Grand Committee Report of 23 February 2004

Official Report of the Grand Committee on the

  Public Audit (Wales) Bill [H.L.]
  (First Day)
  The Committee met at half past three of the clock.
  [The Deputy Chairman of Committees (Viscount Allenby of Megiddo) in the Chair.]
  The Deputy Chairman of Committees (Viscount Allenby of Megiddo): Before I put the Question that the Title be postponed, perhaps I may remind your Lordships of two points of procedure. Noble Lords will speak standing and the House has agreed that there will be no Divisions in Grand Committee. Unless, therefore, an amendment is likely to be agreed, it should be withdrawn. If there is a Division—and I am advised there is likely to be—in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and will resume after 10 minutes.
  Title postponed.
  Clause 1 [Transfer of functions of Assembly]:
  Baroness Noakes Baroness Noakes moved Amendment No. 1:
  Page 1, line 7, leave out "with the consent of" and insert "after consultation with"
  The noble Baroness said: My noble friend Lord Roberts of Conwy is unable to join us in the Grand Committee because of a family bereavement. I shall therefore be speaking to the amendments that stand in the joint names of myself and my noble friend. He hopes to join us later in the proceedings of the Bill.
  Amendment No. 1 is the first of a series of probing amendments intended to clarify various points. It seeks to amend new Section 146A of the Government of Wales Act as inserted by Clause 1 of the Bill.
  The amendment raises the question of the relationship between the Assembly and the Auditor General in the matter of his supervisory functions over public bodies and registered social landlords. The Bill proposes that the Assembly should seek the consent of the Auditor General, which implies a degree of superiority on his part and a power to refuse consent. Is this what is intended? What if the Auditor General were to refuse? The Assembly would at the very least be embarrassed.
  On the other hand, the Assembly could in theory transfer functions that might be inappropriate for the Auditor General to exercise, such as oversight of sponsored bodies. His independence and objectivity have to be safeguarded and so, I concede, there is much to be said for the wording of the Bill.
  Our probing amendment proposes to substitute consultation between them, which is a much more egalitarian and open procedure. They could still have their disagreements but they would be within the framework of the Act and might not cause so much of a stir.
  As to the preparation of reports, the Assembly appears to have the whip hand because, under subsection (3), it may direct the Auditor General to prepare a report on his supervisory functions. That sits oddly with the need to seek his consent to exercise the function in the first place. We do not have a specific amendment on that point, but it illustrates the complexity of the relationship between the Auditor General and the Assembly and I hope that the Minister will be able to illuminate it. I beg to move.
  Lord Livsey of Talgarth: Given that the noble Baroness said that this is a probing amendment, perhaps I may ask the Minister what lies behind the use of the phrase "with the consent of".
  Before continuing, I should like to be associated with the sympathy expressed towards the noble Lord, Lord Roberts of Conwy, in his bereavement. I have known the noble Lord for a very long time indeed. I am very sorry and I wish to pass my party's condolences to him and his family.
  I should like the Minister to assert exactly why the phrase "with the consent of" is used. "Consultation with" sounds better but I suspect that there is a reason behind the use of that phraseology.
  My noble friend Lord Thomas of Gresford will be leading for my party on the Bill but, unfortunately, a train actually left on time and he is not able to be here at the moment. I am expecting him to be here in about an hour and a quarter.
  Lord Davies of Oldham: I complete the list of apologies to the Committee, as I am also a poor, sorry substitute for my noble friend Lord Evans of Temple Guiting, who has been struck down by an illness that will keep him away from the House for the next two or three days or so, for which he apologises.
  Obviously, we want to be associated with the condolences to be extended to the noble Lord. Lord Roberts. He is greatly respected in the House, and we all feel for him at this very difficult time and fully understand why he cannot be with us today, although we will miss his contributions.
  I was grateful for the way in which the noble Baroness moved the amendment. I find it extremely difficult to respond in a harsh manner to a proposal defined by her as both egalitarian and fair, so it is with some reluctance that I indicate that it does not quite meet my definition of what is going on in the clause.
  Amendment No. 1 would obviate the need for the National Assembly to seek the consent of the Auditor General before making an order to transfer to, or to make exercisable by, the Auditor General its supervisory functions in respect of a public body or a registered social landlord in Wales. The amendment provides for consultation, but his consent to any exercise would not be required.

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  My answer to the noble Baroness and to the noble Lord, Lord Livsey, is that the consent of the Auditor General to any exercise of the Assembly's functions is essential. The Office of the Auditor General is a Crown appointment. As the statutory auditor of the National Assembly, it is very important that his independence is not in any way called into question. The Auditor General must be satisfied that, in assuming any such functions, his independence is not compromised. The requirement for his consent in Clause 1 ensures that safeguard.
  What we are talking about is in no way a comment on the legitimate powers of the National Assembly, but recognises that the Auditor General has a separate, distinct and important function in parallel. The clause is phrased as it is, leading me to resist amendment to it, to safeguard that essential independence of the Auditor General.
  A further safeguard is that any order to be made under the clause, either transferring supervisory functions on a "once and for all" basis, or asking the Auditor General to exercise them on the Assembly's behalf, would be subject to scrutiny under the National Assembly's subordinate legislation procedures. The National Assembly would not witness change effected by only the Auditor General without having the capacity to scrutinise and examine it under those procedures. On that basis, I hope that I have assured the noble Baroness that we want the clause to stand as it is.
  Baroness Noakes: I thank both noble Lords for their condolences to my noble friend Lord Roberts of Conwy. I am sure that he will be grateful when he reads that in Hansard. I also thank the Minister for his reply, which we shall need to think about carefully. He did not answer on what would happen if the Auditor General did not agree—on whether the procedure was actually robust in the event of disagreement. I know that my noble friend will want to consider that carefully, but for today I am happy to beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Noakes Baroness Noakes moved Amendment No. 2:
  Page 1, line 15, leave out paragraph (a).
  The noble Baroness said: In moving Amendment No. 2, I shall speak also to Amendment No. 27, which is grouped with it. The amendment seeks to leave out paragraph (a) of subsection (2) in new Section 146A of the Government of Wales Act 1998 to be inserted by Clause 1. Our amendment is inspired by the loose definition here of a "public body" as one,
  "exercising functions of a public nature".
  This could include a private sector company such as a bus or train operator or any number of other companies performing public works as contractors, such as house or road builders, consulting engineers and so forth. Is it intended that the Auditor General for Wales should be able to step in to their affairs? While that might be justifiable were such companies in
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  receipt of substantial public funds, those are caught by the second part of the definition in subsection (2)(b) as being bodies,
  "substantially funded from public money".
  We see the broad sense of that and so we have left that part of the subsection.
  However, the phrase "substantially funded" lends itself to a wide range of interpretation, which is the reason why we have tabled Amendment No. 27 to delete the words "or substantially" from the identical definition of public bodies set out in Clause 12. We might have tabled the same amendment for Clause 1, but I hope that the Minister will treat Amendment No. 27 as one also standing proxy for a probing amendment on Clause 1.
  Such wording is difficult to define. What I would call a "substantial contract" might be small fry for a major multinational concern, while a much smaller sum of public money may be the lifeblood of a minor company; that is, the main source of its finances. Can the Minister explain exactly what the Government mean by,
  "substantially funded from public money",
  as that definition can drag a private sector body within the public sector audit arrangements? It is important to clarify the point.
  I am aware that the definition of "public body" is consistent with the Government Resources and Accounts Act 2000. That is relatively new legislation and I wonder whether the Minister can say something about how that definition has been applied in practice. For example, what specific bodies have been classified as public bodies for the purposes of that Act and have any issues of definition arisen in practice? If so, how were they resolved? I beg to move.
  Lord Livsey of Talgarth: I want briefly to comment on this, but before doing so I declare an interest in that one of my sons is a construction engineer working mainly in Wales on quite large public projects. The noble Baroness has made the point that a private company could be involved in works of a public nature. I am not absolutely certain that that would necessarily be the case and I wonder whether the Minister can give us a more precise definition of what is meant by,
  "exercising functions of a public nature".
  He may be in a position to promise us in due course a list of such bodies, although perhaps he may not wish to be so prescriptive.
  Lord Davies of Oldham: I am always willing to be helpful, but I shall certainly not produce a list in this instance. If it will help the Committee, I may look at the possibility of producing a list, although I think that it would be rather extensive. I shall seek to explain why the definition has certain wide-ranging implications and why we think that it meets the requirements, thus satisfying the anxieties expressed by the noble Baroness in moving her amendment.

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  It may be helpful if I deal first with Amendment No. 27, not least because the purpose of the definition in the context of Clause 12 is to maximise scrutiny and safeguards over the use of public money. I am sure, therefore, that both sides of the Committee are as one in terms of the broad objectives. However, Amendment No. 27 would undermine that intention. The amendment deals with the definition of "public body" in the context of enabling the National Assembly for Wales to amend by order the categories of bodies defined as local government bodies in Wales to take account of future circumstances.
  As the noble Baroness indicated, the definition in Clause 12 is consistent with that used in Clause 1 and with the Government Resources and Accounts Act 2000. In this case, the amendment to the definition would mean that a category of local government body wholly funded by public money could be added to Clause 12(1), but a category of a body with anything less than 100 per cent of its funding from the public purse would not. That cannot be the intention behind the amendment. It certainly is not one that we would be prepared to countenance. For example, a body that provides specialist services to local government in Wales for a fee would be in that category.
  We are anxious about the amendments as restricting the proper scrutiny of public money. Amendment No. 2 would limit the Assembly's ability to transfer supervisory functions to the Auditor General or to have him exercise such functions on the Assembly's behalf. The effect would be that the Assembly could not exercise the power in respect of a body that exercises functions of a public nature but is not entirely or substantially funded from public money. I am sure that all Members of the Committee recognise that the scope needs to extend wider than those bodies that receive 100 per cent of their funding from the public purse.
  A body exercising functions of a public nature may not be entirely funded from public money; nor need it necessarily be construed as being substantially funded from public money. It may earn income from fees and charges. If it is a regulatory body, it may derive a substantial proportion of its income from inspection or from registration fees. I cannot give a list, but I can give an example. The General Teaching Council for Wales potentially is an example of such a body that receives a great deal of resources. It is definitively a public body exercising functions on behalf of the public good, yet it does not earn its income directly from public money.
  The reasons for the Assembly wishing to transfer its supervisory functions may be valid irrespective of the level of public funding that a body receives. The definition of a "public body" in the clause—on which I was questioned closely—is consistent with the Government Resource and Accounts Act 2000. If there is any doubt whether such a body fell within the second part of the definition of "public body" in Clause 1(2) because of the level of public funding that it receives, it still would be covered by the first head of the definition.
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  I am making the obvious presumption that we all seek proper public scrutiny of public resources, while recognising that the bodies that may fall within the remit could fall considerably short of 100 per cent public funding. On that basis, I hope that the noble Baroness will feel able to withdraw her amendment.
  3.45 p.m.
  Baroness Noakes: I thank the Minister for his reply. I thank the noble Lord, Lord Livsey, for his contribution. I am particularly grateful for the explanation in relation to exercising functions of a public nature. That certainly explains why that should be included, despite not meeting the requirement set out in paragraph (b), which relates to,
  "a body entirely or substantially funded from public money".
  I confess that I am still concerned about what private-sector bodies might be drawn into the net under paragraph (b) as being substantially funded from public money. Small organisations that contract with the public sector could be funded substantially through commercial contracts. There is no exemption for commercial contracts. If bodies are substantially funded, they could fall within those public audit arrangements.
  I share the noble Lord's desire to ensure that there is proper audit of public money. But there does not appear to be any concept that there could be a commercial relationship which could intervene. Most probably, small and medium sized enterprises—the very bodies most burdened by regulation in our economy—could be dragged within the provision. Has the Minister any thoughts on that aspect?
  Lord Davies of Oldham: I have probably covered as much ground as I can at this stage. I understand the point that the noble Baroness makes. We shall look closely at all the points made today, against the background that this is a preliminary stage of the Bill. The important question is whether the National Assembly for Wales has supervisory functions in respect of such bodies. If it has not, the clause would not bite. Where the Assembly has a supervisory function, even if the body in question does not receive a massive percentage of its resources through public funding, the clause would be relevant. That is the basis of our provision.
  Baroness Noakes: I shall not press the point much further as the Minister has said that he will think about it. The definition of "supervisory functions" in Clause 1 is very wide and includes,
  "functions of examining, inspecting, reviewing or studying the financial or other management of the public body".
  Under the wording, it is still possible that there would be some concerns.
  One of the questions that I put to the Minister—I forgive him for not being able to answer it—is whether there had been definitional difficulties or issues arising under the Government Resource and Accounts Act 2000. I would be interested to know whether the

