Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2005 (Hansard, 21 February 2005)

§ Lord McIntosh of Haringey
rose to move, That the Grand Committee do report to the House that it has considered the Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2005 [8th report from the Joint Committee].
The noble Lord said: In 2003, the Government implemented key recommendations made by the noble Lord, Lord Sharman, on audit and accountability in central government. In particular, the Government responded to concerns expressed in Parliament by strengthening the statutory powers of the Comptroller and Auditor General in two ways. They did so, first, by making the Comptroller and Auditor General the statutory auditor of certain non-departmental public bodies where he is not already the statutory auditor and, secondly, by giving the Comptroller and Auditor General greater powers of access.
The Grand Committee may recall that the Government continued the policy in 2004 by extending the Comptroller and Auditor General's statutory powers in respect of two more non-departmental public bodies and four special health authorities. The order being debated today is intended to continue the process that Parliament approved in 2003 and 2004. The order is being made under the Government Resources and Accounts Act 2000. I am grateful for the assistance that the Treasury has received from the National Audit Office throughout the process of preparing the order.
The Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2005 provides for the Comptroller and Auditor General to be made the statutory auditor for three development corporations—Thurrock, London Thames Gateway and West Northamptonshire—as well as the British Transport Police Authority.
222GC Following a referral of the Hybrid Instruments Committee, the creation of West Northamptonshire Development Corporation was the subject of a special Select Committee under the chairmanship of the noble Lord, Lord Boston of Faversham, which reported on 17 November last year. Following the committee's report, the corporation has now been established.
Urban development corporations are set up under the Local Government, Planning and Land Act 1980. This legislation provides for the auditor to be appointed by the Secretary of State. That was a common practice in those days but it is not consistent with policy since the report of the noble Lord, Lord Sharman, recommended that the Comptroller and Auditor General should be the auditor. We therefore need to use powers in the Government Resources and Accounts Act to give the Comptroller and Auditor General statutory audit responsibility for the bodies in accordance with government policy.
The Railways and Transport Safety Act, which established the British Transport Police Authority, received Royal Assent in July 2003. The authority was formally set up by order under the Act on 1 July 2004. It replaced the British Transport Police Committee, which was appointed by the Strategic Rail Authority, and took over its responsibilities for overseeing the British Transport Police.
The Railways and Transport Safety Act reflected our policy to create an authority closely modelled on local police authorities. Much of the Act was therefore based on the Police Act 1996, which established local police authorities.
Subsequent to the passing of the Act, the British Transport Police Authority was classified as a non-departmental public body. The need for Comptroller and Auditor General statutory audit responsibility to be provided in the establishing legislation was not considered during the drafting of the Bill. It is therefore necessary to use the Government Resources and Accounts Act to give the Comptroller and Auditor General statutory audit responsibility.
It may be helpful to explain that when a previous order under the Government Resources and Accounts Act 2000 was debated in another place in June 2004, a number of issues of concern were raised. Questions raised were, first, why we had to go through the process of debating a policy each year that had already been approved by Parliament, and, secondly, whether an assessment had been made of the impact of Comptroller and Auditor General audit on the bodies covered by the 2003 order.
Most non-departmental public bodies are set up through new legislation. That legislation should, as a matter of policy, appoint the Comptroller and Auditor General as auditor. However, some new non-departmental public bodies are set up under existing legislation and may not provide for the Comptroller and Auditor General to be the auditor. This is the case with the development corporations listed in the order that is being debated today. The power to give the C&AG statutory audit responsibility—Section 25(10) of the Government Resources and Accounts Act 2000— 223GC provides that the orders must be laid in draft and cannot be made before resolutions of both Houses of Parliament.
The second issue raised in the 2004 debate was whether the Government had reviewed the regulatory impact assessment that was published alongside the 2003 orders. In reply, the Government said that best practice suggests that such reviews should be undertaken at regular intervals and that the Treasury would revisit the matter in due course. In the light of those concerns, the Treasury has done just that and a new regulatory impact assessment accompanies this order.
Some of the main points in the regulatory impact assessment are as follows. The regulatory impact assessment records that the main risk is that because the C&AG has become the monopoly supplier of audit services to non-departmental public bodies, private sector auditors may be precluded from competing for business. Consequently, non-departmental public bodies' audit costs may increase and the quality of audits may reduce through lack of competition.
We sought to test those risks by carrying out a review of the impact that the C&AG audit had on the first batch of non-departmental public bodies that moved from their previous auditor to the C&AG—that is, those covered by the 2003 order. Non-departmental public bodies submitted their views to the Treasury in confidence.
In brief, the responses were generally positive, with bodies enjoying good relations with their National Audit Office colleagues. They said that all sides worked hard to ensure that there was no loss of continuity. If there were problems, they were the usual learning curve issues that any audited body would find with a new auditor. However, some bodies thought that experience over one audit cycle was not long enough to take a view.
A few bodies had criticisms. For example, some were concerned about the rigid timetable that the National Audit Office prefers, as it can strain limited resources. Similarly, it was said that the National Audit Office did not always respect clients' timetables—for example, in completing audits in time for AGMs. Some bodies also thought that the National Audit Office should improve its understanding and knowledge of bodies that are not grant-aided. Finally, some regretted the inability of the Comptroller and Auditor General to audit companies, especially trading subsidiaries of bodies that he audits.
A single year's audit experience is not really enough to gauge whether the 2003 regulatory impact assessment was accurate. But, in the light of the survey, we have reassessed the assumptions made.
To sum up, there seems to have been little loss in continuity, and the impact on the audited bodies has been minimal. In broad terms, audit costs have been comparable and, in most instances, any adverse impact appears to be no more than the friction resulting from a new auditor. I say that with great 224GC deference to the noble Baroness, Lady Noakes, who has been through all of this throughout her working life.
The Committee may recall that the C&AG planned to increase the amount of audit work under the auditor's control that is contracted out to commercial firms. He hoped to raise the level from less than 20 per cent to 25 per cent by 2005–06. I can report that he expects to reach 22 per cent in 2004–05 and that he is on course to meet the 2005–06 target.
With the caveat that it is probably too early to take a definitive view, I believe that the assumptions made in the 2003 regulatory impact assessment were pretty accurate. We believe that they also hold good for the four new non-departmental public bodies about which we are concerned today. But we propose to review the position in the light of further experience of C&AG audit on those covered by the 2003 orders as well as those covered by later orders, and we shall do so later this year.
Finally, I should report that the Cabinet Office has been carrying out an extensive review of public bodies and it is likely that some will be reclassified as non-departmental public bodies in due course. The Government will need to take further orders through the House in order to ensure that the Comptroller and Auditor General has statutory audit responsibility for those bodies as well. The proposals continue the Government's commitment to improve parliamentary accountability, and I commend the order to the House. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2005 [8th report from the Joint Committee].—(Lord McIntosh of Haringey.)

