Local Government Finance (Publicity for Auditors' Reports) Bill

HC Deb 22 March 1991 vol 188 cc517-47

Not amended (in the Standing Committee), considered.

Order for Third Reading read.

9.35 am

Mr. Michael Mates (Hampshire, East)

I beg to move, That the Bill be now read the Third time.

Part III of the Local Government Finance Act 1982 established the Audit Commission as an independent body to appoint external auditors to certain bodies, including local authorities, and to help those bodies to ensure that they provided their services economically, efficiently and effectively. The commission's role was extended to cover the national health service from October 1990 by the National Health Service and Community Care Act 1990.

The Local Government Finance Act imposes certain duties on an auditor of a local authority or other body, which he discharges in accordance with the published code of audit practice, independently of both the Audit Commission and Ministers. A copy of the latest code of audit practice, approved by both Houses of Parliament late last year, is now on the book.

In carrying out an audit, the auditor must satisfy himself as to the propriety and regularity of the accounts, and must satisfy himself that the body concerned has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. But auditors are precluded from making general judgments about the merits of particular policies and programmes.

The key to all this is of course the independence of auditors in carrying out their duties, so that they can do so without political interference in the affairs of the local authority or body concerned.

Under section 15(3) of the 1982 Act, the auditor is also required to consider whether he should make a report on any matter that comes to his attention while carrying out the audit, so that it may be considered by the body concerned or brought before the attention of the public. Such reports are known as auditors' public interest reports, and the auditor is required to consider whether they should be prepared and sent to a body immediately—an auditor's immediate report—or at the conclusion of the audit.

Section 18(3) to (6) of the 1982 Act set out the arrangements for consideration of the public interest report and its disclosure. Essentially, the procedure is that the report is sent by the auditor to the authority concerned, and the authority must then take the report into consideration as soon as practicable. The authority is required to include the report among the documents open for inspection by the public before the meeting at which the report is to be considered. Section 18(5) of the 1982 Act also provides that the report shall be open to the public for inspection for six years after that meeting.

The main problem with the existing law is that, because the present requirement is that an immediate report shall be taken into consideration by the body only as soon as practicable, that effectively means that the contents of the report may not be publicly available until some months after its issue. Even then, it is published only in the sense that it comprises part of the papers for a council meeting. The fact that an immediate report has been produced may not be widely known and, in extreme cases, may not be known at all.

The committee of inquiry into the conduct of local authority business, the Widdicombe inquiry, considered the arrangements for the publicity of auditors' public interest reports. The inquiry's report made a number of proposals for improving publicity. In particular, it was recommended that the chief executive of the local authority should be placed under a duty immediately to notify all members of the body of the receipt of a report in the public interest; to provide a copy of any such report to members on request and to make copies available to the public for inspection.

In the White Paper "The Government's Response to the Widdicombe Report of Inquiry", the Government proposed to go further and to make legislative changes to require that on receipt of an auditor's report, the chief finance office must forthwith send copies to all councillors; copies must be available immediately for public inspection at times and places to be advertised; the auditor must take such steps as he considers necessary to publicise his findings and finally, he must also make copies available to the public for a suitable fee and send copies to councillors if, for any reason, the chief finance officer does not act as required under the previous recommendations.

Those proposals have been further revised in the light of recent experience and following discussions with the Audit Commission. It is now proposed that the duty to publish a public interest report should be placed on the body concerned rather than on the chief finance officer, and that is what the Bill sets out to achieve. The reason is that not all such bodies are formally required to have a chief finance officer, and there may be cases where the report is critical of the chief finance officer. In that case, he would not be the most appropriate person to be given such responsibility.

Mr. James Arbuthnot (Wanstead and Woodford)

I am grateful to my hon. Friend the Member for East Hampshire (Mr. Mates) for the clear and helpful way in which he is setting out the terms of the Bill. He is doing that with the care that I would expect from someone who knows as much about local government as my hon. Friend does.

My hon. Friend said earlier that there are certain things that the auditor is precluded from investigating and he is now describing the publication of immediate public interest reports. Should the auditor be precluded from considering those things that he is precluded from considering? Would publication of some of those things which the auditor is precluded from considering be a good thing in the public interest?

Mr. Mates

My hon. Friend has made a valid point, but that point ranges much wider than this narrow and simple proposal, as befits such a modest Bill that came 14th in the ballot. I do not want to open up what might be a more controversial subject.

With regard to local authorities, it is the auditor's job to examine what has been done and judge whether it has been done properly, efficiently and in the public interest. It is not his job to look behind what has been done to the policies. That is what we elect councillors for. If the auditor had to give an opinion, that would probably remove his complete independence from the politics of local government which is probably his most valuable asset as he moves from local authority to local authority examining what is happening and deciding whether the money has been well spent or wasted. He does not move from authority to authority asking himself whether he would have decided to spend money in the way that the authority has spent it. That is a wider issue and it touches on the heart of the independence of local auditors and of audit in central Government, through the National Audit Office.

The auditors consider whether a particular project has been handled properly; they do not consider the politics behind it. If I had included that wider examination in the Bill, I would have been speaking to a rather larger audience, and I also doubt whether the Bill would have passed through Standing Committee with the facility that my hon. Friend the Under-Secretary of State for the Environment and I managed to achieve so skilfully.

In the interests of defining the scope of the Bill as tightly as possible, and preventing boarders to a Bill with a wider scope, I must stress that it applies only to auditors' immediate public interest reports. It does not apply to them in general. Where the auditor chooses to await the completion of the audit before making a public interest report, he will do so because the need for action and disclosure is less pressing. In other words, if the Bill is enacted, the auditor will have to judge whether the situation that he finds during an overall audit is so urgent and glaring that he must report on it immediately, or whether he decides that it can wait until he produces the main body of his report. The immediate report does not fall within the scope of the present law, perhaps because the circumstances were not properly foreseen; that is the narrow point which the Bill addresses.

The existing provisions of the 1982 Act are considered sufficient for an overall report. If the auditor considers it appropriate, he can make a report immediately, whereupon the changes that I am proposing in the Bill would apply. The Bill is designed to entitle the public to see an auditor's immediate public interest report, to copy it and to be supplied with a copy at reasonable cost. It requires the body concerned upon which the auditor has reported to advertise the report and provide for sanctions comparable to those in the current provisions of the 1982 Act—if the local authority concerned fails to comply with what I hope very shortly will become law. It also gives the auditor some fallback powers to ensure that, even if all those provisions fail, he can make his report known.

There is much talk about open government, and over the past 11 years we have, little by little, achieved rather more open government that we had before. The Bill is a small, modest but very necessary step towards providing more opportunities for the public to know sooner rather than later what the independent scrutineers of local authority action—and sometimes inaction—are examining. I am happy to say that after discussions with the Opposition Front Bench and the hon. Member for Sheffield, Brightside (Mr. Blunkett) the Labour party is in full agreement with this small, but fairly significant, step towards open government. In the spirit of co-operation that is newly rife in the House on many local government matters, I am delighted to commend the Bill to the House.

9.48 am

Mr. John Greenway (Ryedale)

I congratulate my hon. Friend the Member for East Hampshire (Mr. Mates) on securing his place in the ballot—it is three places above mine—and on introducing this important Bill, which has reached this advanced stage after only two minutes' scrutiny in Committee. That tells us two things. First, as my hon. Friend said, there is complete agreement on the need for and merit of the measure. Secondly, it is valuable to consider Bills on Report on Fridays when there is an opportunity to talk a little longer about measures. I stress the word "little" to assure my hon. Friend, because he has a train to catch.

I congratulate my hon. Friend also on the timing of this further stage, because the whole world, let alone the whole country, must be aware that we have a little difficulty within Parliament with regard to the future structure and financing of local government.

The Parliamentary Under-Secretary of State for the Environment (Mr. Robert Key)

Surely not.

Mr. Greenway

My hon. Friend the Minister says, "Surely not." There is a matter of interpretation of the "we". I made the point that there was all-party support for the measure, and there is an all-party problem about how to pay for local government. We in Parliament have a little difficulty. I assure my hon. Friend the Minister that I was not referring to the Government in isolation.

Interestingly enough, my constituency annual general meeting is to be held tomorrow morning. I recall the occasion last year when we were about to implement the community charge as a means of introducing more accountability in local government. Some of my constituents and Conservative party activists were a little nervous about what the community charge was likely to do for our electoral fortunes. I said to them that there is no soft option on how to pay for local government. I tell my hon. Friend the Member for East Hampshire that there is no soft option, either, on how to make local government more accountable. His Bill is one of many steps in achieving that accountability.

Mr. Arbuthnot

My hon. Friend the Member for Ryedale (Mr. Greenway) may have been extremely concerned, as I was, by the intervention yesterday by our right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) when he referred to the statement of our right hon. Friend the Secretary of State for the Environment being made on the Ides of March. The point that concerned me is that the Ides of March is 15 March, not 21 March. When I was at school I learned the rhyme, "March, July, October, May makes nones the seventh, Ides the fifteenth day." If our right hon. Friend was incorrect in that respect, would he also be incorrect in other parts of his intervention?

Mr. Greenway

My hon. Friend is absolutely right, and I am grateful to him for raising that point. Some people may say that our right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) was wrong about one or two other matters as well.

Mr. Mates

Hear, hear.

