal existence, and very nominal duties, and we ought to discuss local life in the serious sense and not from the rather unimportant standpoint of typical parish councils—those which have no effective duties to perform that I have been able to discover. One council in the district where I was born used to hold a meeting once a year, and raised about £50, all of which used to be paid to the clerk, who was a football friend of mine. That was the limit of the activities, so far as I ever discovered them, of that parish council. It used to 'meet in turn at the houses of the different members. I remember that my father, when it came to his turn—


The hon. Member is getting away from the subject of this Bill.


I am sorry that I cannot describe how the work of a parish council was carried on. Its accounts had to be audited by one of these district auditors, and the main occupation was to consume refreshments while they discussed the audit system. If we are to adopt the principle of this Bill we shall ultimately wipe out all elective auditors. Personally I would rather make it compulsory. The hon. Member who moved it gave reasons why it should not be made compulsory. He said that if it were made compulsory there would not be sufficient staff to do the work. In saying that he revealed what I call the bias of the Bill, which I do not like, because it is in favour of the district auditor, in favour of increasing the staff employed at the Ministry of Health. I am a believer in private enterprise, and have no desire to see the number of civil servants increased. I would much prefer to see the Bill consist solely of sub-section (2), without sub-section (1) at all.

It is interesting to observe what has been the attitude in the past of the bulk of municipal corporations. Many of them have promoted Bills to relieve themselves of the undesirable elective auditor system. Unfortunately they had to go to that expense, and this Measure will save them the necessity of promoting such legislation in the future. The great bulk of them have deliberately chosen the system of professional audit rather than of district audit. I doubt whether the district audit system would exist to any material extent if it had not been im- posed by Parliament in various local Government Measures, all of which were drafted either in the old Local Government Board or in the Ministry of Health. There has been the natural bias—I am not making any reflection on our distinguished civil servants—to extend the activities of their own Department. This matter has been examined in the past, as the hon. Member for the Faversham Division (Mr. Maitland) indicated. As long ago as 1902 a Joint Select Committee of both Houses was appointed to go into the whole question. It was pre sided over by a very distinguished gentleman, the Earl of Crewe, and it recommended that the accounts of all local authorities—not merely municipal corporations, but county councils, urban district councils, rural district councils, and the group of Metropolitan councils—should be audited by professional accountants. They were rather narrow in their outlook, because they limited the professional accountants to members either of the Chartered Institution or the Incorporated Society. I do not think we should take that narrow view to-day.

That was 30 years ago, and things may since have altered to some extent. I imagine that report was not welcomed too cordially in the old Local Government Board, because what they saw in it was a condemnation of their own methods. At that time about 65 people were employed in this audit department, half of them either barristers or solicitors. Their main pre-occupation was not audit, as we understand it in the commercial sense, in the sense of the financial protection of the people; their purpose was to discover whether petty illegalities were being committed. We have heard a good deal on the question of surcharges. The main use of the surcharge, as I understand it—apart from when some of our hon. Friends opposite, or some of their friends, get into trouble—has been in the case of pettifogging irregularities, not malicious, very often committed through ignorance. To-day the audit department of the Ministry is rather larger. I am not sure whether the information supplied to me is strictly accurate, because it has had to be extracted with difficulty from various documents, but at present the audit department appears to contain 150 people. Thirteen of them are barristers, 13 are either chartered or incorporated ac- countants, and 125 do not appear to have any stated qualifications at all—I mean qualifications in the sense that they should have qualifications as auditors. These ladies and gentlemen, I have no doubt good citizens, are doing their job to the best of their ability and according to their lights and training; but having regard to the magnitude of the operation of municipalities I am very doubtful whether it is quite good enough service.

The Mover said that he did not want the Bill introduced too suddenly, because there would not be enough Civil servants to do the job. It is manifest that we have enough professional accountants to do the job; there would be no difficulty in finding in the profession a good supply of competent and able men. My hon. Friend the Member for Richmond, in defending his recommendation in the report of the Committee on Local Expenditure, said he wanted to get hold of men with experience in local government. Some 80 or 90 municipal corporations promoted Bills between 1889 and 1932 under which they obtained power to appoint professional accountants. So far as I know, most of them have adopted that course. There is already a large number of professional accountants with complete familiarity with local government, and the point raised by the hon. Member for Richmond has been met.