§ Baroness Noakes
I thank the Minister for introducing the order and I should say straight away on behalf of my Benches that we fully support transferring the audits under this order to the Comptroller and Auditor General. We have always supported the report of the noble Lord, Lord Sharman, and that is not simply my personal position having spent nearly 30 years being accustomed to agreeing with the noble Lord, Lord Sharman.
It is helpful that the Government have undertaken a survey of the experience of the bodies that are subject to the new audit arrangements, and I pay tribute to them for that. The Minister referred to my experience in that regard, and I would just say that clients always have criticisms about their auditors, whether they are newly changed auditors or long-standing auditors, and so none of the comments came as a surprise to me.
I have just one or two questions for the Minister. The first relates to one of the points that came out of the survey concerning the frustration of not being able to have the Comptroller and Auditor General audit companies. One recommendation included in the report of the noble Lord, Lord Sharman, was for the C&AG to be able to audit companies in appropriate circumstances. Of course, that requires a change to 225GC company law, and perhaps the Minister will say whether the Government intend to do anything about that recommendation and, if so, when. For example, we had an opportunity last year with the companies Bill when an amendment could have been made or a clause could have been included had the Government wanted to do that, and it seems to me to be entirely sensible that that should be done.
Looking beyond non-departmental public bodies, I was interested to hear the Minister say that the Cabinet Office may be bringing more within the scope of those bodies. However, my question related to the kind of public corporations that are fairly unlikely to be brought within the Cabinet Office's redefinition of NDPBs and whether the Government have any plans to reconsider the audit of some quite substantial public corporations. Here, I have in mind the BBC, where C&AG has only limited ability to audit parts of value for money in agreement with the governors.
The Minister will be aware that the Public Accounts Committee in another place has recently criticised that and has recommended that that scope be increased. But other significant public corporations are not within C&AG scope—for example, to mention one that is topical from our afternoon's debate, the Bank of England. I wonder whether the Government are contemplating extending the role of public audit yet further.

§ Lord McIntosh of Haringey
This is a lesson in "everything comes back to haunt you". I opposed the 226GC Police Act 1996 in this House and I took through the Government Resources and Accounts Act and the Railways and Transport Safety Act, and I am now suffering from the deficiencies.
It would require a major change to allow the Comptroller and Auditor General to audit companies. The present Comptroller and Auditor General is not able to audit companies but it not impossible that a future Comptroller and Auditor General could personally audit companies, and that would make life simpler. But Sir John Bourn is not in that position and we have no urgent plans to make a change to that, involving significant changes in law, except in the circumstances that I have described.
On the issue of new non-departmental public bodies, the noble Baroness, Lady Noakes, referred specifically to the BBC. She will recall that during the passage of the Government Resources and Accounts Act there was a great deal of debate about the BBC. Indeed, in relation to the Communications Act, for which I was also responsible in this House, there was significant disagreement about whether the Comptroller and Auditor General should have further powers in relation to the BBC. A compromise was reached that the National Audit Office, by agreement with the BBC, would carry out value for money studies. Those are proceeding and there is no present intention to make any change.
On Question, Motion agreed to.