Mr. Greenway

My hon.. Friend the Member for East Hampshire gives a loud chorus of support. I congratulate him also not only on securing the passage of this measure, which the House will wholeheartedly support today, but on nearly persuading me back in 1987 and early 1988—one of our conversations was in a London taxi in a traffic jam—that there was a fatal flaw in our community charge arrangements and that we should put something into the system that would take account of people's ability to meet the demands of local government finance. I was not persuaded of his argument then, because I felt that his suggestion would not work.

However, my hon. Friend deserves congratulations on having raised that matter and on contributing to the argument that has brought the measure to this stage. It is to the credit of the Government that we were positive in introducing a measure that was designed to improve the accountability of local government and to broaden the base of those who should pay for local government. I am in no doubt that those two measures have been successful. I do not believe that anybody wants to return to a system in which a small number of people pay for local government while many people who enjoy the benefits of local government pay absolutely nothing.

As this measure and the 1982 legislation, which the Bill would amend, contribute to local government accountability, we should take the opportunity to remind ourselves that accountability works at two levels. First, it works at the level of the electorate. If a local authority achieves economy, efficiency and effectiveness, that should be visible in the charges that it levies on its electorate when it sets a charge, whether it be the community charge, the new local services tax or whatever—even the old rating system.

It is quite interesting—this is a partisan point—that in my part of the world, north Yorkshire and east Yorkshire, North Yorkshire county council is levying, through the districts, I accept, a community charge of £140 less than in the neighbouring county of Humberside, which is a Labour authority. That is notwithstanding that the Government, in their infinite generosity, have given the people of Humberside a larger grant than they have given the people of North Yorkshire. It cannot be said against us that we have fixed the figures in favour of North Yorkshire. Indeed, members of my district council in Ryedale say that the figures have been firmly fixed against part of North Yorkshire. Year after year, even under the old rating system as much as under the community charge, we have seen Government grant scraped from the shire districts and put into inner-London areas and boroughs such as that of my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot), where there is a greater need to spend.

Mr. Arbuthnot

My constituents would be most concerned to hear that they had been moved to inner London. Many of them prefer to consider themselves in Essex.

Mr. Greenway

I am grateful to my hon. Friend for putting me straight on that matter. The surburban sprawl of London, as my hon. Friend the Member for East Hampshire said, causes us to be a little hazy about geography and where county boundaries start. In the light of what my hon. Friend has said, the people of Wanstead and Woodford are extremely fortunate to be in the county of Essex rather than in the borough of Haringey, which is not much further down the road. They can see, just as people in Wandsworth and Lambeth can see, that economy, efficiency and effectiveness—the prerequisites that local authorities should set out to achieve—are very visible in the charges that are levied from one borough to the next. That is a formidable argument for moving towards a form of unitary authority. In North Yorkshire, we are likely to have an interesting debate about whether we should be run by North Yorkshire county council or the district councils.

Without widening the debate, if it turned out that the county council was abolished, I would urge my hon. Friend the Minister to resist tinkering too much with district council boundaries. Many of my constituents in rural Ryedale would not take kindly to their local affairs being dominated by the urban needs of York or of Scarborough. It would be a worry were we to carve up the district council map in North Yorkshire.

I said that there are two levels at which accountability is achieved. One is the electorate, and the second is clearly the proper scrutiny of local authority accounts. We cannot expect the ordinary man in the street to do that. That is why it is right for independent auditors, who make no judgment on the policies that are being implemented, to have a duty to ensure that everything has been done that should be done to secure economy, efficiency and effectiveness.

There is one area in which the Audit Commission, in an umbrella sense, and the individual independent auditor who is looking into the affairs of a local authority, can build on Government policy over the past two or three years, and where such scrutiny is crucial. I refer to competitive tendering. As my hon. Friend the Minister knows only too well, many allegations have been made, right across the country, that local authorities have fixed the competitive tendering process in favour of their in-house labour forces, and have not given outside or private firms a fair crack of the whip.

I must stress that I am not bringing any evidence to my hon. Friend that that practice exists in my constituency, because I believe that Ryedale district council has been one of the authorities that have led the way in implementing Government policy. It built a Chinese wall within the district, saying, "We shall have a team from the authority to scrutinise what the in-house capability is doing, and another team to scrutinise what the private-sector firm is doing." That policy has been largely successful. From his reaction to what I have just said, it appears that my hon. Friend has taken that important point firmly on board. No organisation apart from the independent auditor is capable of checking that practice.

It is vital that any adverse report should be brought out into the public domain immediately. That is why the Bill is so important, and why I am glad to have the opportunity of supporting it this morning. I congratulate my hon. Friend the Member for East Hampshire once again on his Bill.

There is, of course, so much more that one could say about the future of local government at this important time because it is at a watershed. For many years, we have heard the cry that local authorities have been spending more than they should and have been involving themselves in affairs that are beyond their purpose. The local government commission, which my right hon. Friend the Secretary of State for the Environment referred to yesterday, which will consider the structure of local government and what the local authorities should deliver, is the right approach.

The open way in which my right hon. Friend has shown that he is prepared to consult not only the parties in the House, but as many local authorities and local authority organisations as possible is an admirable approach. The local authority organisations and the electorate will be asked, "Tell us what you want from local government. Tell us how you want it structured." My right hon. Friend has decided what needed to be decided—that, in two years, we shall have a different system of paying for local government. In the meantime, there will be a greater sense of fairness about community charge payments, because they will have been substantially reduced by the bold measure that my right hon. Friend the Chancellor announced in his Budget statement on Tuesday.

However, none of that is enough, because underlying all those things must be a proper structure for the professional scrutiny of what local authorities do. Whether we have a community charge, a local services tax or any other scheme that another political party may suggest, there must be proper scrutiny. The independent auditor has a part to play. If something wrong or untoward is found, it should be brought out into the open at once. That is why the Bill is so important for the future of local government.

10.4 am

The Parliamentary Under-Secretary of State for the Environment (Mr. Robert Key)

If the atmosphere in the Chamber is not as charged this morning as it was 18 hours ago, we are nevertheless discussing another aspect of local government finance with sober diligence. I congratulate my hon. Friend the Member for East Hampshire (Mr. Mates) on successfully steering his Bill through its various stages to its Third Reading today. Although it is a short Bill, its shortness should not blind us to its importance.

In his interesting and important speech, my hon. Friend the Member for Ryedale (Mr. Greenway) raised several points which I should like to discuss immediately. As he said, we scrutinised the Bill in Committee for only two minutes. That was not because we were neglecting to do our duty, but because there was all-party agreement about what we were trying to achieve. I have had considerable discussions in Committee and elsewhere with the hon. Member for Sheffield, Brightside (Mr. Blunkett) and there is no doubt that he and all parties realise the importance of a proper audit of local authority affairs. We welcome that——

Ms. Joan Ruddock (Lewisham, Deptford)

My hon. Friend the Member for Sheffield, Brightside (Mr. Blunkett) is sorry not to be in his place this morning. Given the momentous news of this week, I am sure that the Minister will realise that my hon. Friend has many other extremely important tasks relating to the debate about local government. I have been asked to stand in, and am delighted to do so. Of course, I and all my colleagues give our wholehearted support to this important Bill.

Mr. Key

I am most grateful to the hon. Lady, and very much welcome her presence in the Chamber today. I fully understand that the hon. Member for Brightside has busy commitments elsewhere——

Mr. Mates

Burying shot foxes.

Mr. Key

My hon. Friend says, "Burying shot foxes"—how uncharitable. I doubt whether there are any foxes in Sheffield, but there may be some urban foxes.

Yesterday, my right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) made an important contribution to the debate on local government. Perhaps his error in suggesting that yesterday was the Ides of March had something to do with his schooling. I am, of course, entirely prejudiced in this matter, having had the pleasure and the honour of teaching at Harrow school for 14 years, but my right hon. Friend went to Eton which, I was told by my pupils, was known as "the drain in the plain", while the establishment at which I taught was known as "the dump on the hump". Nevertheless——

Mr. Arbuthnot

As I too went to Eton, I can assure my hon. Friend that education there has obviously improved since the days of my right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley).

Mr. Key

I am relieved to hear that. Since I left Harrow school, an enormous amount has happened under the headmastership of Mr. Ian Beer, which has been in line with the traditions of that important and influential educational establishment which still leads the way in much of British education.

I turn now to what the hon. Member for Ryedale said about Humberside and North Yorkshire——

Mr. John Greenway

I am my hon. Friend's hon. Friend.

Mr. Key

Of course—my hon. Friend.

My hon. Friend came to see me earlier this year to discuss the level of central Government grant for his area. We had an extremely amicable and detailed discussion. His constituents are lucky to be served by an hon. Member who understands the difficult details of local government finance so well. It is a rare pleasure for a local government finance Minister to have such a detailed and constructive discussion on such an important issue.

My hon. Friend said that some of his constituents may wish to choose in future whether their local government affairs should fall within the ambit of the Humberside or North Yorkshire authorities. That will be a matter for the local government commission, which my right hon. Friend the Secretary of State hopes to set up later in the year.