I feel very strongly that we should have the very best accountants. The hon. Member for Westhoughton (Mr. Rhys Davies) said that it was merely a matter of checking. I took a note of what he said — "checking people's honesty." He pointed out, quite truly, that the Welshman is naturally honest, but that did not seem to be very relevant to what he was discussing. He regarded the surcharge as a thing that was of vital importance. He said that it was a check upon dishonesty, but he overlooked the fact that the presumed irregularity might arise from ignorance. He did not seem to understand that an auditor is a man who not merely makes sure that everything that has been received by the corporation has been. paid into the bank and that everything that has been paid out is correctly entered up, and that that is not the only, or the primary function, of the check. The auditors have, of course, to make sure that nobody has put sticky fingers into the till, but they are concerned with very much wider questions of public finance. In regard to this, the hon. Member for Westhoughton did not seem to have any conception.

May I just indicate the magnitude of the task involved in this question of local government accounts. This Bill only covers municipal corporations, and I have not been able to separate from the accounts of all local authorities those which apply to municipal corporations, because the classification does not, I find, separate them entirely. I imagine that the expenditure of municipal corporations represents more than half of our national expenditure, which covers the whole of the county boroughs, the whole of the municipal boroughs and only excludes the county councils and the urban and rural district councils. At the present time, those local authorities in the aggregate have a turnover, on each side of their accounts, of £500,000,000, that is, £500,000,000 of receipts and £500,000,000 of expenditure, on current account. That is something of enormous magnitude. On trading services—I think their housing estates ought to be included in this—they have £1,000,000,000 of capital. The turnover on trading account, on both sides, is £160,000,000. Enterprises of that magnitude do not merely require people who check the accuracy of the book-keeping. They call for people who can advise upon financial policy, and upon depreciation, reserves and renewals.

I am definitely of the opinion that professional auditors should be regarded as the people to do this job. We should not regard the job as one for the Ministry of Health people, who are, in fact, inspectors who have to make sure that plain robbery has not taken place. You need something much bigger than that. I am one of those who would abolish a good deal of the municipal trading that takes place, but this is a conservative country, and the attitude of the ordinary man is probably that the municipal trading that we have is justified, but that we do not want any more of it. I do not visualise the time when waterworks and tramways will be taken away from the municipalities, although I think that it would be a good thing if that happened. These gigantic undertakings, with a capital of £1,000,000,000 and £160,000,000 trading account, have to be audited—by whom? If the hon. Member for Westhoughton has his way, or the Ministry of Health have their way, they will be audited by people of no commercial experience, people who are not examining the way in which manufacturing and distributing industries are carried on. I think that they ought to have that kind of experience.

I do not think that the figures that I have given represent the future magnitude of this matter. I have spent a good deal of time in this House tilting against municipal extravagance. I regret that I do not get the support that I ought to get, but I shall go on tilting against it. It is a little difficult now to separate national finance from local finance. If you take what I call national and local Supply, you will find that it has gone up in the last ten years from £520,000,000 to £630,000,000, and half of it has gone to our local authorities. A very large proportion of money that we vote in Supply —one-third of our Supply Votes in this House—goes straight to the local authorities. It has grown in the last few years, as the hon. Member for Richmond pointed out. In England and Wales alone, the grants to local authorities have gone up by £60,000,000 in ten years. I imagine that it will go on growing, unless I can persuade more people to take my view that the activities of the municipal authorities ought to be checked. I must assume that the view from which I dissent will prevail. That being so, I would audit on a much higher standard than is being called for by a good many hon. Member who are supporting this Bill.

Our national accounts are, of course, audited under a very rigid system. In the main our national accounts are not trading accounts. The most important work of the Auditor-General is to check whether the Departments have obeyed the decisions of this House. The State does not carry on its accounts on a trading basis, but purely on a cash basis. Whether the Budget is balanced or not is entirely a matter of whether the cash receipts exceed the cash payments in the financial year, and there are no reserve accounts and capital accounts, such as we get with municipal authorities, which to some extent do their bookkeeping on the same lines as the commercial firms. We ought to take the very strongest view, in order to ensure that in future we shall have a standard of accountancy definitely higher than in the past.