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  Minister's officials could look into the matter and write to Members of the Committee to see how the definition works in practice.
  Lord Davies of Oldham: I am grateful to the noble Baroness and accept her intervention. If we can throw light on the issue as being the result of an Act that, as she has identified, has been on the statute book for only four short years, we will write to her and to the noble Lord.
  Lord Livsey of Talgarth: I am perfectly satisfied with the Minister's explanation of a supervisory function. I am obviously interested in knowing whether previous Acts of Parliament are complied with. We will be interested to hear the Minister's reply on that. I can think of many instances in Wales where bodies use public money and should be the subject of supervision and I am therefore happy with the Minister's remarks.
  Baroness Noakes:I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 1 agreed to.
  Clause 2 [Additional functions of Auditor General]:
  Baroness Noakes Baroness Noakes moved Amendment No. 3:
  Page 2, line 41, leave out ", if so required by a relevant body,"
  The noble Baroness said: The amendment would delete the words,
  "if so required by a relevant body"
  from subsection (1) of new Section 96B of the Government of Wales Act 1998, inserted by Clause 2.
  We are dealing here with the certifying of grant claims, accounts and returns either by bodies audited by the Auditor General for Wales or local authorities in Wales. Most of the time, those claims will result in money being paid by the Assembly to various bodies. The question is whether certification should in any sense be optional, as the current drafting implies. Certification is a very important process and should be an integral part of the Auditor General's duty. It should not be left to a relevant body to request the Auditor General to certify. He should have a positive and proactive role.
  If the Auditor General does not certify, who else will do it? Are bodies to be left to shop around for certification of their claims? That represents a lax approach and could easily lead to duplication of effort and perhaps anomalies.
  I would be grateful if the Minister could tell us what happens with the certification of grant claims currently under the Audit Commission regime. I concede that the Audit Commission Act 1998 is drafted in the same terms as the Bill, but how does that work in practice? Is there any optionality over certification? I beg to move.
  Lord Davies of Oldham: The amendment would have the effect of requiring the Auditor General to make arrangements for the certification of claims, returns or accounts relating to bodies for which he has no statutory audit responsibilities. The fact that he
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  would be required to perform the functions irrespective of his wider audit relationship with a body could result in him undertaking such work in a complete vacuum—which, the noble Baroness will recognise, would be a most unfortunate circumstance—without any background knowledge of what he is meant to certify, for whom and why.
  The intention of the provision in Clause 2, which inserts a new Section 96B into the Government of Wales Act, is to clarify the fact that the Auditor General is required, upon request, to make arrangements for the certification of claims, returns or accounts relating to public bodies for which he does have statutory responsibilities. These would of course include local government bodies. Claims in respect of European Community grant schemes would be an example of such certification work.
  Under the Audit Commission Act 1998 the bodies to which the noble Baroness referred have the ability to shop around and are not required to go to the Audit Commission. The noble Baroness will recognise that the amendment could create difficulties for the Auditor General for Wales in that he could be asked to carry out functions which are out of context with his ability to do so.
  I hope that clarifies at least one aspect of the noble Baroness's question and that she will withdraw the amendment.
  Baroness Noakes: I thank the Minister for his reply. I am slightly puzzled in regard to claims being made by bodies for which the Auditor General is not responsible. The "relevant bodies" are those whose accounts he audits and local government bodies, for which he is responsible for appointing the auditor. So we are talking about claims made by bodies within the envelope, as I understand it, of the audit arrangements in Wales.
  I am not clear about the first point raised by the Minister. I find it rather mystifying and worrying that in England, and now in Wales, bodies can "shop around" for those who would give opinions on grant certificates; that they do not have to go to a person who knows about the body making the claim. Our fundamental approach to the clause is that the right person to "sign off' such claims, accounts, terms and so on should be someone who knows the bodies—that is, either the Auditor General or, if the drafting is improved, auditors appointed by him in relation to local authorities. Shopping around is a most undesirable practice.
  I shall read carefully what the Minister has said in Hansard but, I confess, I remain a little concerned about this issue. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  The Deputy Chairman of Committees: Before calling the next amendment, I should inform the Committee that if Amendment No. 4 is agreed to. I cannot call Amendment No. 5 under the pre-emption rules.
  Baroness Noakes Baroness Noakes moved Amendment no. 4:
  Page 3, leave out lines 36 to 42.
  The noble Baroness said: Amendment No. 4 seeks to leave out subsection (3) of new Section 96C of the Government of Wales Act as inserted by Clause 2. It is a probing amendment designed to discover what this subsection is all about.
  Subsection (3) allows the Auditor General for Wales to make arrangements with the three kinds of organisations set out in the subsection—namely, a "relevant authority", which is defined in subsection (5) as a government department, local authority or holder of a public office; a "qualified auditor", who is someone who can audit a local authority under the terms of Clause 14; or an "accountancy body", which is also defined and includes bodies such as the Institute of Chartered Accountants in England and Wales, of which, I remind the Committee, I am a member and former president.
  The Explanatory Notes go some way to explaining this subsection as they give examples of how and why the Auditor General might want to make arrangements with, for example, the Assembly Social Services Inspectorate. The notes do not explain why specific legislative cover is required. I could not see similar provisions in the legislation covering the Audit Commission or the Comptroller and Auditor General. Why is the position in Wales different?
  The notes do not help at all with what kind of arrangements might be made with qualified auditors or accountancy bodies. What kinds of arrangements would be made and for what purpose? Will the Minister also say why the Auditor General needs to make arrangements with local authority auditors who are appointed by him under Clause 14? What are these arrangements? Will the Minister say what kinds of things they might be involved with? Are similar powers contained in legislation governing the Audit Commission or the Comptroller and Auditor General? I could not see from a brief scan that there were equivalent provisions.
  Will the Minister say which accountancy bodies the Assembly intends to approve under paragraph (b) of the definition of "accountancy body" in subsection (5)? This refers to European Union bodies of accountants and I would be fascinated to discover what kinds of European bodies might conceivably be relevant to the work of the Auditor General and his work in Wales, given the different context of public sector audit in Europe. I can just about understand the Auditor General needing to make arrangements with supreme audit institutions in Europe, but the clause does not seem to have a power to that effect. I am clearly nothing like imaginative enough to see what accountancy bodies in Europe would be relevant. I beg to move.
  Lord Livsey of Talgarth: I support the amendment, which seeks to take out subsection (3). I am not so well qualified as the noble Baroness, Lady Noakes—I am more of an applied management agricultural accountant than anything else—but, nonetheless, I can see the point—
  4.3 p.m.
  The Deputy Chairman of Committees: I have to interrupt. A Division has been called in the Chamber. We will reassemble at 14 minutes past the hour.
  (The Sitting was suspended for a Division in the House from 4.3 to 4.14 p.m.)
  Lord Livsey of Talgarth: To continue, I was saying that I have some expertise in accountancy, but nothing like that of the noble Baroness.
  Subsection (3) in new Section 96C is widely drawn. We are concerned about ensuring that the independence of the auditing process is strengthened. New Section 96C(1) states,
  "Arrangements may be made between the Auditor General for Wales and a relevant authority".
  That new section spells out a number of things that can be done, which seem to be satisfactory. However, in subsection (3) it is spelt out again in a rather different way. Obviously, one needs a bit of flexibility, but the issue of auditing of public funds is important as far as the administration of the dispersal of public funds is concerned. There should be no loophole in the Bill if at all possible—not that I am saying that if there were that it would be improperly used. I would like an assurance from the Minister that subsection (3) is necessary, and if so, the reason why.
  Lord Davies of Oldham: Highly qualified noble Lords on the other side of the Committee have been discounting their accountancy qualifications. I am one of those few people who get into trouble with the tax authorities by overpaying them from year to year. My accountancy skills are clearly absolutely rudimentary, and it is not because of them that I am in my place at present.
  I assure noble Lords that we are concerned about Amendment No. 4. I will come on to the issue of detail in a moment. If the amendment were pressed, it could prevent or hinder the Auditor General from making arrangements with other regulatory and audit bodies for co-operation and mutual assistance that would be mutually beneficial to the exercise of their respective functions. It could also hamper his ability to participate in joint working and co-operation.
  The desirability of wide powers of co-operation was endorsed by the pre-legislative scrutiny committee during our consultation on this Bill, particularly by the Welsh Affairs Select Committee. A key principle of the Bill is to ensure that there is greater collaborative working through joint review work and strategic forward planning between audit and regulatory bodies, including bodies from elsewhere in the UK, such as Audit Scotland, and bodies from outside the UK.
  Increased collaborative working would also reduce the administrative burdens on client organisations. The Auditor General may well by virtue of his office have implied power to enter into arrangements, but without this specific provision, each of the categories of bodies referred to would have to consider whether its powers were sufficiently wide to enable it to enter