Mr. John Greenway

I must correct my hon. Friend. there is absolutely no question of people in North Yorkshire wanting anything whatsoever to do with Humberside, except perhaps to join the wake following the scrapping of Humberside, not only as a county council but as a concept. Many of them would much prefer their area to be called East Yorkshire. There is no question of Ryedale or any part of my Ryedale constituency, including the bits which used to be in the old East Riding, wanting anything to do with Humberside. The point is whether they would choose to be governed by county hall at Northallerton, by North Yorkshire county council or by their own district councils of Ryedale, Hambleton, Scarborough and so on. We are looking forward to the public debate on that.

Mr. Key

My hon. Friend is absolutely right. There should be a public debate on that issue. It is not for me to prejudge it—far from it—but I hear the point that he has made loudly and clearly on behalf of his constituents.

Mr. Arbuthnot

While my hon. Friend is on the subject of counties, the House may remember that my predecessor, now Lord Jenkin, was instrumental in abolishing the Greater London council. I hope that, in moving towards restoring some of the old counties, restoration of the GLC will not necessarily be on my hon. Friend's agenda.

Mr. Key

The London authorities are unitary authorities. Although we shall listen to comments on the future of London authorities, it is unlikely that we shall wish to see substantial change in them.

My hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) intervened in the speech of my hon. Friend the Member for East Hampshire to discuss what the auditor was precluded from investigation. That is an important point. Paragraph 60 of the code of audit practice says: The auditor is able to form an independent and impartial view on how an authority is conducting its affairs. Those reports are an important means of informing the public. But it is not the function of the auditor to express an opinion on the wisdom of decisions taken by authorities in the lawful exercise of their discretion. It is the auditors' responsibility to consider the effects of policy and to examine the arrangements by which policy decisions are carried out.

As paragraph 39 of the code of practice explains: Auditors should consider for example whether policy objectives have been determined and policy decisions taken with appropriate authority. He has to consider to what extent policy objectives are set and decisions are based on sufficient, relevant and reliable financial and other data, with the critical underlying assumptions made explicit. He also has a duty to consider whether there are satisfactory arrangements for considering alternative options, including the indentification, selection and evaluation of such options. He must consider whether established policy aims and objectives have been clearly set out, whether subsequent decisions on the implementation of policy are consistent with the approved aims and objectives and have been taken with proper authority at the appropriate level, and whether the resultant instructions to staff accord with the approved policy aims and decisions and are clearly understood by those concerned.

All that adds up to the Government's desire that local government should carry out its duties as efficiently as possible, that local councillors should be aware of their responsibility for policy making, and that the management decisions of local authorities should be of the highest quality. The auditor has a most important role to play in all that.

My hon. Friend the Member for Ryedale mentioned competitive tendering. As part of their work, auditors examine the arrangements made by councils under the compulsory competitive tendering regime. Indeed, auditors have been critical of the way in which many authorities have acted. Several public interest reports have been issued by auditors on that subject. In the light of one such report, a council reconsidered its earlier decision and awarded the contract to the external private company which had submitted the lowest tender. There is an important role for auditors there.

I should perhaps make it clear that, when I refer to a local authority auditor, I do so as a shorthand expression, because the Bill will apply to an auditor appointed under part III of the Local Government Finance Act 1982. Under that Act, auditors are appointed to a range of bodies. The full list of such bodies is given in section 12 of the Act, but they range from a parish meeting through the panoply of what we normally understand by local authorities, including joint committees of them. Other bodies that are subject to the Act include port authorities and land drainage boards. Of course, as clause 1(6) makes clear, the Bill does not apply to health service bodies, but, with that exception, the Bill applies to all the bodies covered by part III of the Local Government Finance Act 1982.

Mr. Greenway

My hon. Friend has touched a chord on a matter which it has been in my mind to raise with him for some time. He referred to the auditors of parish meetings. My hon. Friend will have several parishes surrounding the fair city of Salisbury. He will know that parish councils have been a little upset at what they considered to be excessive charges levied by the auditors of their affairs. Can he assure the House that the Government take the complaints of parish councils seriously and that not only the cost of audits but the structure within which they are done will be examined, and, indeed, that parish and town councils will continue to have a substantial role to play in future under whatever structure we end up with?

Mr. Key

As my right hon. Friend the Secretary of State said yesterday, we intend to continue to rely on parishes to play a substantial and important role. It is not widely appreciated that, outside the shire districts, about 50 per cent. of the country does not have the advantage of a local parish council. Certain places have a community council. We wish to ensure that the duties of parish councils are not neglected or lost.

Like my hon. Friend, I have many parish councils in my constituency. They vary in size and character enormously. Sometimes, they cover a small number of electors—perhaps even 50 or 100. Another parish council may represent the interests of 12,000 or 15,000 people. Indeed, the largest parish councils represent some 30,000 people. So we certainly cannot ignore parish councils, and nor shall we do so.

On my hon. Friend's point, he may be aware that there is a Bill currently before the House on the subject. The Parish Councils (Access to Information) Bill was introduced by the hon. Member for Houghton and Washington (Mr. Boyes). It would not be right for me to comment at this stage on what might happen to that Bill. The Government are aware of the importance of proper auditing throughout the local government system.

Today's Bill is particularly relevant to local authorities—using the words "local" and "authorities" in their narrow sense. But it is important for the House to realise that many organisations are involved in the work of the Audit Commission and local government auditors. I should like to describe something of the work of a local authority auditor so that the importance of the Bill can be seen in context against its proper background. I should also like to answer in detail some of the questions raised by my hon. Friends.

The House will recall that, on 18 January, my hon. Friend the Member for Gedling (Mr. Mitchell), whose interest in and knowledge of the matter is widely acknowledged, initiated a debate on extending the role of the Audit Commission. During my reply to the stimulating ideas put forward by my hon. Friend I had occasion to note some of the duties of appointed auditors. The three duties that I specifically mentioned at that time were, first, to check the regularity and propriety of the authority's accounts and their compliance with statutes and regulations; secondly, to satisfy himself that the authority had made proper arrangements to secure value for money: that is, the three Es, economy, efficiency and effectiveness; and thirdly—to comply with the code of audit practice. I shall come back to that point.

Mr. Arbuthnot

One of the campaigns which our hon. Friend the Member for Gedling (Mr. Mitchell) has been assiduously and effectively pursuing has been to involve the National Audit Office in the work of the national health service. My hon. Friend the Minister has already pointed out that the Bill does not apply to health bodies. Would he comment on whether it should perhaps apply to them?

Mr. Key

I might be in danger of repetition of the previous debate if I were to cover that point now, but perhaps I may refer to auditing the health service before I conclude my remarks.

An auditor's duties extend wider than the points that I have mentioned. He must hear objections to the accounts from any local government elector. That is not widely recognised. An auditor must certify completion of the audit and give an opinion on the accounts. He must apply to the court for a declaration where it appears that any item of account is contrary to law. He must certify, where it appears that there has been a loss caused by wilful misconduct or failure to account, the sum or the amount of loss due from the person or persons responsible. Finally, he must hold an extraordinary audit if directed to do so by the commission or the Secretary of State. Those are awesome responsibilities.

Many of those matters are covered by the code of audit practice, as it is usually called. My hon. Friends will recall that, in November 1990, I had the duty of bringing the latest version of the code of audit practice before a Standing Committee of this House. They will also recall that the commission's code—it is the commission's, not the Government's—met with approval from all parties.

The code of audit practice devotes several paragraphs, Nos. 57 to 63, to reports in the public interest. Paragraph 58 includes a dozen sub-paragraphs that deal with the sort of items that might occasion a public interest report. The list is intended not to exclude other possibilities, but to act as an indication of items that, in the commission's view, would warrant a public interest report.

Over the past few years, auditors have made a number of important items the subject of public interest reports. They have frequently been concerned at the failure of authorities to keep arrears under control. Reports frequently highlight problems in management and financial control systems, and where there have been delays in setting rates and balancing accounts. Auditors have had a great deal to say in reports that have drawn attention to the inadequacies of authorities in preparing for the introduction of new legislation and in administering competitive tendering and housing benefit.

In particular cases, the auditor has warned of the grave financial position facing an authority. In such cases, the auditor has advised of the need to bring expenditure into balance with available resources and to avoid the use of costly creative accounting measures. Reports have also related to fraud and other special investigations. Some of those have been recurrent themes in such reports. Others have been particularly prevalent for a time, but have become less so as authorities have taken note of and acted on reports.

That is in the best traditions of following best practice, and it is encouraging to see that the number of reports that auditors have felt it necessary to make has dropped from 89 in 1985–86 to 36 in 1989–90. Over the same period, the subjects covered by reports have declined from 153 to 91. That reflects the excellent work that auditors have done in drawing attention to inadequacies in procedures and encouraging good practice within local government. Ultimately, the responsibility for acting on the findings of reports rests with the local authority concerned. Nevertheless, auditors' reports undoubtedly provide a useful way of promoting economy, efficiency and effectiveness within local government.

I cite as an example a specific case of an auditor's report on a particular council. I am not at liberty to reveal which council it is, not least because I do not know. When auditors produce these reports, they ensure that we cannot know which authority is concerned or its political control. In this particular case, the auditor reported that the council had decided that new software would be required to implement revised housing benefit regulations and had entered into an agreement for the supply of a package which failed to become operational by its original target date. Delays occurred in the delivery of specific computer programmes and in the ability of the company to rectify shortcomings in the software. Software difficulties were exacerbated by the need to upgrade the computer and to relocate the housing benefit section, a faulty computer link and the introduction of a system without full implementation of the intended controls. Consequently, inaccuracies occurred in computer processing, resulting in overpayments of housing benefits totalling £1.2 million.