The House ought to be exceedingly grateful to the hon. Member for Penryn and Falmouth (Mr. Petherick) for having brought forward this Bill, and for having given the House of Commons an opportunity for a very valuable Debate, in which many points of view have been expressed. Everybody will agree that that hon. Member has rendered a public service. I sincerely hope that the Bill will receive a Second Reading, and that when it gets upstairs the hon. Member's mind will be elastic in regard to Amendments that may be brought forward, so that when the Bill comes down for the Report stage it will be received with universal satisfaction by the whole House.

2.43 p.m.


I intervene in this Debate to deal only with a narrow point. I do not wish to follow the hon. Member for South Croydon (Mr. H. Williams) in the extraordinary range and the varied assortment of points that he has raised, from the village idiot upwards to municipal trading. He appeared to be as strong in opinion as effective in knowledge, and I was surprised to find myself in agreement with him to some extent. As to the views of the hon. Member for Richmond (Sir W. Ray), he put forward a very dangerous suggestion on this matter. What the hon. Member in effect said was that he wanted this Bill to be extended in Committee so that auditors should not merely be able to advise, as the hon. Member for South Croydon suggested, but should actually lay down a policy for the local authorities. We have had some experience of that in the London area with the district auditors. We have found that the district auditor is not a genuine civil servant. He is practically out of control of anybody, but he comes along and tells the local authorities what they are to do. That is all very well, if he is administering a code of law, and says, "You must not do this because of legal difficulties", and it is all right for him to advise on points of finance, but what he has taken upon himself to do is to lay down the law for local authorities, and to say what shall be their social outlook.

In numbers of cases it is left to the local authority to do this or that if in their opinion they think it is wise. Then this gentleman intervenes, and the result is that in such cases the local authorities have to key down their whole social ideas to the conception of a gentleman who is no doubt a very estimable gentleman, and who, I understand, is a great authority on contract bridge, but who has no great experience of social affairs generally. You have here an attempt, such as all professions make, to get a monopoly for their members.

It may be pointed out that the members of this particular society are likely to come from a particular class; they get a particular class outlook; and, if we are to accept the views of the hon. Member for Richmond, and auditors are to have power to enforce their views in regard to the standard of life of the people and the kind of provision that is to be made by local authorities, we shall get a kind of dull level; we shall get a kind of aspidistra mind running through everything. Chartered accountants are most estimable people, but we do not think it is necessarily desirable that the nation should be ruled by that particular type of mind. It is to be seen in its finest flower expressed in Sir George May's Report, and particularly in his remarks on the kind of education that is suitable for workers, and the danger of their getting better education than their betters.

This Bill is dangerous because it says, in the first place, that there must be this type of audit, and then that the auditors must be confined to certain particular societies. It is then confined to a certain class, and very often you find the auditors insisting that a local authority, in its provision of houses or of amenities of one kind or another, shall do what is proper; and what is proper is what appeals to that particular class. Then the auditor proceeds to surcharge any council that goes outside it. This kind of thing has happened quite recently in a certain provincial town where a great controversy arose over certain undraped statues which were placed on the staircase of the Town Hall, and which offended some people very much. Imagine what might happen in the case of a town which had provided an art gallery, if there happened to be an auditor of that type of mind. The council would be surcharged, and would be told that they must only do what was right in the view of the auditor. The next thing that would happen would be the taking of the case to the courts, and. when case of that kind gets before His Majesty's Judges—excellent and learned people, but notoriously, as a class, about 30 years out of date—[Hon. MEMBERS: "Order !"]—I am not attacking any of the Judges. Judges do not usually attain that position until they are 50 or 60, or sometimes 70—


Like Socialist Cabinet Ministers.


There has been a similar danger in regard to Cabinet Ministers. People of that age necessarily tend to be behind the times, and you can trace that throughout our legislation. The social and economic outlook of the Judges is always 30 or 40 years out of date. That is the danger of the Bill if it is extended in the way asked for by the hon. Member for Richmond. His point of view is quite logical. He believes in a Conservative outlook, and he wants to force that outlook upon local authorities all round. He knows that the power of the auditor has been one of the ways in which the central Government has enforced its will upon local authorities. I doubt whether he would take just the same view if we had a Socialist Government, and Socialist Ministers were enforcing Socialist ideas on local authorities. He believes that he has here a machinery which will get the kind of outlook of the London Municipal Society enforced on all municipalities. I think there is great danger in the Bill, and it will need close watching in Committee..

Lieut.-Colonel KERR

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Main Question put, and agreed to.

Bill read a Second time, and committed to a Standing Committee.