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  into such an arrangement. That is the point of the inquiry by the noble Lord, Lord Livsey of Talgarth. The key objective of the clause is to make clear the powers of all prospective parties to enter such arrangements.
  The purpose of the proposed new Section 96C is to put beyond doubt that all prospective parties to the arrangement have the legal power to enter into the arrangement. Some bodies, for example statutory bodies, will have only expressed legislative powers, or those that can reasonably and properly be implied. We want to ensure that it is clear beyond all doubt that such persons or bodies will have the power to enter into such arrangements.
  The noble Baroness also asked what bodies the Assembly might approve under subsection (5)(b). The most major UK body of public accountants, CIPFA, would currently need such approval. Many local government auditors—currently appointed by the Audit Commission—are, as the noble Baroness will know, drawn from CIPFA. The kind of arrangements that the Auditor General for Wales might enter into with an EU accountancy body are joint organisation of conferences, or training or secondment of staff.
  There are reasons why we need the provisions in the clause for the supervision of public funds. I ask the noble Baroness to recognise that there would be a significant limitation on the Auditor General if the amendment were pressed.
  Baroness Noakes: I thank the noble Lord, Lord Livsey of Talgarth, for his contribution and the Minister for his reply, which in some measure explains what subsection (3) is about—in particular, ensuring that all those mentioned can enter into such arrangements. It is curious that arrangements have been entered into for many years, certainly involving the Comptroller and Auditor General, about which I know a little, without any such formal power. I am fairly sure that the Audit Commission too has been entering such arrangements. We tabled the amendment because it looked like such an unusual provision to include in legislation.
  That also raises the question of what happens to the bodies that are not named here. The implication is that the Auditor General can enter into arrangements only under either subsection (1) or subsection (3). Many bodies are not covered by those subsections. I mentioned a supreme audit institution, the equivalent of the Comptroller and Auditor General or the National Audit Office, in France or Germany. That would not be covered, and therefore it would be improper for the Auditor General for Wales to enter into any such arrangements.
  One problem with trying to write things down is that one therefore ends up with the problem of what is not written down. I would like to think about the Minister's reply in a little more detail. At one level, it seemed to explain why the subsection is needed, but
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  that raised a lot of other questions in my mind. I would like to think about it further. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Noakes Baroness Noakes moved Amendment No. 5:
  Page 3, line 42, at end insert—
  "( ) Arrangements may not be made under subsection (1) or (3) unless the Auditor General for Wales has satisfied himself that the independence of any audits carried out by him or by a person appointed by him is not impaired by the arrangements."
  The noble Baroness said: We stay with this clause and come to the issue of the independence of the Auditor General for Wales, to which the noble Lord, Lord Livsey of Talgarth, referred in his comments on the previous amendment. Amendment No. 5 inserts a new subsection into new Section 96C of the Government of Wales Act 1998 inserted by Clause 2. This new subsection states that arrangements that the Auditor General for Wales makes with the various bodies and for the various purposes in subsections (1) to (3) must not impair the independence of the Auditor General. At present, the Auditor General for Wales is prohibited by Section 92 of the Government of Wales Act 1998 from entering into any arrangements for the Assembly that involve the Auditor General or the Assembly carrying out each other's functions or providing each other with administrative or similar services.
  Clause 9 removes that prohibition, and instead creates the wide-ranging powers in new Section 96C, which will allow the Auditor General to work in and for any of the bodies for which he will have responsibility for auditing under the Bill. Without further restriction, that raises some issues regarding the independence of the Auditor General. We debated that at Second Reading, and I explained that auditor independence, whether of public or private sector auditors, can be impaired by the provision of non-audit services or by having to audit one's own work. That is allowed under new Section 96C. The Committee may well be aware that auditor independence is one of the hottest issues in the private sector. We must be sure that we achieve the highest standards in the public sector.
  At Second Reading, the Minister said that it will be for the Auditor General to ensure that no conflict of interest arises. The Minister then said,
  "It is not necessary to limit Clause 2 to situations that would not give rise to conflicts of interest, as that may be too restrictive".—[Official Report, 9/12/03; col. 729.]
  I profoundly disagree. We must preserve the integrity of public audit, and we must ensure that auditor independence is not impaired. I do not express this in terms of conflict of interest, because a genuine conflict is most unlikely. I use the more neutral term, "impairment of independence". That means not only actual impairment, but perceived impairment, because perception is just as important as fact when dealing with the independence of an auditor.
  I should be surprised if there was anything between me and the Auditor General for Wales on the issue of independence. I do not believe that he or any of his successors would voluntarily impair their independence. The Explanatory Notes to Clause 9 mention protocols to ensure that no conflict of interest arises. My solution is to place in the Bill a clear obligation on the Auditor General to satisfy himself that the arrangements entered into—I am not trying to prohibit such arrangements—do not impair independence. Protocols could then follow, and would be sensible, but they would be firmly rooted in a clear statutory requirement.
  The Bill marks a considerable shift from the Government of Wales Act 1998, with its blanket prohibition on working for the Assembly, and moves virtually to a free for all. We do not oppose the basic liberalisation implicit in new Section 96C, as that is likely to provide healthy flexibility for the Auditor General. We believe that it is unwise to move without a clear and explicit reference to the crucial issue of audit independence. I beg to move.
  Lord Livsey of Talgarth: I have already made a point about independence. I am pleased that the noble Baroness. Lady Noakes, said that there is a need for flexibility to be spelt out. Given that we are creating an Auditor General for Wales in one body, I wonder whether the need to specify in new Section 96C(3) various professionals who can assist—such as a qualified auditor or an accountancy body—is affected by possible restrictions of finance. I do not know, but I know that it is common practice in Wales for professionally qualified people to work together, often because of lack of resources. I would like the Minister to comment on that.
  4.30 p.m.
  Lord Davies of Oldham: I am grateful to both noble Lords for their contributions to the amendment. I am grateful in particular to the noble Lord, Lord Livsey, because he has expressed certain reservations which we share. We do not believe that a statutory duty is necessary to ensure that the Auditor General upholds the highest standards of independence. After all, the amendment would place the Auditor General under a statutory duty to satisfy himself that his independence in conducting audits is not impaired as a result of him entering into co-operative arrangements, including co-operative arrangements with the National Assembly provided for in the clause.
  The Auditor General of course abides by the Auditing Practices Board guidance on standards of independence. Objectivity and independence are two of the key ethical principles that govern auditors' professional responsibilities.
  My understanding is that the board is in discussion with the national audit agencies, which include the Auditor General for Wales and his staff, on the adoption of ethical standards that the board proposes to introduce later this year. The likelihood is that the standards will he adopted and will apply to all auditors practising in the public sector as well as the private
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  sector. Agreement is a matter for the audit agencies and the board, but we are of the view that it is wholly appropriate for common standards to apply across the audit profession and would welcome agreement on this. I am confident that agreement can be reached, particularly given the Auditor General's adherence to existing Auditing Practices Board guidance.
  The Auditor General also has in place local protocols that ensure independence and guard against conflict of interest. For instance, in the case of a secondment of National Audit Office staff at a client organisation, the member of staff will, upon return to the NAO, not perform any audit functions in respect of that body for a period of three years. It will be open to the Auditor General to consider existing arrangements and strengthen them if he considers it necessary.
  The noble Baroness argued persuasively that these protocols could be developed subsequent to the statutory provision and within that framework. However, we believe that all desirable public safeguards will be achieved through this process and we do not believe that this statutory duty is necessary. For that reason, I ask the noble Baroness to withdraw her amendment.
  Baroness Noakes: I thank the noble Lord, Lord Livsey, for his support for the concept. I also thank the Minister for his reply, which was not a surprise. I reiterate that I tabled the amendment because of a change in the law. Having moved from a restrictive position to something which would have allowed activities that would open up the possibility of impaired independence, I considered that we needed something else.
  If it were beyond peradventure that the Auditor General for Wales was subject to a clearly defined body of ethical principles, the concerns might be allayed, but that is not the case. The Auditing Practices Board—these bodies change their names over time—does not automatically cover a body such as the Auditor General for Wales or the related audit office. The Auditing Practices Board applies to certain qualified accounting bodies and does not apply directly to national public audit bodies.
  I understand that the Government do not believe there should be a statutory duty, but as that duty would result only in what would be the outcome in any event, I cannot see what harm the amendment would do. Indeed, I believe that it would strengthen the hand of those who believe in high-quality public audit—that includes the Auditor General for Wales—to have firm protocols and guidelines linked to those which exist for private sector audit activities.
  I will leave the matter for the time being, saying that I was disappointed in the Minister's response. It is an area where it looks as though there is one rule for the private sector and one rule for the public sector. We should be proclaiming loudly and clearly that the core of our arrangements to public audit is that impaired independence is not acceptable. We should not leave the matter to arrangements which may or may not

  GC 15
  exist outside the statutory framework. I beg leave to withdraw the amendment but I want to think further about the matter.
  Amendment, by leave, withdrawn.
  Clause 2 agreed to.
  Clause 3 [Studies for improving economy etc in services]:
  Baroness Noakes Baroness Noakes moved Amendment No. 6:
  Page 4, leave out lines 29 and 30.
  The noble Baroness said: In moving Amendment No. 6, I shall speak also to Amendment No. 15, which is similar. Amendment No. 6 amends the new Section 145A of the Government of Wales Act inserted by Clause 3 of the Bill. It deletes subsection (3), which disbars the Auditor General from questioning the merits of the policy objectives of a body when he carries out a value-for-money study. Amendment No. 15 deals with similar value-for-money audits of registered social landlords in Clause 5.
  I may be mistaken, but I could find no similar reference in Clause 41 in relation to the Auditor General's value-for-money studies in local government. Perhaps the Minister could explain that when he replies.
  Let me be clear that, from a governmental standpoint, we understand why the Auditor General should not be entitled to question the merits of policy objectives. Nevertheless, in practice, it is difficult to see how he can avoid a comment, possibly oblique, if in the course of his study he discovers that a body's objectives are contributing to inefficiency or ineffectiveness. It is the ineffectiveness or inefficiency that he is reporting which he thinks should be removed.
  A good example, although perhaps controversial, is the way in which targets in the NHS have led to problems of effectiveness and probably also problems of efficiency and economy. Not questioning the targets policy would be inconceivable.
  The phrasing of subsection (3) discourages but does not totally prohibit the Auditor General from making such comments. That is my reading of it and I hope that the Minister will confirm that my understanding is correct. If not, the removal of the subsection would be desirable not only in Clause 3 but also in Clauses 4 and 5. I mention that as we have not tabled an amendment to Clause 4, but I hope that the Minister will take the amendment in spirit if not in fact.
  My noble friend Lord Roberts tells me that a number of service areas in Wales would benefit greatly from studies to improve their value for money. I am sorry he is not here to give us his private hit list. We are anxious that the Auditor General is not handicapped in doing his work and is not unduly constrained by policy considerations. Our view is that if the implementation of a policy leads to defects being
  GC 16
  picked up in a value-for-money audit, the policy may itself be faulty and if that is the case, the sooner it is realised the better. I beg to move.
  Lord Livsey of Talgarth: I shall comment briefly on the amendment. There is a clear balancing line between two separate objectives. Surely, one would not wish to see the Auditor General having an onslaught on policy objectives. His objectives must be those of financial propriety. That may impinge or not on the outcome of policy objectives. It is important that he is objective about that and he should look at the financial issues involved.
  Subsection (4) could be misinterpreted. However, if the Minister can convince me that there is a sharp differential between the two, and that there is no free-for-all in the policy objectives resulting in enormous financial liabilities, the consequences of which the Auditor General must pick up, that is an important distinction. It ought to be a situation in which the Auditor General acts from a financial objective in controlling the excesses of policy objectives. He does not have to question them outright, but nevertheless he picks up the bill at the end and perhaps charges a bill, too.
  Lord Elis-Thomas: I declare an interest as Presiding Officer of the National Assembly for Wales. I assure the Committee that I do not intend to intervene frequently in Committee; I apologise for not having been present for Second Reading. However, an aspect of the amendment concerns me. That is the relationship that has developed—in my view, very successfully—between the Office of the Auditor General for Wales and the Audit Committee of the National Assembly. The Audit Committee is itself precluded by standing order—of course, we could amend our standing orders by two-thirds majority—from scrutinising policy implications in its reports. That fits with the role of Auditor General.
  There have been several cases, into which I shall not go this afternoon, where various criticism of government or Assembly-sponsored public bodies has been made. I have been impressed by the way in which both the Audit Committee and the Auditor General and his staff in Wales in their reports and Ministers, their advisers and other political actors have been able to skate along that thin ice or thin line to which the noble Lord, Lord Livsey, referred. I would not want us to do anything at this stage of the transition of responsibilities to create any difficulty for the Audit Committee of the Assembly in its relationship with the Auditor General. I therefore wish the amendment to be withdrawn.
  Lord Davies of Oldham: One thing that I shall not try to do is to skate along a thin line—thin ice is difficult enough, but a thin line would be well beyond my capacity. However, I agree that the issue of where the line is drawn between issues of policy and proper supervisory control is crucial. Of course the Auditor General can question the effects of a policy objective—I cannot see how he could carry out his job of scrutiny unless that did not occur from time to time. What he