The auditor reports that problems had arisen because of delays in the delivery of computer programmes, the inability of the software company to rectify faults in its programmes, the implementation of a complex computer system without adequate processing controls and the failure of the new housing benefit system to interact with the council's other accounting systems. The auditor reports that, although appropriate recovery action was taken, a bad debts provision of £375,000 had to be made as a result. The contract with the original software company has since been terminated, and the processing of future housing benefit transactions entrusted to another software company.

The auditor's report was helpful to the authority in learning lessons from the mistakes that arose and in seeking to avoid their recurrence. As the code of audit practice says, auditors' reports are intended to be constructive rather than condemnatory. The Bill is designed to ensure that such reports are available more quickly and that they are better publicised, so that they become an even more effective tool than at present.

One of the auditor's responsibilities is to satisfy himself that the authority has made proper arrangements for securing value for money. In recent years, when people mention value for money they often do so pejoratively. I hope that the climate in which the term is used is changing, because value for money undoubtedly means value for people. It means getting all possible value from every pound of taxpayers' money spent, whether it is raised locally or centrally. People will benefit if there is good value for money.

Where there is room for improvement, the auditor may consider that a report in the public interest is justified. I shall explain how this process of consideration of value for money within local authorities normally operates. The value-for-money study process starts with a central study on a particular topic resulting in a national commission report and an audit guide. Individual auditors then apply the report to the local circumstances at the individual authorities.

Auditors are expected to discuss their audit plans with their clients. If the particular local circumstances are such that carrying out the full study would be inappropriate, the auditors would either carry out a small-scale study tailored to the particular authority or substitute a more appropriate local project for the national study. The final judgment on whether a project is appropriate rests with the auditor, not the commission or the local authority.

In the last couple of years, the Audit Commission has produced reports concerning primary education, museums, art galleries, support for the arts, sports, parks and open spaces, urban regeneration, among others, as well as various studies relating to the police. For 1991–92, subjects to be studied include the strategic role of local authorities in housing, social services management and highways competition.

Looking further into the future, the commission is proposing to carry out major studies looking at client role management, housing benefit and rent arrears and education for 16 to 19-year-olds. In addition, smaller scale projects are planned which will examine development control, special education needs and further aspects of police work, such as traffic policing.

On 1 October 1990, the Audit Commission became responsible for the audit of the national health service. The duties of an auditor of local authorities apply in large measure to the audit of health authorities and will apply to the audit of the new NHS trusts. The Bill does not apply to health service bodies because of their different constitutional position.

Local authorities are responsible to their electors. Health service bodies are responsible to the Secretary of State, who is in turn responsible to Parliament. That difference in the constitutional position was fully reflected in the debate on the National Health Service and Community Care Act 1990. The difference is therefore reflected in the changes to the Local Government Finance Act 1982 brought about by the 1990 Act. The health service bodies are now being treated in a way consistent with the earlier debate and decision.

I take one subject more as an example of one of the activities that the Audit Commission is proposing to study, and that is housing benefit and rent arrears. Local government is the conduit for a substantial tranche of central Government's income support in the form of housing benefit. Very large sums are involved.

The efficiency with which councils manage the housing benefit system has implications for the relationship between local and central Government, for the costs borne by councils and for the consequential costs borne by applicants if the system is inefficient. The study will examine how councils deliver this service and will illuminate best practice, but it will also examine the experience of benefit applicants and will track the effect of the benefit system on rent arrears, particularly on the part of council tenants.

Once studies have been produced, auditors will examine the extent to which authorities are taking note of advice. Where authorities have not taken note of the potential for greater value for money identified in such studies, they may consider the matter to be of sufficient importance to merit making a report in the public interest. If the auditor considers such a report should be an immediate report, the Bill would ensure that the auditor's findings immediately reached the public domain.

Mr. Arbuthnot

I am concerned about the fact that the Bill makes provision for immediate reports which it does not make for less immediate reports. Will the Minister explain the distinction between the two and say why publicity should apply to one but not to the other?

Mr. Key

I shall be dealing with that important issue. First, I wish to deal with a study that is proposed and which will interest my hon. Friend. I refer to client role management. The need for a client-contractor split has been well rehearsed in commission study work, but the precise details of the contractual relationships have not been set out. Moreover, the character of client structures would bear further analysis. The study will explore the alternative arrangements made by councils to administer contracts and examine the impact of such arrangements on central services, such as the introduction of service level agreements. It will also examine the variety of contractual arrangements, procedures and quality assurance criteria. Although it will be focused on services, the study will endeavour to explore the extent to which ideas, such as quality assurance, have permeated other council services.

The management of education provision for young people aged between 16 and 19 has had to adapt to a number of significant changes in recent years. Those changes include work-related further education funding, the local management of schools and colleges and the fall in the population of that age group. There are likely to be further initiatives nationally in an endeavour to raise participation levels.

It is important to realise the importance of participation levels. Only yesterday, I visited Walworth school, in south London, which has tackled the problem head on and has introduced, with the help of the Government's urban programme and the private sector, an important "world of work" unit into the school. One of the many achievements of that initiative at Walworth school has been to increase participation rates substantially among that crucial age group, and I congratulate the school on that.

The Audit Commission will be studying and exploring the steps that LEAs are taking to cope with present pressures and prepare for new initiatives of that type. It will examine the arrangements made to assess need, to identify the wide range of potential providers locally, and to position authorities' own supply. The study will also explore whether it is possible to construct a "value-added" methodology which could be used to compare the performance of different suppliers.

In addition to those major studies, three smaller-scale projects proposed by the commission include a study into development control. Hon. Members in all parts of the House will be aware of the passions that are aroused by development control in their constituencies. In 1983, the commission published a report, researched by the pre-existing audit inspectorate, on efficiency in development control. There have been some significant changes since then. Moreover, development pressures have been acute at times since that report. The study will re-examine the process. If possible, those authorities studied in 1983 will be revisited so that longitudinal considerations can be taken into account. The study will also explore the trade-off between the efficient processing of applications and the quality of decisions taken.

There is, of course, great public interest in the police and their efficiency. The theme currently being considered by the Audit Commission is aspects of traffic policing. Traffic policing absorbs 12 per cent. of overall police resources and has a significant effect on the average citizen. The management of traffic movements, pedestrian flows and car parking grows ever more difficult as car ownership increases. The study would examine the criteria of value for money in traffic-related policing functions and take into account the contribution which police activity can make to wider environmental and urban management issues.

Mr. John Greenway

The Minister's reference to the police calls to mind two other important issues. First, does he agree that Audit Commission reports into the police force, eight or nine of which have been published, have been effective in showing how the management of the police force and the effectiveness, efficiency and economy criteria can be better delivered?

Secondly, does he agree that if, at some future date, we change the overall structure of the police force—many hon. Members feel that there are too many police forces and that some change in structure may be inevitable—the role of auditors can be an effective way of ensuring that the management of the police force, whatever its structure, is more effective?

Mr. Key

I acknowledge the professional experience and expertise of my hon. Friend in police work. It would be inappropriate for me to comment on responsibilities that come within the purview of the Home Secretary, but I acknowledge the importance of the work done by the Audit Commission and the speedy way in which police forces have reacted, in the interest of their officers and the public whom they serve, in seeking to improve the standard of service they offer, which, by almost any standard, is extremely high.

Mr. Arbuthnot

Following yesterday's statement by the Secretary of State for the Environment, a structural change that could be considered for local government is the removal of the precepting power of the police and the possibility of taking the police into central control, a matter which arouses strong passions. The precepting power of local authorities causes difficulties for local authorities which have no power over how much the police, fire authorities and other bodies spend.

Mr. Key

My hon. Friend is right; the role of joint authorities for police, fire and civil defence is a matter of some concern, and I have met a number of such authorities to discuss their funding position. We do not intend in the review to make any commitments on that type of arrangement for the police, not least because it is a matter of grave constitutional concern that we take great care before considering any changes that might upset the important balance that currently exists between county constabularies, the grouped police authorities and the role of central Government. Perhaps I had better say no more about that relationship at this stage, because it is delicate and, as my hon. Friend said, passions run high.

I should like to deal with special education needs. Local education authorities radically revised their management of special education to match the requirements of the 1981 Act. The study will be concerned with the identification of best practice as it has emerged. One particular focus will be the problems of LEA-wide financial management, given that resource demands emerge on a pupil-by-pupil basis.

My hon. Friend asked why the Bill was concerned only with immediate reports. The choice between making an immediate report and making a report at the conclusion of the audit is a decision for the auditor. Any report can be made an immediate report, but the auditor may decide that the objective of improving value for money—or whatever purpose the report is intended to achieve—is better accomplished by making his report later. However, immediate reports will be the general rule.

It may be helpful to my hon. Friends and other hon. Members if I explain just why it is that, when an auditor makes a report, it is not there and then made available for comment at large. The reason lies in section 30 of the Local Government Finance Act 1982, which prohibits either the appointed auditor or the commission from disclosing information relating to a particular body or person and obtained pursuant to the Act except with the consent of the body or person; for the purposes of the auditor's or commission's functions; or for the purposes of criminal proceedings.