  GC 17
  cannot do is question the merits of the policy objective, because that would be to stray from his proper role into that which we would all jealously guard of those who are accountable in another sense to the public for the merits of policy as it is developed and designed.
  The amendment would delete the prohibition on being able to question the merits of the policy objectives of any relevant body through the course of undertaking or promoting comparative cross-sectoral studies on economy, efficiency and effectiveness. It is a long-standing principle that the Auditor General, and, similarly, the Comptroller and Auditor General in respect of England, cannot question the policy objectives of a body for which he has audit responsibility. He may express a view on how a body sets about achieving its objectives and whether its approach represents value for money. He may also inform future strategic policy development, but he is not there to comment on the merits of policy—the point zealously guarded by the noble Lord, Lord Elis-Thomas, from his entirely neutral position as Presiding Officer of the Assembly. To question the merits of policy could compromise his independence if, for instance, he were to undertake audit work relating to a policy area on the merits of which he had previously expressed a view. That would not be conducive to the exercise of his functions.
  The amendment would raise an inconsistency between the Auditor General's powers in respect of cross-sectoral studies provided for under the clause and studies in respect of the Assembly and Assembly-funded bodies undertaken under the Government of Wales Act 1998, where the prohibition on questioning policy merits would still apply. For those reasons, it would be inappropriate for the Auditor General to be put in the position of having the capacity—perhaps, the obligation—to question the merits of policy objectives while exercising his functions.
  The noble Baroness asked about audits of local authorities, where a similar inhibition apparently does not apply. The Auditor General would not be the statutory auditor of local government bodies; he would appoint auditors. Therefore, in respect of local government, he would not have the direct responsibility of being a statutory auditor, questioning the policy. That is the difference in the position for local government.
  On the noble Baroness's more general point, I recognise that we are debating an area where there is what is rightly defined as a narrow line. We can envisage where it would be entirely appropriate for the Auditor General to comment on policy to inform future strategic developments. However, we seek to protect the position that he does not cross the line to become a participant in the debate about the merits of policy. I fear that the amendment would open that possibility; that is why I ask the noble Baroness to withdraw it.
  4.45 p.m.
  Baroness Noakes: I thank those Members of the Committee who have taken part in this small debate
  GC 18
  and the Minister for his reply. I put two specific questions to him. The first related to local authority value for money studies. In his response, he seemed to say that the Auditor General would not carry out such studies, although Clause 41 is drafted in terms to state:
  "The Auditor General for Wales must for each financial year undertake or promote studies designed to enable him to make recommendations"—
  on value for money, to paraphrase. So there is similar provision there. Of course, there is reference to avoiding discussing the merits of policy, which continues to mystify me.
  The other thing that mystifies me is whether he is debarred from commenting on the merits of policy. Clause 3(3) states:
  "do not entitle the Auditor General for Wales to question the merits",
  which is rather curious drafting, when we think about it. If he was not to do so, it would state something like, "The Auditor General for Wales shall not question the merits". That is an interesting difference of drafting that implies that he may not be entitled to do so, but probably can, if he chooses to. That is the fine line that Auditors General have been carefully treading throughout their history: finding a way to comment on policy even when they do not comment on the merits of policy.
  I leave those two questions with the Minister. He may want his officials to consider them and write to me outwith the Committee, but they are puzzling aspects. I tabled the amendments so that we could have that debate on what is inevitably a difficult area, but those two points are worthy of consideration. With those words, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Clause 3 agreed to.
  Clause 4 [Studies at request of educational bodies]:
  The Deputy Chairman of Committees: Before I call Amendment No. 7, I must inform the Committee that if it were to be agreed, I should not be able to call Amendment No. 8 under the pre-emption rules.
  Baroness Noakes Baroness Noakes moved Amendment No. 7:
  Page 5, line 15, leave out from "Table" to end of line 17.
  The noble Baroness said: I shall speak also to Amendments Nos. 8 and 11 in this group. The amendments relate to value for money studies of educational bodies under new Section 145B of the Government of Wales Act 1998 inserted by Clause 4.
  We certainly welcome the Auditor General carrying out value for money studies in educational bodies, but they can be carried out only at the request of the educational body or of the body responsible for that educational body. The position of educational bodies under Clause 4 is thus totally different from that of the bodies within Clause 3. which the Auditor General can study at will. Consent is the keynote of Clause 4 and we are bound to press the Government on by there is that special treatment for educational institutions. Amendments Nos. 7 and 8 provide different ways of deleting that need for consent.
  The other bodies that are dependent on public funds are subject to value for money studies. Our question is: why is the clause drafted in that way? We wondered whether it had something to do with the clause needing to be consistent with other educational legislation as envisaged in subsection (7). That is why Amendment No 7 deletes that subsection on a probing basis. I hope that the Minister will be able to explain that subsection, because we have failed to understand it. We do not believe that studies should be left to the bodies themselves. After all, they are in receipt of significant amounts of public money and the value for money with which they use those funds is clearly important.
  Are the requesting bodies listed in the table likely to ask for studies or will they be reluctant to do so for fear of revealing their own past or continuing shortcomings? It is only human nature not to volunteer for challenge and scrutiny, especially if there is any doubt whether all is not well.
  My noble friend Lord Roberts spoke at Second Reading about a body called Education Learning Wales (ELWa), which was the subject of a hard-hitting report by the Auditor General. I understand that ELWa is formally known as the National Council for Education and Training for Wales, and appears in both columns of the table in new Section 145B. Do we think that ELWa would have volunteered itself for a value for money study? I think not.
  We believe that the Auditor General should have the same power to study educational institutions as he has to study relevant bodies in Clause 3 and that he should not be dependent on requests from bodies to initiate studies. Also, he should not need their consent to report to the Assembly, as is provided in subsection (3) of new Section 145B. Again, perhaps the Minister could treat that as an amendment in spirit, as we have not tabled it for consideration, but that forms part of the relation between the Auditor General and educational institutions.
  The entire approach to educational institutions in the clause seems to put them on a protective pedestal and provides an example of an area where the Bill could make better, stronger provision for public audit in Wales but fails to do so. I beg to move.
  Lord Livsey of Talgarth: This, again, is problematic as regards the Assembly. The noble Lord, Lord Thomas, mentioned the activities of the Audit Committee of the National Assembly. Reference has been made to ELWa in that context. The Assembly's Audit Committee has discharged much good work in its critique of the operations of ELWa. Given that the committee is comprised of democratic representatives, some of the criticism has resulted in greater efficiency within ELWa.
  In principle, we agree with the concept of independence of the auditor in considering educational matters, but—and it is a big but—if we consider the activities of the Higher Education Funding Council for Wales, which is referred to in the
  GC 20
  clause, we must remember that the university colleges in Wales that form part of the federal University of Wales do not stand up well in competition for funding with their English counterparts. Unless they have a certain amount of flexibility to make up the gap without, shall we say, undue interference from the auditor, they may be placed at even greater disadvantage.
  So there is a need for ELWa, in particular, to be considered in its entirety, but if university colleges in the higher education system in Wales have their wings clipped, that may put them at even greater disadvantage. About five years ago, students in Wales were underfunded by about £300 per student. I do not know whether that still applies. However, we need to look at the situation carefully.
  We agree that the Auditor General should be able to look independently at a wide number of activities, but I counsel a little caution. If the powers are used excessively and in a non-objective manner, we could be in trouble. So I find the amendment rather difficult. While we want to see independence, we do not want to see innovation in the higher education sector stifled.
  Lord Davies of Oldham: I am grateful to those noble Lords who have participated in our short debate on the amendment. I am not surprised that ELWa has emerged quite early in the Committee's deliberations. No doubt I shall be buffeted from time to time by critical remarks about that body. However, I am on secure ground here and I shall make the position clear as regards the amendment. While I hold a robust position I intend to make the most of it.
  The Auditor General is the statutory auditor of ELWa and has the power to undertake studies. The burden of our anxiety about the amendment is that Clause 4 will enable ELWa to request a study of an education body which it funds, but which is not within the remit of the Auditor General. So the problems with regard to ELWa are covered effectively and properly. The issue regarding the position of ELWa remains a bone of contention between us and the noble Baroness, Lady Noakes, in moving her amendment; that is, whether individual bodies should be subject to the Auditor General when they have not requested an investigation.
  The noble Baroness has indicated that people rarely volunteer for such action if they are in difficulty. Of course that is true in the generality of cases, but it is not true in all circumstances. I am very loath to bring to the Committee experience from the English dimension in education because I recognise the thorny path down which I would have to tread, but I can recall institutions in England which have been in that kind of trouble and where only the request for a proper investigation of what has gone wrong has set them back once again on the path of virtue. That was certainly my experience when I chaired a funding body for further education. We had no reservations about ensuring that audits were carried out. Furthermore, we would call in support at a national level when we

  GC 21
  thought that the circumstances were so grievous that we needed full scrutiny. I can confirm that that was done.
  However, I understand the argument of the noble Baroness. In general people tend to keep their failings and sins as quiet as possible. So the issue is whether it is right that the Auditor General for Wales should be entitled to engage in such studies on individual educational bodies.
  The noble Lord, Lord Livsey, has already presented real reservations about why that should be so. With regard to higher education, it is certainly clear that universities—the University of Wales is a particularly complex institution—have a proper and jealously guarded level of independence. That is quite critical, as he indicated, to the development of much of their enterprising research work. One cannot push back the frontiers of knowledge if one is constrained by people with limited knowledge hindering and restricting certain areas of work. Such an institution must have proper freedoms. That is why we have careful relationships in higher education in terms of degrees of freedom.
  It is surely appropriate that such studies by the Auditor General should be undertaken only on request. He is not the statutory auditor of the individual educational institutions, and for very good reasons. They are responsible for the appointment of their own auditors. The combined effect of Amendments Nos. 7 and 8 would give the Auditor General complete discretion to undertake such studies, irrespective of whether they were requested and of the fact that he would have no wider statutory audit functions in respect of such bodies.
  The Auditor General already has the ability under Section 145 of the Government of Wales Act to undertake economy, efficiency and effectiveness studies in the higher and further education sectors, which can touch on and compare the practice of individual institutions in terms of how resources have been used. That is a very important part of his role in relation to funding organisations. However, that is different from his having the power to investigate and carry out a study of an individual educational institution. It would be incongruous and would lead to confusion over the respective roles of the Auditor General and an educational institution's own auditor if the Auditor General were able to undertake unsolicited economy, efficiency and effectiveness studies in respect of bodies for which he had no wider statutory audit functions.
  I shall move on to Amendment No. 11. Clause 14 relates specifically to the appointment of auditors by the Auditor General for local government bodies. Higher and further education simply does not fall within that category. The provision in Clause 4(5) to enable the Auditor General to arrange for one or more members of his staff to audit a corporation's accounts, subject to appointment by a corporation, is consistent with Clause 9 and others.
  5 p.m.
  Baroness Noakes: That amendment is in the next group.
  Lord Davies of Oldham: Forgive me if I have moved on in error. The noble Baroness is quite right. The groupings changed not long before the Committee began, which has caused a little difficulty on this side, particularly as I am less familiar with the Bill than I would like to be.
  Amendment No. 11 would delete the reference to construing Clause 4 as one with other education legislation. The provision is essentially one of clarification and is common to education legislation. It enables definitions in other education legislation to be relied on to clarify meaning. For instance, were there to be uncertainty about whether an educational establishment was an HE institution for the purpose of a 3Es study under Clause 4, the definition of such an institution set out in the Further and Higher Education Act 1992 and the way in which the courts have interpreted it would be relied on for clarification.
  We recognise the need for clarification. I seek to commend to the Committee the reasons why it is important that the bodies are subject to a different auditing regime from that that would be introduced by the amendment. On that basis, I hope that the noble Baroness will feel able to withdraw it.
  Baroness Noakes: Before I do so, I want to follow up on one or two points. I think that the Minister said that educational institutions already fell within Section 145 of the Government of Wales Act and Schedule 17. I have read the legislation very briefly but could not see that. Educational bodies did not seem to be covered, so the clause seems to create the ability to do value-for-money work within educational bodies.
  Lord Davies of Oldham: I hope that I presented the position accurately—that the law is contained within the higher education Act for Wales. I think that I have given the correct definition of where HE institutions are located.
  Baroness Noakes: I will then of course read carefully in Hansard what the Minister said, as I clearly misunderstood when I listened to him.
  My second question goes back to ELWa, which the Minister said was already audited by the Auditor General, so that was all right. Why then is ELWa covered in proposed new Section 145B(1)? Why are we specifically referring to ELWa, and not simply its ability to ask for value-for-money studies of other institutions? It is specifically covered in both the "Subject of study" and the "Requesting body" columns of that proposed new section. If it is already within the ambit, why is it covered again? Is there any option for ELWa as to whether it has "value for money" studies or not?
  Lord Davies of Oldham: The answer to the question is no. Proposed new Section 145B is almost identical to Section 36 of the Audit Commission Act 1998. It

  GC 23
  simply attempts to transfer the functions in relation to Welsh education bodies to the Auditor General for Wales.
  Baroness Noakes: In that case, ELWa is not within the requirement to have a value-for-money study unless it requests a value-for-money study. Is that correct?
  Lord Davies of Oldham: The situation, as ever, is more complex than I would have wished. For backward-looking studies, we are talking about the Government of Wales Act. For forward-looking studies, we are talking about the Act to which I referred.
  Baroness Noakes: Again, I can see that I shall have to read the Minister's words with care and, if necessary, come back to him after the Grand Committee is completed.
  I thank the noble Lord, Lord Livsey, for his contribution to the debate. He talked about the disadvantages of funding for educational bodies in Wales, on which I have no briefing. If funds were particularly scarce, it would seem even more important that those bodies used the money with the utmost economy, efficiency and effectiveness, and therefore a case should be made that they should be within the Auditor General's remit and not outside it.
  I thank the Minister in particular for his explanation of subsection (7), which will doubtless make complete sense on rereading. I am sorry that he was confused by late changes to amendments. We gave notification about those changes before 9.30 this morning; if it took a long time to reach him, that is nothing to do with us.
  Lord Davies of Oldham: I assume that to be the case. I was not in any way, shape or form being accusatory, merely apologetic.
  Baroness Noakes: On that note, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 8 not moved.]
  Baroness Noakes Baroness Noakes moved Amendment No. 9:
  Page 6, line 9, at end insert—
  "( ) be appointed to audit their accounts;"
  The noble Baroness said: I shall also speak to Amendment No. 10. Both the amendments concern Clause 4, which purports, according to its title, to deal with studies at the request of educational bodies, but in practice goes wider and deals with audits of those bodies. My amendments deal with the audit part of the clause.
  Proposed new Section 145B(5) deals with audits of higher and further education corporations. The Auditor General can advise the corporations on the appointment of auditors or arrange for a member of his staff to be appointed auditor, but the Auditor General himself cannot be appointed auditor. Amendment No. 9 seeks to rectify that omission. I am
  GC 24
  sure that a higher or further education authority would much prefer to have the Auditor General's own name appearing on the audit report, rather than some much more anonymous, although doubtless worthy, member of his staff. I hope that the Government share that view.
  As I mentioned, proposed new subsection (5) allows the Auditor General to arrange for a member of his staff to be appointed auditor to a higher or further education establishment. Amendment No. 10 merely ensures that the member of staff is properly qualified by linking the qualification to that in Clause 14, under which the Auditor General's staff may be appointed to the audit of a local government body in Wales. I hope that that amendment is non-contentious and that the Minister will be prepared to accept it. I beg to move.
  Lord Davies of Oldham: Amendment No. 9 would have the effect of enabling the Auditor General to be appointed as the statutory auditor of an education corporation on a permanent basis. The intention of Clause 5 is to add a proposed new section to the Government of Wales Act. It would enable the Auditor General, at the request of a higher or further education corporation, to advise it in connection with the appointment of persons to audit its accounts, and to arrange for its accounts for a financial year to be audited by one or more members of his staff, appointed by the corporation. Those functions are currently undertaken in respect of England and Wales by the Audit Commission under the Audit Commission Act.
  On publication of the draft Bill for consultation in April 2003, the Assembly undertook that if at some point in future it were to propose to incorporate further or higher education corporations as a category within the Auditor General's remit, such a proposal would be subject to a separate consultation exercise. It would therefore be preferable to deal with such bodies as a class rather than on a piecemeal basis. Any future exercise could take account of arrangements for both financial audit and value for money audit through economy, efficiency and effectiveness studies. Nothing in the terms of Clause 4(5) prevents the Auditor General and an education body from renewing an audit arrangement for a further financial year.
  The problem with the amendment is that it would create a piecemeal approach to the financial audit of higher and further education corporations, and would run counter to the National Assembly's commitment to consult on any future proposed changes to the audit arrangement for such bodies. Clause 63, in conjunction with Section 144 of the Government of Wales Act, would enable further and higher education institutions to be added to the Auditor General's remit at some future time.
  As for Amendment No. 10, we have not sought to affect the way in which the Auditor General appoints his own staff or chooses to use them. The amendment would restrict his ability fully to deal with his own staff in that context.

  GC 25
  We have debated the question, which we recognised was important, of the accountability of HE and further education institutions. It is clear that the Assembly proposes to consider the issue further with regard to the appropriate audit arrangements. However, as it has made the commitment to further consultation on the issue—we all recognise that it is interesting and has implications for significant institutions—we want to preserve the Bill as it stands. I ask the noble Baroness to withdraw her amendment.
  5.15 p.m.
  Baroness Noakes: I thank the Minister for enlightening the Committee on the plans that the Assembly may have and on which it may consult, and the legislative provisions available should the Assembly decide to extend to further institutions. That is fine, but I do not think that my amendments had anything to do with that. They merely gave a further option to those higher education bodies that chose to become involved with the Auditor General. It is a pity that such an option is not available to them.
  Amendment No. 10 would have ensured that, if an auditor were appointed, he would be qualified. The Auditor General is restricted in whom he can appoint to audit a local authority under Clause 14, but what is good for local authorities is apparently not good for higher education authorities. I am sure that the Auditor General would not want to appoint anyone who was not properly qualified to either a higher education corporation or a local authority. It is curious that the Bill has different standards. The Minister has justified them under freedom, but that must be an illusory justification because it does not apply elsewhere in the Bill to local authority audit.
  We will return to the fact that the Bill is not a coherent whole. It is a patchwork of different provisions culled from here, there and everywhere. That results in different regimes applying to different sectors of body subject to audit under public audit arrangements in Wales. That is unsatisfactory and a missed opportunity. We would not want to die in a ditch on those points, but they underline the fact that the Bill is not one of which to be proud. It does not set a new future for public audit in Wales, but picks bits here and there and puts them together in a way that is not wholly coherent. That said, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 10 not moved.]
  The Deputy Chairman of Committees (Lord Lyell): Is Amendment No. 11 still grouped with Amendment No. 7?
  Baroness Noakes: I shall not move it.
  The Deputy Chairman of Committees: I was confused when I came in; I apologise.
  [Amendment No. 11 not moved.]
  Clause 4 agreed to.
  Clause 5 [Studies relating to registered social landlords]:
  Baroness Noakes Baroness Noakes moved Amendment No. 12:
  Page 6, line 27, leave out from "The" to "one" and insert "Auditor General for Wales may carry out"
  The noble Baroness said: I shall also speak to Amendments Nos. 13 and 14. The amendments concern Clause 5, which inserts proposed new Section 145C into the Government of Wales Act to deal with value for money studies in relation to registered social landlords.
  Under subsection (1) of new Section 145C, the Auditor General and the Assembly are to agree on a programme of studies. Amendments Nos. 12 and 13 would mean that the Auditor General could himself determine what value-for-money studies on registered social landlords were carried out. In addition, the Assembly and the Auditor General can agree on a programme of studies. So we move from agreeing to the Auditor General having independence to do what he thinks should be carried out.
  New Section 145C unnecessarily restricts the Auditor General to studying only in effect what the Assembly wants, thus turning him into a sort of hired hand. The Auditor General should be in the driving seat to determine what studies to carry out, although of course he should also carry out studies where the Assembly has a particular concern. As the Auditor General does not have freedom, we may find that the scope of his work will be settled to meet some political imperative of the Assembly, perhaps avoiding some political hot potato. That would be wholly inappropriate.
  Amendment No. 14, which is probing, is less weighty. Subsection (2) of new Section 145C talks about the Auditor General ensuring that studies are carried out by or on his behalf. My amendment simply knocks out "on his behalf" to find out who would be carrying out such studies and under what statutory power. I assume that the Auditor General will not be using his powers under new Section 96C to enter the arrangements that we discussed in the earlier group. Will the Minister say who could carry out the studies on the Auditor General's behalf, and under what power he would appoint them? I beg to move.
  Lord Davies of Oldham: Amendment No. 12 and, to a more minor extent, Amendment No. 13 involve discussion of an issue of principle. They would extend the Auditor General's powers, which would diminish the National Assembly's existing statutory powers in respect of registered social landlords. I hope that the Committee will agree that that would be inappropriate.
  As a matter of principle—it is important that we have clear principles underpinning the legislation—we seek to ensure that nothing in the Bill should restrict or take away an existing power of the Assembly. That is a very important point for the Government and is relevant to the two amendments and other amendments that will be discussed later.