Contravention is punishable by a fine and/or up to two years' imprisonment. That is a severe sanction, and naturally it is taken very seriously. The prohibition applies to all aspects of an auditor's work, including reports, whether they be immediate public interest reports or reports made at the conclusion of audit.

Given the severity of the sanctions my hon. Friends and other hon. Members may perhaps be puzzled as to how reports ever become public knowledge if the body or person concerned does not consent to disclosure of information. The answer lies in section 18(5) of the Local Government Finance Act 1982. When a body meets formally to consider an auditor's report, the agenda supplied to the members of the meeting must be accompanied by the report and—this is the crucial provision—the report must not be excluded from the matter supplied for the benefit of any newspaper or from the documents open to inspection by the public.

It is of course at this point that we see the significance of the Bill. It parallels a similar provision that already applies in Scotland. The provisions that apply in Scotland were enacted under section 185 of the Local Government and Housing Act 1989. In Scotland, under section 102 of the Local Government (Scotland) Act 1973, the Controller of Audit makes reports to the Commission for Local Authority Accounts on matters arising out of or in connection with the accounts of a local authority, so that such matters may be considered by the local authority concerned or brought to the attention of the public. The 1973 Act states that a copy of the report shall be sent to the local authority named in the report.

Under the amendments made by the 1989 Act, the Controller of Audit may now also send a copy of the report to any other person he thinks fit. In addition, the local authority concerned is required to send a copy of the report to each member of the authority and make additional copies available for public inspection. The Bill mirrors those provisions and introduces similar arrangements in England and Wales.

The Bill would ensure that an auditor's intention that a report should be brought immediately to the attention of the public could not be thwarted by procedural devices of the body subject to the report. Let me say at once that the great majority of bodies have behaved perfectly properly. However, on some occasions reports have been delayed when, in the public interest, they should have been seen immediately. The Bill seeks to prevent such delays.

The Bill has four principal features, all of which take effect as soon as an immediate report is received by the body. First, it entitles the public to see an auditor's immediate public interest report, to copy it and be supplied with a copy at reasonable cost. Secondly, it requires the body concerned to advertise the report. Thirdly, it provides for sanctions comparable to those of the current provisions of the 1982 Act. Fourthly, it gives the auditor fallback powers to ensure that the report is made known.

The Government are committed to making local government more accountable. This Bill, introduced by my hon. Friend the Member for East Hampshire is a helpful measure towards that desirable end, and it has the Government's strong support.

10.46 am

Mr. James Arbuthnot (Wanstead and Woodford)

I begin by congratulating my hon. Friend the Member for East Hampshire (Mr. Mates) on his good fortune in coming relatively high in the ballot, although he did not come high enough to be able to choose a controversial Bill. I also congratulate him on his success in choosing such a sensible Bill and thank him for the clarity with which he explained its provisions and set out its terms and purposes.

I regret that during the speech of my hon. Friend the Member for Ryedale (Mr. Greenway) which I was enjoying so much, I had to nip out of the Chamber to collect some further briefing material which had not arrived by the time the House sat this morning. Therefore, I was unable to catch your eye, Mr. Deputy Speaker, to ask the detailed questions that I had hoped to ask the Minister. He may be able to answer them during my speech, so I shall be generous in giving way to him if he feels able, at any stage, to answer them. I confess that some of the points that I wish to raise are rather detailed and technical, so I should be happy for my hon. Friend to write to me rather than to answer them off the cuff, if he thought that that was preferable.

I am grateful to my hon. Friend for answering one of the important questions that I had wanted to raise—the position of Scotland. Scotland has always been an anomaly compared with England and Wales. Often Bills—including this Bill—do not apply to Scotland, but only to England and Wales. Indeed, the final sentence of the Bill states: This Act extends to England and Wales only. One always wonders why on earth that should be the case. What is it about the Scots that makes their legislative powers so different?

In trying to answer that question for myself, I turned to the Government's response to the report of the Widdicombe committee of inquiry. Paragraph 6.17 of the response states: The proposed legislative changes referred to in paragraph 6.6 they detail what is set out in the Bill— would apply equally to reports of the Controller of Audit. So I examined the Bill and discovered that they did not seem to apply and I wondered why not. My hon. Friend answered my query by saying that not only has Scotland been dealt with but that it has been dealt with earlier than England. I wonder why Scotland appears to be dealt with more expeditiously than England and Wales. I have no doubt that the provisions of the Bill would have been appreciated if they had been introduced earlier in England and Wales as they have no doubt been valuable in Scotland.

I have been trying to find out what the Bill is all about. I read the commendably brief report of the Committee that considered the Bill—the sitting of which lasted for no more than two minutes. That report was not as illuminating as one would normally expect, so I am little wiser or better informed about the details of the Bill.

What was the motive behind the Bill? Did it arise because of the debt swaps for which many local councils went in and which, eventually, the House of Lords decided to be ultra vires? If the Bill was in some way prompted by those debt swaps, I certainly believe that the auditors should have been involved, or should get involved in such transactions.

One of the powers available to the auditors is the ability to apply to the courts if they consider that a local authority is doing something that it has no right to do. Can the auditors therefore apply to the courts if a council is not doing something that it has a moral, if not legal, duty to do? My hon. Friend the Minister has already dwelt at some length on the failure of local authorities to collect rents, rates or the community charge—I should be grateful if he could give me further evidence of that. In fact there are many examples of such failure and one of the most glaring is what is happening in Lambeth now. The structure of local authorities seems to be relatively secure throughout most of the country, but in Lambeth services are breaking down, perhaps because the authority simply does not have the money, or perhaps because it is not collecting rents and the community charge. I should be grateful to hear what the hon. Member for Lewisham, Deptford (Ms. Ruddock) has to say about that because I know that it concerns her greatly and that, in the past, she has spoken out courageously about it.

Ms. Ruddock

I am not sure whether it is in order for me to be drawn into this, but I am sure that you will keep me right, Mr. Deputy Speaker. I believe that the greatest disservice to local government, the collection of taxes and the provision of services has been the Government's poll tax legislation and they have just learnt the lesson of that.

Mr. Arbuthnot

If the hon. Lady was correct her argument would apply to every council in the country, but other councils manage to provide a reasonable level of service and to collect the vast majority of their rents, rates and community charge.

The hon. Lady is correct that we are changing the community charge. I was absolutely delighted at yesterday's statement because I was never enthusiastic about the community charge, to the extent that I did not vote for it. I am therefore naturally delighted that we are to change the community charge, but that does not excuse or explain the total chaos into which the borough of Lambeth has fallen. As a matter of urgency an investigation into the extent of the outstanding arrears in rents and community charge in the borough of Lambeth should be carried out. In the borough of Lambeth, perhaps alone of all councils, local government is breaking down. That is not as a result of the community charge, but because the Labour party has been in control of that borough for too long.

Auditors can apply to a court if they consider that a local authority is doing something that it has no legal right to do, but can they also apply to the court if they consider that a local authority is not doing something that it has a legal duty to do—to collect rents and the community charge on behalf of the other electors and community charge payers of that authority? I should be happy to give way to my hon. Friend the Minister at any time should he wish to put me right or help me with further information.

About a month ago I sponsored the Public Safety Information Bill, which placed a requirement on certain local authorities and bodies to publicise reports of interest to the public. Those reports related to safety. If a safety defect was discovered at a football stadium there would have been an obligation to post a notice at the entrances to warn spectators that there was a danger of combustible rubbish somewhere in that stadium. Is there a difference in philosophy between the publicity applied to public interest reports for local authorities and the publicity to be given to public safety that would have applied under the Public Safety Information Bill? I regret to say that that Bill's Second Reading took place on the day that the country was brought to a complete halt by the falling of white fluffy stuff from the sky. Unfortunately there was an insufficient number of Members in the House to enable the Bill to receive its Second Reading. That Bill, however, raised issues of relevance to today's Bill.

What concerns me most about the details of the Bill is whether the sanctions to be imposed are enforceable. Clause 1(4) states: Any person who fails to comply with any requirement of subsection (2) above shall be liable on summary conviction to a fine". Subsection (2) states When such a report is so received by a body … the body shall in addition forthwith supply a copy of the report to every member of the body Subsection (4) deals with any person who fails to comply with the requirements of subsection (2), but under subsection (2) there is no duty put on any person. The duty is put on a body, leaving aside the chairman of a parish meeting—for the purposes of this argument he is less important.

Subsection (2) puts a duty on a body to publicise a report, but subsection (4) provides that sanctions should be imposed on any person who fails to comply with any requirement of subsection (2)". If a body, perhaps a local authority, has the duty to publicise a report that is a matter of immediate public interest, surely the members of the body have the duty to comply with that publicity requirement. It therefore seems rather curious that, under the Bill, the members of a body might be liable if they have not been given information about that very report.

Mr. Mates

Perhaps I can help my hon. Friend. Clause 1(2) requires the "body or chairman"—the person to whom the ultimate sanction applies—to provide the publicity.

Mr. Arbuthnot

I am grateful for that helpful information, but I am not entirely sure that it covers my argument. I suspect that the "body or chairman" refers to the public body—perhaps the district or county council—or the chairman of a parish meeting. If the "chairman" refers to the chairman of a parish meeting, I suspect that the chairman is not considered relevant for the purposes of a local authority.

Mr. Key

I hesitate to intervene in this interesting debate, but I believe that I can help. The word "person", as a legal term, includes a body.

Mr. Arbuthnot

I am grateful to my hon. Friend for that clarification. Although the word "person" includes a body, the word "body", curiously enough, does not include a person. Therefore, the body may still, ultimately, be liable for failing to provide the members of the body with the reports to which the publicity is meant to apply.

Mr. Roger Knapman (Stroud)

My hon. Friend makes some good points about bodies. To some extent, those reports will be looking for heads. What is my hon. Friend's view on the publication of notices that may criticise the very people who are supposed to publish them?

Mr. Arbuthnot

I shall cover that question in a few moments. Similarly, one could ask what would happen if a report were published by a chief executive of a council who, instead of arranging for publication himself, said that he told Mrs. Snooks, the chief clerk, to publish it, but that she did not seem to have done so. If Mrs. Snooks then says that she was not told to do so, the securing of a conviction under clause 1(4) would be difficult to achieve. It would be difficult to decide, under that clause, precisely who should be convicted and on which person in the local authority the duty to secure the publicity should be laid.

My hon. Friend the Member for Stroud (Mr. Knapman) raised an important issue about reports criticising the people who might be under a duty to disclose them. My hon. Friend the Member for East Hampshire said that one purpose of the Bill is not to put a duty on a chief finance officer to publish a report because he might be the subject of a critical report. That may be so, but the council may also be the subject of a critical report and would be rather reluctant to publicise it. That is why the Bill places a duty on councils to publicise reports.

Is the council the right "person" on whom to place that duty? Would not it be more correct to put the duty on the auditor? If the council has an overall duty to publicise a report of public interest, it will be in a difficult position, because it may have to publicise a report that criticises it. That may affect the publicity that it gives to the immediate report. The advertisement that the council must place in local newspapers may never be read because it will be couched, intentionally, in such obscure terms. Everyone knows that criteria exist for making some advertisements more eye-catching than others. For example, one reads more assiduously an advertisement with much white space than a block of close-printed verbiage. Therefore, the council will ensure that advertisements for reports will be as obscure, unreadable and unattractive as possible. A school of people will try to make advertisements as attractive and noticeable and possible while, as a result of the Bill, another school will try to make them as unattractive and unproductive as possible. We have all seen planning notices at the back of newspapers which do not stand out at all. We may see them, but we do not read them. They exist simply to be avoided.

We could avert such a problem if the Bill did not place the duty of publicity on the council, which may be the subject of a critical report, any more than it does on the chief finance officer. The Bill has clearly moved away from that, but further progress in that direction is still to be made. There may be an opportunity in another place to make such progress.

Mr. Knapman

My hon. Friend is making some excellent points. Clause 1(2) refers to one or more local newspapers. In my district council area, I could name seven or eight local newspapers. Although, together, they cover the whole district, no single newspaper does so. Has my hon. Friend any thoughts on that?

Mr. Arbuthnot

My hon. Friend raises a helpful issue which leads me to the corollary of what he says: some local newspapers have low circulations. Local councillors who are criticised in an immediate report by an auditor will choose to advertise in a newspaper with the lowest circulation possible, covering the smallest area. Necessarily, those newspapers will have the lowest cost of advertising because they will want to attract more advertising to boost sales. Local councils face stringent financial limits and will naturally choose the cheapest rates if they can get away with doing so.

Although the important publicity that is to be given to those immediate reports is a valuable move, I wonder whether the duty to provide such publicity is placed on the right person. In an intervention in the speech of my hon. Friend the Minister, I said that the Bill does not include health service bodies. I referred to the sensible work carried out by my hon. Friend the Member for Gedling (Mr. Mitchell) in trying to ensure that there was outside scrutiny of health service bodies. It is a pity, in some respects, that the publicity provided by the Bill should not apply to local authorities. After all, the publicity relates to matters of immediate public interest. Local authorities are concerned about such matters, as are the public. The public write to me far more frequently about my local health authorities than about my local authority, because health is a matter which affects us all. I wonder whether the publicity available under the Bill should also be available to immediate reports of a public interest relating to a health authority.

The Bill rightly gives the opportunity for increased publicity for immediate reports by the auditors of local authorities, but it does not appear to give the opportunity for similar publicity for reports praising local authorities. Local councillors are the subject of a constant barrage of criticism, sometimes from central Government and sometimes from the electors. When they hear the words "local government", most people feel that it is a subject in which they should not be interested and that it is a subject on which their eyes should glaze over—and they usually do.

My right hon. Friend the Secretary of State for the Environment said yesterday that it is increasingly difficult to find people of the proper quality to play the role of local councillors. I detect a slight change in the atmosphere in that respect, which I welcome. Local councillors and local authorities do an essential job and they should be encouraged in the same way as teachers, who do an essential job, should be encouraged. From time to time, councillors should be the subject of praise as well as of criticism. My concern about the atmosphere that used to exist—and which may no longer exist—is that auditors' reports are more likely to be immediate reports if they are critical of local authorities than if they praise local authorities for a job well done.

A report praising, for example, the city of Westminster for its efficient and effective litter collection service could be the subject of an immediate auditors' report if my proposals were taken into account. A report praising the royal borough of Kensington and Chelsea for its most effective and early privatisation of the refuse collection service in Kensington could be the subject of publicity, insisted on by the auditors.

Local authority employment and local authority service are becoming increasingly difficult. It is interesting that, as a result of the Bill, it is probably only in local authority employment that a person who slips up on the job would face not simply a reprimand from the employer, but a criminal record. It is not surprising that recruitment to local authorities is lower than would be helpful. As a Member of Parliament, if I do not deal with my letters quickly, I may get rude letters of complaint from my constituents. I may even get rude letters of complaint in the local newspapers, which would receive far more publicity than the advertisements suggested in the Bill. I might even be thrown out by my electorate, but I would be most unlikely to face, as I understand the current legislation, a criminal record.

As a result of the Bill, if local authority employees failed to deal with their post quickly and if they failed to post or to distribute reports to the councillors who should receive them, they would face not only a reprimand, rude letters or a possible sacking, but a knock on the door and the possibility of a criminal record. That may discourage some people from going into local government service and it may be one reason why there has been some difficulty in providing effective and efficient local government service in recent years.

Despite my perhaps over-detailed and over-zealous questions on the Bill, I welcome it. I welcome the publicity that will be given to matters of great and immediate public interest and I wish the Bill well in the House and in the other place.

11.14 am

Mr. Roger Knapman (Stroud)

I am grateful to you, Mr. Deputy Speaker, for calling me, because you know how keen the competition has been this week to speak in debates on local government. I am tempted in the matter by a one-clause Bill, which I am more likely to understand. I congratulate my hon. Friend the Member for East Hampshire (Mr. Mates) on introducing it so well. I also congratulate my hon. Friend the Member for Ryedale (Mr. Greenway) on his point that scrutiny and accountability are important in these matters. I second one among the many good points made by my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot), who asked whether the auditors can apply to the courts. That is critical in this matter, as I shall explain later.

The central point must be the role of the auditor. In carrying out the audit, he must satisfy himself of the propriety and regularity of the accounts, and that the body concerned has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources. I am sure, because I believe that I am repeating the views of my hon. Friend the Minister, that Ministers have always respected the independence of auditors in carrying out their duties. To do otherwise could be construed as political interference, and I am sure that there is no wish for that.

What is the point of making recommendations if there is no follow-up? I propose to detail the experience in my area of an auditor's report and what has happened since it was published. I have here a detailed pamphlet entitled "District Auditor's Report". I am sure that my hon. Friend the Member for Wanstead and Woodford will agree that that is its title. It goes into considerable detail about a local council. On the ninth page of tightly packed print, we come to point 38, entitled "Previous Audit Reports". The pamphlet says: I am concerned about the time it takes for the Council to implement recommendations agreed with my staff. There is little point in having such a detailed report if nothing comes of it, which is the point that my hon. Friend the Member for Wanstead and Woodford has made.

The pamphlet makes further serious points. It refers to a lack of co-ordination between departments, which was leading to a loss of rent income … the fragmentation of ownership and the lack of objectives". That is a reasonable generality. The pamphlet also refers to a lack of accurate information. I am heartened to think that it is not merely Government Back Benchers who suffer from those points. The points are made in an auditor's report, which reveals a serious state of affairs.

I was under the impression that the report was a district auditor's report. I read it with care at the time, and I understood it to be a report. It was because there was no action on the report that I decided to write to the Audit Commission a little later to ask what would become of the report. The commission replied: Dear Mr. Knapman … In fact there has been no Audit Commission report"— on the council. The District Auditor of the Council issued a public interest report in May of this year but that was part of fulfilment of his audit responsibilities and not a central directed Audit Commission study. Lest you think that this is a distinction without a difference, I should explain that the Commission has two functions, first to undertake studies into economy, efficiency and effectiveness in local government and, second, to appoint auditors to all local authorities. We link these two duties together closely and local work usually follows central research. But the individual auditor of an authority is responsible for all reports issued on a particular council and those reports may cover Audit Commission work or, as in this case, other issues particular to that authority. So the individual auditor is responsible for all the reports. What had happened to the individual auditor in this case? He had retired immediately after the preparation of the report. Immense expense had been gone to and some devastating remarks had been made in the report. I have read three such remarks from 10 or so tightly packed pages—the allegations of a lack of accurate information, fragmentation of ownership and a lack of co-ordination between departments. Those are wide-ranging criticisms. But apparently it is up to the local auditor whether anything comes of the report and in this case he had retired.