  GC 27
  Amendment No. 12 would enable the Auditor General to undertake programmes of study in respect of registered social landlords in Wales at his discretion, and independently of agreement with the Assembly. Amendment No. 13 would merely enable the Assembly to request that the Auditor General undertake such studies. The National Assembly already has the power to agree on a programme of economy, efficiency and effectiveness studies in respect of registered social landlords with the Audit Commission, by virtue of Section 40 of the Audit Commission Act 1998 and the National Assembly of Wales (Transfer of Functions) Order 1999.
  Clause 5 would preserve that power on the basis of agreement between the Assembly and the Auditor General. The amendments would give the Auditor General complete discretion regarding the economy, efficiency and effectiveness studies in a sector for which he would not have statutory audit functions. RSLs are responsible for appointing their own auditors. As with the amendments on studies in respect of educational bodies under Clause 4, which we discussed earlier, that could lead to confusion over the respective audit roles. As with the related amendments on educational bodies, it would not be appropriate to give the Auditor General a free hand in undertaking studies related to bodies for which he does not have wider statutory audit functions.
  I reiterate that our major consideration is how the amendments would affect the existing powers of the Assembly.
  Lord Elis-Thomas: I thank the Minister for giving way, and for the principle that he has stated. However, does he not agree that this is a further example of the complexity of the constitutional base with which we are dealing? In other words, we have the Government of Wales Act 1998 and occasional other pieces of legislation—for example, the Education Act 1996, which refers to higher education—and the transfer of functions orders. To understand this complex area, one must carry copies of all the transfer of functions orders along with one, unless one is very carefully advised as matters progress.
  Is the Minister not clearly making the case for a new devolutionary principle? Although that is beyond the scope of the Committee, it is worth remarking that that is yet another example of the complexity of legislating and maintaining principles that do not diminish the Assembly's powers, because the power base itself is so legislatively complex.
  [The Sitting was suspended for a Division in the House from 5.26 to 5.39 p.m.]
  Lord His-Thomas: I was about to sit down to enable the Minister to respond to my general comments. While he is perusing his papers on the matter, I should like to emphasise my point. Legislation that provides the constitutional base for the activity of the Assembly is very complicated. We have not only the Government of Wales Act and other relevant legislation, such as the Education Act 1996, but also transfer of functions
  GC 28
  orders, which can change the extent of powers and activities of the Assembly in specific areas. That makes it very difficult to legislate.
  Obviously, I approve the principle that nothing should lessen the powers of the Assembly or reduce its flexibility, particularly as regards the role of the Audit Committee in these circumstances. As the main democratic body, it currently works in partnership with the Auditor General and will work in partnership in a different way—not involving local government so directly—with the new body or the health services body, to which we will turn later.
  Lord Davies of Oldham: As ever, I am grateful to the noble Lord, Lord Elis-Thomas, for his consideration in arranging for a Division to give me time to think about how I handle stage two of the devolution debate in Wales. I have confessed already that I am stretched on the crucial issue of accountancy, without getting myself deeply involved in constitutional issues. Therefore, if that is the examination that the noble Lord sets for me, I must confess that I have not really begun the first paragraph of the paper in response to him.
  I hear what the noble Lord says; he intervened most appropriately. I sought to identify that the amendments would detract from the powers of the Assembly, which is an effect that, on principle, we are set against. We intend to protect the powers of the Assembly, whether or not we intend in the very near future to go down the path of devolution, to which the noble Lord, Lord Elis-Thomas, invites me. As the noble Lord probably recalls, one or two other constitutional matters are in the offing in Parliament, and they will probably take priority. Nevertheless, the noble Lord is right to draw attention to the obvious implications for the Assembly with regard to the proposals contained in the measure.
  Amendment No. 14 would require the Auditor General to undertake programmes of studies in respect of registered landlords. The wording of the amendment makes it clear that the Auditor General would have the discretion to arrange for the work to be undertaken by a member of his staff or for it to be contracted out. The amendment would limit the Auditor General's operational flexibility and, potentially, the value for money obtained in undertaking the study programmes. If the programme of work were undertaken by a staff member or a private sector auditor approved by him for that purpose, he would still be responsible for the end result. Therefore, the amendment appears unnecessary. Where the clause states, "on his behalf", it would be either a member of the Auditor General's staff or a person providing services to him. Clause 9 makes that clear in relation to new subsection (8) of Section 90 of the Government of Wales Act.
  I hope that we have taken on board the salient points made by noble Lords. We are clear about the relationship between this Bill and the Government of Wales Act. I am eschewing the opportunity to push the boat any further down those waters. I hope that the

  GC 29
  noble Baroness will consider that I have given a sufficiently full response to the amendments, albeit some time ago.
  5.45 p.m.
  Lord Thomas of Gresford: The answer that the Minister has given to the amendment is that it detracts from the powers of the Assembly under the Government of Wales Act. Why does it not detract from the Government of Wales Act that the Auditor General for Wales has the same discretion that is being criticised under Clauses 3 and 4? What is the difference?
  Lord Davies of Oldham: In that respect, I was seeking to identify that we have been discussing particular categories with regard to educational associations and the issues of registered social landlords. The National Assembly for Wales already has powers in respect of those categories. The amendment would empower the Auditor General in a way that would limit the existing powers of the Assembly. That is the point I was making in response to the amendment.
  Lord Thomas of Gresford: I am sorry, but I still do not follow. Under Clause 3, the Auditor General has the discretion to,
  "undertake or promote studies designed to enable him to make recommendations for improving economy, efficiency and effectiveness in the discharge of the functions of any relevant body or bodies".
  Under Clause 5, the Assembly have to agree to a similar function in relation to registered social landlords. Can the Minister explain why a registered social landlord is in a different position from all other relevant bodies?
  Lord Davies of Oldham: The noble Lord will recognise that the powers of the Assembly in relation to these matters are derivative from the Government of Wales Act. The Auditor General for Wales has existing powers comparable to the Audit Commission, to which I referred in my original response to Amendment No. 12. There are specific areas with regard to particular groups—we have referred to the educational institutions and the registered social landlords—and, effectively, the amendments would give rise to an increase in the Auditor General's powers that would take some responsibility away from the National Assembly for Wales.
  Lord Thomas of Gresford: With the greatest of respect, under the new clause, the only power that the Assembly would have would be to agree something with the Auditor General for Wales. I do not understand how that derogates from existing rights. I do not understand the distinction between registered social landlords or anyone else. I am sorry.
  Lord Davies of Oldham: I am sorry if I am not being clear to the satisfaction of the noble Lord. As the noble Lord rightly said, under the amendments, the Auditor General would have the power to act; under the clause as it stands, he would work in consultation with. That
  GC 30
  is the power of the National Assembly to which I referred. Under the amendment, that would be deleted and the Auditor General would have the power to act. That is why we object to the amendments, however gracefully they are put before us.
  Baroness Noakes: As is often the case, the noble Lord, Lord Thomas of Gresford, has hit the nail on the head. This is an illogically constructed Bill, a point that I made earlier. We do not have, as the Minister tried to portray, a Bill built on real principles; we have a Bill built on borrowing a bit of legislation here and a bit of legislation there.
  Many other principles would be equally good in that context or, I would argue, better. For example, the Auditor General should have complete independence regarding what he examines. The principle should be that our approach to financial audit and value-for-money audit across all public money in Wales is consistent and coherent. That is not the case, as amply demonstrated by the noble Lord, Lord Thomas of Gresford.
  I am sure that the devolution settlement is immensely complex; I do not pretend to be an expert on it. With all respect to the noble Lord, Lord Thomas, I do not believe that that is the point at issue. The Bill would create new audit arrangements in Wales. In practice, we have a compromise from somewhere in the past, when the Audit Commission started to look at registered social landlords, picked up, lifted and given to us as complying with some grand principle in the context of Wales. It does not do that That is another example of the illogicality of the Bill, to which I fear we shall return a number of times in Grand Committee.
  Clearly, we need to reflect on the debate. Today is not a day to make decisions. I hope that the Minister will look at what principles underline the Bill. Simply to stick on not taking away the power of the Assembly is quite possibly the least meritorious of any principle that could be put forward in the context of redesigning the whole scheme of public audit in Wales. It should rest on some grander principle of effective audit of public money in Wales. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 13 to 15 not moved.]
  Baroness Noakes Baroness Noakes moved Amendment No. 16:
  Page 7, leave out lines 1 to 5.
  The noble Baroness said: In speaking to Amendment No. 16, I shall speak also to Amendments Nos. 17, 18 and 24, which are probing amendments designed to ensure that the new public audit arrangements in the Bill are consistent.
  Amendment No. 16 would remove subsections (6) and (7) from new Section 145C of the Government of Wales Act, inserted by Clause 5 of the Bill. Subsections (6) and (7) set up a criminal offence, punishable by a level 3 fine, of not complying with requirements concerning access to documents. As I understand it, that is consistent with the English provisions in the