At that stage, several of my constituents, who were not exactly thrilled by the level of community charge in my constituency, started writing to me. I shall read two or three extracts. One constituent wrote: The public interest report would have had more impact if it had covered the events of the past in more detail and if the public meeting had been more sensitive to the views of the public … the District Auditor's representative has told me that the Council is not a poor performer compared with other local Councils"— given the contents of the report, I finding that surprising— it is not difficult to imagine the contents of the next report. The criticisms in the report are devastating, and if such performance is thought to be average, I dread to think how reports on other councils read. No wonder that my constituent summarised the position thus: Our complaint and concern will have been swept under the carpet to remain part of history. Such is my confidence in the Audit Commission. Having received a large number of letters on the subject, I took an interest and wrote to my hon. Friend the Minister for Local Government and Inner Cities, enclosing two or three of my constituents' letters as examples, which I said were self-explanatory: the activities of the direct labour organisation and the scale of the financial losses that they have incurred"— just one subject of the report— are matters which have been considered by the District Auditor. I believe that the District Auditor can act as an Ombudsman"— I am now not sure that that is so— I think it is now time for him to detail what action he is going to take following the publication of the various Reports mentioned in the letter. I had a useful reply from my hon. Friend.

The House can no doubt imagine that I have been under considerable pressure from a large number of my constituents who had high hopes that an auditor's report would provide something useful—perhaps an indication of what the council had achieved by way of improvements following earlier reports. My hon. Friend the Minister wote to me: Although the District Auditor will be concerned about the losses incurred by the Council's DLO and will, no doubt consider whether it would be appropriate to take action under the powers available to him, the Secretary of State has his own … powers to invoke sanctions where a DLO fails to achieve the rate of return prescribed by legislation. The ultimate sanction is to order the closure of the direct labour organisation. Can my hon. Friend the Minister say how often the Secretary of State has exercised such powers and under what circumstances? I suspect that the answer is rio, in which case the Bill is doubly welcome.

My hon. Friend the Minister for Local Government and Inner Cities continued: My Department was already aware that the DLO expected to incur a loss"— I am surprised about that— but from the information in the letter, this loss now seems likely to be far worse than anticipated". It was. The auditor's report suggested that it would he a £800,000 loss but, within a fortnight of the publication of the report, we knew that the loss was £1.6 million, which took some doing considering that there were only 150 people working for the direct labour organisation. It might have been cheaper to send them on a permanent holiday in the Seychelles—but I shall let that pass.

My hon. Friend's letter said that, when the new report arrived, the Department would look at it closely before deciding whether it would be appropriate to initiate formal action with a view to … imposing sanctions as referred to above. In the meantime, I have asked the officials to seek the Council's confirmation of the deficit likely to be reported and that the accounts will be submitted within the statutory timescale. The statutory time scale is something of a mystery to me, because this matter has now been going on for some years. Auditors' reports have regularly been produced and we have then been told that the report to which I have referred is not a district auditor's report even though it is headed as such. I am not sure what the statutory time scale is, and I should be grateful if my hon. Friend could say whether he expects any improvement to be made under the Bill and if he could provide some detail.

That was not the end of the saga. Finally, I received a further letter from the Audit Commission. I must say that by then the activities of the Audit Commission and its assurances that its principal interest was that its reports should be of benefit to the public at large, were wearing a little thin.

Mr. Arbuthnot

Will my hon. Friend give way?

Mr. Knapman

I suspect that they were wearing thin with my hon. Friend the Member for Wanstead and Woodford too.

Mr. Arbuthnot

Not at all. I am merely concerned that my hon. Friend started his penultimate sentence with the word "finally". I am following his remarks with interest, as are other hon. Members. Has my hon. Friend noticed the sad—indeed, appalling—absence of the Liberal Democrats throughout our debate? Perhaps that shows the extent of their interest in local government matters.

Mr. Knapman

It is no wonder that the Liberal Democrats are called the "salads". The green Benches are there but there is nobody to sit on them. I certainly hope that Opposition Members—particularly the official Opposition——

Mr. Ron Davies (Caerphilly)

Will the hon. Gentleman give way?

Mr. Knapman

I will give way in a moment.

Mr. Davies

On this point.

Mr. Knapman

I shall not be leaving the point for a moment. I had hoped that Opposition Members would contribute to the debate, because so many of the councils concerned are Labour controlled. It is crucial that the Bill goes through because of what has happened in Lambeth, Liverpool and Derbyshire, where charges of £500 or £600 or more have been suggested. One might have thought that the Opposition Benches would be packed with Members wanting to speak in this important debate. But perhaps we shall learn a little more, as I imagine the hon. Member for Caerphilly (Mr. Davies) is about to explain where his 260 hon. Friends are.

Mr. Davies

I am grateful to the hon. Gentleman for giving me the opportunity to place on record the fact that only he and the hon. Member for Wanstead and Woodford (Mr. Arbuthnot) are present on the Conservative Back Benches. I hope that Hansard will record the fact that the debate has been attended by only two Conservative Members on a voluntary basis—excluding, of course, the conscripts on the Government Front Bench, who are here to do their duty. Far be it from me to apologise for the absence of the Liberal Democrats, although, having listened for the best part of half an hour to probably the most boring and tedious speech that I have ever had the misfortune to hear, I suggest that the absent Liberal Democrats probably have the better side of the bargain.

Mr. Knapman

I do not claim to be a great orator, but for the hon. Gentleman to say that he has never heard a worse speech is a severe indictment of his attendance record.

Mr. Arbuthnot

Has my hon. Friend noticed that the hon. Member for Caerphilly (Mr. Davies) is apparently unable to see, because there are another three of our hon. Friends on the Back Benches? The hon. Gentleman is also unable to count because my hon. Friend has been speaking for only 12 interesting minutes.

Mr. Ron Davies

rose——

Mr. Knapman

The hon. Gentleman wishes to intervene again. If what I have said is to be further dissected, I look forward with interest to my own speech.

Mr. Davies

It is better to become involved in the debate than just to it and listen to it. The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) has just entered the Chamber, therefore creating a temporary record of three Conservative Back Benchers. If I got the time of the hon. Gentleman's speech wrong and he has been speaking for only 12 minutes that is a further indictment because, he seems to have been speaking for half an hour. If my attendance record has been less than perfect and this is not the worst speech that I have heard, the experience has certainly not encouraged me to spend more time in the Chamber than I have to.

Mr. Knapman

If that is a promise, it tempts me to carry on much longer, because I have a great deal of information to give the House.

Mr. Michael Jopling (Westmorland and Lonsdale)

The hon. Member for Caerphilly (Mr. Davies) rightly said that I had just entered the Chamber. I do not know whether he was here earlier when we listened with great interest to the speeches by my hon. Friend the Under-Secretary of State for the Environment and by the sponsor of the Bill, my hon. Friend the Member for East Hampshire (Mr. Mates). I am not here entirely by choice but because of the even more important Bill which follows this one, which I have the honour to sponsor.

Mr. Deputy Speaker (Sir Paul Dean)

I hope that the hon. Member for Stroud (Mr. Knapman) will not be further diverted.

Mr. Knapman

I am grateful, Mr. Deputy Speaker, that you think that I may be diverted even though the hon. Member for Caerphilly does not.

Some of my hon. Friends who have been here for long periods during the morning have understandably had to return to their constituencies. The hon. Member for Caerphilly must accept that this debate merely continues the trend of the local government debates that we had earlier in the week, when Opposition Members were keen to talk about the Government's attitude to local government but told us nothing about the record or the proposals of the Labour party.

I said earlier that I had received a letter from the Audit Commission following my complaint that nobody seemed to know what effect the commission's report was having in my constituency. The commission's reply stated: The District Auditor wrote to both constituents … explaining that he intended to issue a further public report in the new year following completion of the 1989–90 audit. The report will record the Council's progress or otherwise on each of the issues raised in his May report. The District Auditor considers that to issue yet another report now would be premature and would only add to community charge payers' costs to no good purpose. Having publicised major shortcomings in the Council's management processes he feels he has to give members and officers a reasonable time to address those problems before commenting again. In circumstances where an auditor is critical of management processes, his only remedy is publicity —until now— The level of publicity attracted by the District Auditor's report and actions there has far exceeded the norm for this type of local authority. I agree that the local council obtained a great deal of publicity. I am concerned to know what action the district auditor can take to see that his recommendations—in this case basic recommendations—are carried out. Is the threat of publicity sufficient?

The hon. Member for Caerphilly is obviously interested in local government matters and is probably still proud of the record of Liverpool council. That in itself will attract publicity in the next few months. Another example is Lambeth.

Mr. Arbuthnot

My hon. Friend will also be interested in the activities of Derbyshire county council, a loony left authority if ever there was one. He will note that the two Ministers in the House are from Derbyshire constituencies and that they are listening with interest to his speech.

Mr. Knapman

If I had the wisdom and the knowledge to speak on behalf of my two ministerial colleagues, I would have a tale to tell. I understand that Derbyshire has as bad a record as any council in the country. It is saying something to put that council in the same loony league as Lambeth and Liverpool. The community charge there is £500 to £600 and it bears a heavy responsibility for imposing on both rich and poor people bills which many of them have a job to pay.

Mr. Ron Davies

The hon. Gentleman has invited me to join in the debate. I should warn him that, for 15 years before I became a Member of Parliament, I was a member of a local authority. For the last three of those years, I was the chairman of the finance committee of that authority, and for each of those three years it was the only local authority in Wales that had a clear report from the district auditor. I am happy to discuss that record with the hon. Gentleman if he wants to go down that road.

Mr. Knapman

The hon. Gentleman's intervention shows what can and should be done. Many of his colleagues in Derbyshire, Lambeth and Liverpool say that they are forced by cuts and so on to reduce services. I am grateful that the hon. Gentleman has placed on record the fact that he was a finance officer, and his view that a satisfactory level of services could be achieved if other Opposition Members were as bright as he.

Mr. Davies

I remind the hon. Gentleman that my local authority is Welsh. Perhaps the hon. Gentleman would ponder that and offer an explanation of why the only Conservative-controlled authority in Wales, the Vale of Glamorgan authority, has the highest rate of increase in Wales in its forecast for this year's poll tax.

Mr. Deputy Speaker

Order. The hon. Member for Stroud may find it somewhat difficult to respond directly to that intervention and to remain in order.

Mr. Knapman

You have saved me, Mr. Deputy Speaker, from travelling down a cul-de-sac that I should not take. I could provide all the information that the hon. Gentleman seeks, because I have an encyclopaedic knowledge of Welsh local government. However, it would be impossible to do that and to stay in order.

Mr. Arbuthnot

It is a curious fact that Welsh local authorities seem to have a good record. Many of them are Labour controlled and have better records than most of their English counterparts. Perhaps my hon. Friend could use his encyclopaedic knowledge to expand on that.

Mr. Knapman

rose——

Mr. Deputy Speaker

Order. I am sorry to interrupt the hon. Gentleman again, but he is being tempted from the straight and narrow. When there were no interventions, he remained in order.

Mr. Knapman

I wonder whether a lower level of charges in Wales means that there is less likelihood of Welsh councils being affected by the Bill. The average community charge bill in Wales is considerably lower than in England.

I was recently invited to speak to some people in Monmouth, which some people say is part of Wales. The agent told me to speak on any subject except the community charge, because the charge is not an issue in Wales. That shows that the principle of most people paying something towards the cost of local government is sound, as my right hon. Friend the Member for Henley (Mr. Heseltine) said yesterday. However, the level of the charge is where the problem arises, but it is not a problem in Wales even in areas where there are Labour authorities. Labour authorities in England spend too much and obtain the nickname "loony" authorities. We shall continue to address them in that way.

I am pleased to know that, when the hon. Member for Caerphilly was a finance officer, he was well able to manage within the rules and restrictions which apply to local government and that he has not found the Government's record lacking during the past decade.

I was asking my hon. Friend the Member for Wan stead and Woodford whether the threat of publicity was sufficient and whether it would make any difference to Labour councillors such as those who inhabit and infest councils in Lambeth, Liverpool and Derbyshire. Those councillors have very thick skins. I know of one council in my constituency that sits until 1 or 2 o'clock in the morning discussing the import of South African oranges or whether to name a local park Nelson Mandela park. I often wonder about the cost per hour of running a council and paying all the officers until 1 o'clock in the morning: money is going out of the window at the same time as the hot air.

What is the point of having district auditors reports if the Audit Commission says that they are not auditors' reports and no action is taken even when the report is damning? I look forward to the Minister's reply to these points.

11.41 am

Mr. Key

With the leave of the House. I am grateful for the opportunity to answer some of the important points raised by my hon. Friends. I shall endeavour to be as brief as possible, because we have been here a long time.

My hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) asked why Scotland appears to be many years ahead of us. As someone whose first job was a teacher in Scotland and who is still a Scottish registered teacher, I can say that Scotland is ahead of England and Wales, and Northern Ireland, on many matters—for example on education and the community charge.

As my hon. Friend the Member for East Hampshire (Mr. Mates) almost suggested, the Bill arises from the Widdicombe report. He instructed us on what the Widdicombe report said on this issue, so I shall not burden the House by repeating it.

My hon. Friend the Member for Wanstead and Woodford asked whether the auditors could report on the collection of rents. The auditors can report on an authority's failure to collect the income due to it. In the past six years, the auditors have issued more than 30 reports on that subject. There would be no question of the auditor applying to the courts on such a matter to seek a declaration of unlawfulness. Such applications to the court are made only when there is clear illegality and a breach of the statutory duties given to councils, and that would not apply in the case of increasing arrears. Auditors can and do criticise the poor value for money given by authorities, but the action would not be ultra vires.

Mr. Ron Davies

Does the Minister expect the heavy expenditure that will be wasted this week and next week because poll tax bills will have to be ripped up and thrown away to be ultra vires? If local authorities next week have to throw substantial sums of money down the drain because poll tax bills have already been printed and bundled up but will have to be thrown away, would that be a proper subject for a district auditor's report?

Will the hon. Gentleman also undertake to look closely at the situation in Westminster council, which faces the prospect of incurring expenditure of £42 on each poll tax bill, for a return of £36? Is that an example of good local authority practice or an example of a situation that should be examined by the district auditor?

Mr. Key

Westminster council has alleged that it will cost more than £40 to collect the community charge. I find that difficult to understand, given that the average figure for the whole country is £15 per bill. I look forward to hearing in more detail what Westminster council has to say.

I do not consider that the proposals in the Bill that I introduced yesterday require an auditor's report. The changes that it introduces are not the responsibility of, or the result of neglect by, the local authorities. The matter will be decided by the House after due consideration. The House is the proper forum for making such decisions, at the Government's suggestion.

My hon. Friend the Member for Wanstead and Woodford asked whether auditors could intervene if councils failed in their responsibility to do something, as opposed to intervening when councils do not do something. The answer is yes. For example, in 1985 the councils of Liverpool and Lambeth failed to set a rate for the following financial year. The district auditors for those two authorities intervened, with the result that 42 councillors in Liverpool and 32 councillors in Lambeth were surcharged by the auditor and disqualified from public office for five years.

The Bill places on the authority the duty to report, because it is the authority's conduct that is the subject of criticism by the auditor. It is the council's duty to manage the authority; that is why the members were elected democratically by local people. It is not for the auditor to usurp the role of elected members. However, auditors have a fallback power, and can make reports available should they so wish.

My hon. Friend was concerned that an auditor may wish his report to be published but certain councillors may not. Clause 2(5) says: An auditor who has sent an immediate report to a body or to the chairman of a parish meeting under section 18(3) above—

1. (a) may notify any person he thinks fit of the fact that he has made such a report, and
2. (b) may supply a copy of the report, or of any part of it, to any person he thinks fit."

That may answer my hon. Friend's question. The Bill provides that the auditor's report must be sent to all councillors of all political parties. Given the different political complexions of our councils, I would expect that that would ensure the publication of any such report.

My hon. Friend suggested that there was no opportunity for reports to praise local authorities. I am glad to say that this is not so. The Audit Commission publishes a range of reports which are always careful to name authorities that have performed particularly well. I happen to have with me an Audit Commission report called "The Road to Wigan Pier", on the planning of local authority museums and art galleries. Paragraph 18 states: The Wigan Pier Heritage Centre, the funding for which was provided by a variety of public and private sources, including the European Community social fund, central Government and the English Tourist Board, is a major tourist attraction, with half a million visitors in its first year of operation; its success has attracted investment to the area and contributed to Wigan's economic regeneration. So the Audit Commission certainly has a role in praising local authorities.

My hon. Friend the Member for Stroud (Mr. Knapman) was worried about a failure to act on a report. I shall write to him in more detail about the case he mentioned. The Audit Commission's letter was, as he would expect, perfectly correct in its reply about the role of the auditor. The retirement of the auditor did not remove the obligation of the council to act on his recommendations; inevitably, auditors have to retire or take over from each other from time to time. In such cases, the outgoing auditor ensures that the incoming one is fully briefed on the salient points of the audit. Those points will then be properly considered and acted upon in the course of future audit work. I shall in any case undertake to write to my hon. Friend about the worries that he has raised on behalf of his constituents.

I should like to end on a more positive note. Although the Audit Commission's duty is to ensure good value for money for local and national taxpayers and the highest quality of services that we would all expect of local authorities, it would not be right to end this important debate on a sour note. One of the major objectives of my right hon. Friend the Member for Henley (Mr. Heseltine) in conducting his review was to encourage best practice in local government. We have been highly conscious over the past few years that in the eyes of many people the status and standing of local government have declined.

As hon. Members on both sides will recognise, it has become more and more difficult to persuade good people to stand for local councils. If we believe in a proper constitutional arrangement between central and local government, which must depend on the quality of local government, it is important that the House ensures that the functions, structure and finance of local government be put right, in the interests of the nation. That is the objective of the Government's new policy, and the importance of the Audit Commission in this should not be underestimated. I reiterate that it has a positive as well as a negative role; it should criticise when necessary, and praise when that is proper. That should also be the role of the House and of this Bill.

Question put and agreed to.

Bill accordingly read the Third time, and passed.