  GC 31
  Audit Commission Act 1998. There are similar, though not identical, provisions in Clauses 19 and 53. But that is not consistent with compliance with the Auditor General's rights of access under Clause 11, which broadly covers his audit and value for money work other than on local government. That is why we have tabled Amendment No. 24 on a probing basis to put criminal offences into the whole of Clause 11.
  Returning to the theme of the Bill as a patchwork, in this case it is a patchwork of criminality. It is a criminal offence if registered social landlords or local government are involved, but not otherwise. In striving for consistency with England, the Government have created an inconsistent regime for Wales. They are thus in danger of missing a golden opportunity to create something logical and defensible across the whole of Wales, which is the most important thing to get right. The Government should decide whether infringement of access rights is criminal and should make the Bill consistent throughout.
  The inconsistency does not end with the fact of criminality; it also goes to how the penalties are calculated, which is the reason for Amendments Nos. 17 and 18. They repeat for Clause 5 the extended fining provisions of Clauses 19 and 53. Our main concern is that the Welsh public audit regime has internal consistency. In practice, we doubt whether criminal sanctions are necessary. Could the Minister say how those sanctions have, in practice, been used by the Audit Commission in the past? Can he assure the Committee that they are necessary powers?
  If the Government believe that the powers are necessary, will they introduce amendments to ensure that the powers are consistent across the whole regime? But if the Minister cannot demonstrate that criminal sanctions are important, I invite him to look again and bring forward amendments to remove those in the Bill. I beg to move.
  Lord Thomas of Gresford: It seems extraordinary to include a criminal offence in a clause headed simply "Studies relating to registered social landlords". If the Auditor General is to have access to papers and may require a person to produce documents and attend in person, surely there must be some sanction in that regard covering the whole field, not simply in relation to registered social landlords.
  The noble Baroness, Lady Noakes, is right. A great deal of the Bill has been lifted from earlier legislation and inserted in a patchwork way without any overall view. A right to documents and for witnesses to attend requires sanctions; that is obvious. I await the Minister's explanation of why they should be different, depending on the nature of the study being undertaken by the Auditor General.
  Lord Davies of Oldham: Amendment No. 16 would eliminate the criminal sanctions that apply to any person who without reasonable excuse fails to provide the Auditor General with assistance, information and explanation in relation to certain of his rights of access
  GC 32
  to documents and information for the purposes of undertaking studies under the provisions made in Clause 5.
  The amendment would create an inconsistency in sanctions relating to the conduct of study programmes in the registered social landlord sector between England and Wales. I am seeking to emphasise a principle. It is not quite the principle that the noble Baroness invited me to adumbrate, but the principle that the sanctions and laws should be similar for the same offence in England and Wales.
  The primary purpose of the Bill is to enable the setting up of a single public audit body for Wales. In the Government's view, it would be entirely inappropriate for such a Bill to create inconsistencies in criminal law between England and Wales. The provisions in Clause 5 do not create any new criminal sanctions in respect of Wales. They merely preserve the existing position as it currently applies to England and Wales. Any future consideration of criminal penalties should be taken on an England and Wales basis. I make it clear that we do not regard that as a matter for this Bill.
  Amendments Nos. 17 and 18 would align the criminal sanctions available to the Auditor General for non-compliance with those available under Clauses 18 and 53 to an appointed auditor and the Auditor General in relation to non-compliance with their respective rights of access to the documentation of a local government body in Wales. The amendments would again result in an inconsistency in the application of the criminal law between registered social landlords in England and Wales.
  The criminal sanctions provision incorporated in Clauses 5, 18 and 53 all set out to preserve existing arrangements that apply in both England and Wales. I understand that the noble Baroness is berating me for saying that the Bill lifts from other legislation. But perhaps I may say that in this area, it does so on the basis of guaranteeing consistency of the sanctions that would apply between England and Wales for what I think would be regarded throughout the Committee as very good reasons.
  I return to the point that in the Government's view criminal sanctions in primary legislation should be consistent across England and Wales. Their review or amendment is not a matter for the Bill. That is why I hope the noble Baroness will not press Amendments Nos. 16, 17 and 18.
  The noble Baroness asked about the Audit Commission. We are not aware that the Audit Commission has in practice used the criminal sanction power. The point we are making is not what has taken place in practice but that the law at present in England and in Wales is consistent on sanctions. The Bill seeks to ensure that that consistency continues.
  Amendment No. 24 would apply criminal sanctions provisions comparable to those that apply in respect of non-compliance without reasonable excuse to an appointed auditor's rights to documents and information in respect of a local government body in Wales. The Government take the view that it would

  GC 33
  not be appropriate to apply criminal sanctions to bodies that are covered by accounting officer conventions. The extension of criminal sanctions in that respect would create an inconsistency in the criminal law between England and Wales. The criminal sanctions elsewhere in the Bill have been incorporated to avoid any such inconsistency.
  Any instance of non-compliance under the provisions of Clause 11 would first be notified to the accounting officer of the relevant body. If that did not produce a positive result, the Auditor General would have the option of reporting the matter to the National Assembly Audit Committee,- which could consider the issue. Ultimately, non-compliance could result in the withdrawal of accounting officer status. Where a person or body does not comply with the Auditor General's requirements for access, we are of the view that the Auditor General may apply for a judicial review of that decision where the person or body is amenable to challenge by way of judicial review. It is also possible for the Auditor General to apply for a mandatory injunction in the courts.
  On that basis, I invite the noble Baroness not to move Amendment No. 24.
  6 p.m.
  Lord Thomas of Gresford: Is it the case that none of the regulations passed by the Welsh Assembly carry criminal sanctions? If they did, there would be obviously an inconsistency between the criminal law of England and the criminal law of Wales. I cannot imagine that there are regulations passed by the Assembly which do not carry criminal sanctions and that they must apply in different circumstances, but this business of refusing to accept amendments on the basis that they would produce an inconsistency with the criminal law in England is completely false. Can the Minister assure me that none of the regulations passed by the Assembly carry criminal sanctions that make the criminal law between England and Wales different at the moment?
  Lord Davies of Oldham: It is certainly the case that Assembly provisions cover the issue of criminal sanctions, but we are not aware of any instance of inconsistency between what is provided for in Wales and what is provided for in England. That is the burden of our position with regard to the Bill. I ask the noble Baroness to withdraw the amendment.
  Baroness Noakes: Before we come to that, perhaps I may ask a question on a point raised by the noble Lord, Lord Thomas of Gresford, with regard to the apparent principle of not creating an inconsistency in criminal law.
  Clause 39 gives the Assembly the ability to make regulations under which criminal offences can be created. I shall probe that aspect in later amendments. So within the Bill, the Assembly has an ability to create a criminal offence. Therefore, the principle advanced by the Minister that there should be no inconsistency between England and Wales will break down as soon as the Assembly uses the power in the Bill under the
  GC 34
  account and audit regulations. There is nothing to say that the Assembly must pass those regulations in a form common with those relating to England. The principle advanced by the Minister is therefore suspect.
  When the Minister replied to the debate he, in effect, answered for himself. This is not logical for Wales. Under the guise of consistency with England—but really under the guise of not changing what already exists—we are creating layers of complexity for Wales which would not exist if the Government were to take the approach of ensuring that the Bill was itself consistent.
  The Minister may have gathered that I remain to be convinced that the so-called principles adopted by the Government are the right ones. Indeed, in relation to inconsistency in the criminal law, given Clause 39, I am not convinced that they are proper principles at all. I will withdraw the amendment but I promise the Minister that we will return to this subject on Report. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 17 and 18 not moved.]
  Clause 5 agreed to.
  Clause 6 agreed to.
  Clause 7[Fees]:
  Baroness Noakes Baroness Noakes moved Amendment No. 19:
  Page 7, line 40, leave out "appears to him to be" and insert "is"
  The noble Baroness said: In moving Amendment No. 19, I shall speak also to Amendment No. 20. Both amendments relate to new Section 93A of the Government of Wales Act as inserted by Clause 7 of the Bill. Section 93A deals with the fees charged by the Auditor General.
  Amendment No. 19 is a probing amendment which deals with the small puzzle of to what bodies the Auditor General will be charging audit fees. Section 93A starts with a permissive power in subsection (1) which allows the Auditor General to charge fees. But subsection (2) "requires" the Auditor General to charge fees if a person is being audited by consent and "it appears to him"—that is, the Auditor General—that the audited person is "connected with" local government or the NHS in Wales. My probing amendment would delete the words "appears to him to be" and insert the more positive "is".
  As I said, it is a probing amendment. It seems to me curious that we cannot unambiguously state in statute the audited person who would be liable to pay fees. Indeed, there are bodies which are so ambiguous that their status has to be settled by their appearances to the Auditor General. Either a body is or is not connected with the NHS or local government. If it is ambiguous, I invite the Government to be more specific about what "connected with" means.
  I am mystified why, in the case of all audits by consent under Section 96(3)(a), there is not a provision for the Auditor General to charge fees. Why is it restricted to this category of body connected with, or appearing to be connected with, the NHS or local

  GC 35
  government? Can the Minister explain the rationale for some bodies being required to pay fees when they are audited by consent and others not?
  Amendment No. 20 probes the financial basis of the Auditor General's fees. The amendment seeks to insert "but does not exceed" into subsection (4) of new Section 93A in order that fees under that subsection must cover but not exceed the full cost. We could as easily have tabled this amendment in relation to subsection (2) or tabled a different amendment to probe whether the different formulation in subsection (3), which refers to not exceeding full cost, has a different meaning. I hope that the Minister will respond to the amendment with the different formulations within the section in mind.
  The amendment also gives us an opportunity to ask what is meant by "full cost" in these circumstances and to seek more information about the funding of the Auditor General and his organisation. Are some overheads included in "full cost"? If so, how are they apportioned between different types of work? Who will consider that? Will the Assembly or the Audit Committee examine the fee arrangements of the Auditor General, especially as the Assembly has to pick up the bill for the costs that the Auditor General does not recover by way of fees.
  I hope the Minister will take this opportunity to clarify the funding aspects of the Auditor General and his office. I beg to move.
  Lord Davies of Oldham: I am grateful to the noble Baroness for moving the amendment, although the further she went into her series of questions the less grateful I became. I am too ill-briefed to respond to a number of them but I shall do the best I can. Any deficiencies will be made up later. She was kind enough to state that these are probing amendments but I am afraid that some probes will receive an answer in the form of a written reply rather than anything I can say at this point.
  Amendment No. 19 would limit the Auditor General's discretion to make a reasonable judgment in deciding whether a person is or is not connected to local government or the NHS in Wales for the purpose of recovering the full cost of services provided.
  The clause adds a new Section 93A to the Government of Wales Act and makes new provision for fee charging and recovery of costs by the Auditor General. Section 93A(2) would require the Auditor General to recover the full cost of providing services in respect of the accounts of any person that appeared to him connected with local government and the health service in Wales, over and above his statutory responsibilities under the Bill. The Auditor General may provide those services where the person whose accounts are to be audited has agreed with the Assembly or a Minister of the Crown that the accounts should be audited by the Auditor General.
  The Auditor General would have to establish the relationship beyond doubt and that could hamper him in the performance of his duties. The employment
  GC 36
  terms and conditions of a person can, as the noble Baroness will recognise, be very complex—for instance, in any "arm's length" arrangement—and the Auditor General would have to make a judgment on such an issue. His judgment could be subject to judicial review. The clause gives the Auditor General a degree of protection in exercising that judgment and enables him to demonstrate, if challenged, that he had made a reasonable decision in all the circumstances when reaching the position that the person was so appropriately employed that he should pay the fee.
  Amendment No. 20 would have the effect of requiring the Auditor General to charge a fee that did not exceed the full cost of undertaking claims and returns certification work under the proposed Section 96B of the Government of Wales Act 1998 and for undertaking economy, efficiency and effectiveness studies at the request of educational bodies under Clause 4 and local government bodies under Clause 44.
  The amendment is unnecessary. Clause 7(4) is clear that the Auditor General must cover full cost but no more. The same provision is made in proposed Section 93A(2) of the Government of Wales Act and in Clause 7 in relation to services provided to any person connected with local government or the health service which are outside the Auditor General's statutory functions. So the point is covered.
  The noble Baroness asked about the definition of "full cost". If I produced a definition, I am not sure it would pass her critical examination. I am not in a position to define "full cost", except to say that the Auditor General's operations can clearly be costed. We are seeking to recoup the costs where he is carrying out particular services. We are not seeking to make a profit—the office of the Auditor General is not a profit-making institution—but neither will he provide a service free of charge. The charges involved will include all costs that can appropriately and accurately be identified as relating to a particular function carried out by him.
  I recognise that that explanation may be inadequate but it is the best I can give today. Incorporating Amendment No. 19 could result in operational difficulties for the Auditor General by restricting his discretion as to whether a person is connected to local government or the NHS in Wales for the purpose of charging. As I said, we believe that we have met the intention behind Amendment No. 20 in our existing drafting.
  6.15 p.m.
  Baroness Noakes: Can the Minister elaborate on this point? I believe he said at one stage that the Auditor General should charge full cost but no more. Subsection (2) states that he must charge a person a fee which covers full cost. The same provision appears in subsection (4). But subsection (3) states that he may charge a fee not exceeding the full cost. That implies that "full cost" can mean something other than "not exceeding", given the way in which the Government

  GC 37
  have chosen to draft the three different ways in which fees may be charged under Clause 7. Perhaps the Minister will reflect on that.
  Lord Davies of Oldham: I shall certainly reflect on that but I am afraid that I do not have the intellectual capacity or knowledge to deal with these issues at the level the noble Baroness rightly expects me to, given her own background with regard to these technical terms. I have made the best shot of it I can for today. I shall of course take steps to improve on my response in due course.
  Baroness Noakes: Let me not torture the Minister further today and allow the committee to move on. As to Amendment No. 19, I was unmoved by the Minister's explanation. I always find that when Ministers resort to wheeling out the fact that judicial review can always be used to settle what something means, we can hear the sound of barrels being scraped. This happens where the Government cannot give a clear explanation for what has been drafted and it is all left to judgment followed by a remedy which we all know is of no real use to man or beast—that is, judicial review.
  As to the basis on which fees are to be charged, I raised the substantive issue of the different ways in which the Bill has been drafted, which implies different fees for different things. I also asked—I shall not press for an answer today—about who will consider the matter to ensure that the provisions are complied with and whether the Assembly will have any role in that.
  I know that the Minister will ask his officials to consider those issues outside the Committee. On that basis, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 20 not moved.]
  Clause 7 agreed to.
  Clauses 8 and 9 agreed to.
  Clause 10 [Accounting officer]:
  Baroness Noakes Baroness Noakes moved Amendment No. 21:
  Page 9. line 28, leave out "Audit Committee" and insert "Crown"
  The noble Baroness said: I shall speak also to Amendment No. 22. Both amendments relate to Clause 10, which inserts new Section 94A into the Government of Wales Act and makes the Auditor General the accounting officer for the Wales Audit Office.
  Amendment No. 21 deals with a situation where the Auditor General is incapable of discharging his duties as accounting officer or the office is vacant. He is of course a Crown appointment and it seems odd that his replacement—admittedly only wearing his accountant officer hat—should in those circumstances be decided not by the Crown but by the Assembly's Audit Committee.
  That seems to beg the question of the relationship between the Auditor General and the Audit Committee. Subsections (3), (4) and (5) refer to his
  GC 38
  responsibilities as accounting officer for the Wales Audit Office to be specified by the committee from time to time. So the committee clearly has some supervisory power over the Auditor General, as accounting officer, who is charged by it for the propriety and so on of the Wales Audit Office. Be it noted that his responsibility as specified by the Audit Committee may also extend to the House of Commons and the Public Accounts Committee.
  That is a very tricky clause in which all concerned appear to be compromising their independence to some extent. That brings me to Amendment No. 22, which seeks to replace "shall" for "may" in subsection (6) so that if the Public Accounts Commit tee in another place requests the Assembly's Audit Committee to take evidence and report to it, the Audit Committee must do so.
  I am conscious that we are treading on thin ice here but it seems to me that, bearing in mind that the Assembly's power are subject to the will of Parliament, we should be clear that if Parliament requests, the body should oblige. If it did not, that would, to put it mildly, put the cat among the pigeons with regard to the devolution settlement. I beg to move.
  Lord Davies of Oldham: On Amendment No. 21, let us be clear that we are talking about a limited period and a temporary basis. I hear what the noble Baroness says about the inappropriateness of the provisions in the Bill and how her amendment would improve things. However, we are not talking about long-term permanent arrangements but simply what would happen in exceptional circumstances over a limited period of time. Nevertheless, issues of principle can be debated however short the time, and the noble Baroness has take this opportunity to identify an issue.
  Amendment No. 21 would require the Crown, rather than, as proposed in the Bill, the Audit Commission to designate an accounting officer for the Wales Audit Office on a temporary basis. Clause 10 adds a new Section 94A to the Government of Wales Act. It designates the Auditor General as the accounting officer for the Wales Audit Office. As accounting officer he would have responsibility for signing the accounts of the office, the regularity and propriety of its finances and the economic, efficient and effective management of its work.
  His responsibilities as accounting officer will also include any task specified from time to time by the Assembly's Audit Committee and can include responsibilities owed to the Assembly or its Committee, or to the House of Commons or its Public Accounts Committee. To prevent the Audit Committee from making a temporary—I stress that word—appointment would result in an unwieldy process for a limited measure. Giving the Assembly Audit Committee the power of temporary designation is consistent with the fact that the National Assembly part funds the Auditor General and that its Audit Committee has the power to examine and modify the Auditor General's annual estimate of income and expenditure.

  GC 39
  Amendment No. 22 would remove any discretion of the Assembly or its committee in dealing with a request to undertake work for the Committee of Public Accounts. It would make the former subservient to the latter. The noble Baroness said that she thought she was treading on thin ice. We both are when it comes to the question of the relative powers between Parliament and the devolved Assembly. But the Government's position is clear: to make the former subservient to the latter would diminish the existing status of the Assembly Audit Committee. As drafted, the clause mirrors the relationship of the Committee of Public Accounts and the Audit Committee set out in Section 102 of the Government of Wales Act. That Act states that, if requested, the Audit Committee "may"—the noble Baroness seeks to insert "should" or "must" there—undertake work on behalf of the Committee of Public Accounts.
  That arrangement has been put into effect satisfactorily on one occasion since the setting-up of the Assembly. The amendment would therefore create an inconsistency in the relationship between the Committee of Public Accounts and the Assembly Audit Committee in respect of taking evidence from the accounting officer of the Wales Audit Committee—where the Audit Committee would have no discretion—and other accounting officers in Wales, where discretion would remain.
  Given the existing functions of the Assembly Audit Committee and the existing relationship between the Committee of Public Accounts—which we all hold in high regard as a most important committee in Parliament—and the Assembly Audit Committee, I believe that, although they raise interesting issues, the amendments are unnecessary. I hope that the noble Lady will feel able to withdraw the amendment.
  Baroness Noakes: I thank the Minister for that reply. I accept that the part of the clause to which Amendment No. 21 is directed would involve only a temporary gap before a new Auditor General is appointed. But, of course, sometimes a temporary appointment can continue for rather a long time. That would be unfortunate if the Audit Committee was appointing its own man in that period.
  As to the relationship between the Public Accounts Committee and the Audit Committee, I was not aware—although I am now—of Section 102 of the Government of Wales Act. I can see drafting similarities in the Bill, but it is a rather curious drafting given that the Assembly's powers, and therefore those of the Audit Committee, are subject to the will of Parliament.
  Doubtless the drafting satisfies people's sensibilities and probably means little in practice. On that basis I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 22 not moved.]
  Clause 10 agreed to.
  Clause 11 [Access to Information, etc by Auditor General]:
  Baroness Noakes Baroness Noakes moved Amendment No. 23:
  Page 11, line 6, at end insert—
  "( ) require any other person who the Auditor General for Wales has reason to believe has information about any of the persons or documents mentioned in paragraphs (a) to (c) of this subsection to provide any facility or information which he may reasonably require for any of the purposes mentioned in paragraphs (a) to (c) of subsection (1);"
  The noble Baroness said: Amendment No. 23 seeks to introduce a new paragraph into subsection (3) of Clause 11. The clause is important because it is designed to ensure that the Auditor General has full access rights so that he can follow public money in his audits. It builds on the recommendations of the noble Lord, Lord Sharman, in his report, Holding to Account, some two years ago. We support the basic aim of the clause.
  The problem with the clause is that while its underlying aim is to ensure that the Auditor General has complete information about how public money has been used, it is drafted in a rather odd way. It does not focus on information but on documents. In particular the Auditor General can get information, assistance and so on from people who hold or control certain documents. I am sure that, in the majority of cases, following the paper trail of documents will give the Auditor General what he needs in terms of powers.
  However, let us suppose that the Auditor General has run out of steam as regards finding people with documents to interrogate. For example, the Auditor General might want to question the staff of a person whom he thinks might hold or control a relevant document, but either the person or the document has disappeared. The Auditor General might believe that a member of staff would be able to help with the inquiries even though that member of staff may not himself hold or control a document. My amendment would ensure that the Auditor General's inquiries would not dry up simply because he could not follow a document.
  I do not claim that the drafting of the amendment is perfect, but it is put forward as a genuine attempt to improve the implementation of the report of the noble Lord, Lord Sharman, so that public money is properly followed in the public audit process. If this finds favour with the Government, which I hope it does, they may also want to consider amending Clauses 18 and 52 since my amendment extends only to Clause 11 for the purposes of our debate in Committee. I beg to move.
  6.30 p.m.
  Lord Davies of Oldham: I propose to lift my relationship with the noble Baroness on to a new plane by saying that she has largely convinced me with her argument. It is a constructive proposal, although not drafted in quite the form that we could accept at this

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  stage. However, I can assure her that the argument is well taken and I propose to bring forward an amendment on Report to give it effect.
  Baroness Noakes: What more can I say in response other than to thank the Minister? I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 24 not moved.]
  Baroness Noakes Baroness Noakes moved Amendment No. 25:
  Page 11, line 17, after "Wales" insert "or by a person appointed by him"
  The noble Baroness said: I suspect that my run of success will come to an abrupt end as I move Amendment No. 25 and speak at the same time to Amendment No. 26. These amendments tackle rather different issues in Clause 11.
  Amendment No. 25 seeks to add,
  "or by a person appointed by him",
  to the definition of "auditable accounts" set out in subsection (5) so that the access rights conferred by the clause will extend not only to accounts examined by the Auditor General, but to accounts examined by a person whom he has appointed.
  The Minister may well say that this is unnecessary because of Clause 18 in respect of local government accounts. However, my question on that score is why the Minister needs a whole new clause in Clause 18 if my additional seven words would do the trick. This is already an extraordinarily long Bill for a relatively straightforward subject, which itself derives from repetition—usually rather inexact—of the same concepts for local authority aspects of the Auditor General's work and his other work. My amendment offers a form of simplification and streamlining and I hope that the Government will accept it.
  Amendment No. 26 is a probing amendment which seeks to knock out the ubiquitous Treasury from subsection (6), taking it out of the process of making an order specifying documents for the purposes of the access rights under the clause. I am puzzled as to why the Treasury should have any say in this. There is no equivalent power for the Treasury or any other government department to interfere in similar order-making powers under Clauses 18 or 52. Will the Minister explain why the Assembly, consulting the Auditor General for Wales, cannot be regarded as sufficiently competent to carry out this relatively minor function under Clause 11? I beg to move.
  Lord Davies of Oldham: The noble Baroness presents her amendments so ably that she also anticipates my reply. That may make my presence in Committee relatively otiose because she is right: I am going to say that Clause 18 is the answer to Amendment No. 25. The noble Baroness says that she has produced a neater and shorter form of words for what she has described as a long Bill. However, I think that her experience in Parliament over the years will lead her to regard this legislation as rather average by
  GC 42
  comparison with many which we tackle. However, it is always a good thing to keep legislation as short, simple and straightforward as possible. We are one on that.
  I do not think that the noble Baroness is right, but I have heard her argument. All that is said in Committee will be considered seriously and taken into account before we return to the Bill on Report. But we think that Clause 18 is essential to the Bill and I do riot propose to accept the amendment.
  I turn to Amendment No. 26. The noble Baroness indicated that it is unfortunate that the Treasury comes into the frame here. Under the Government Resources and Accounts Act 2000 the Treasury is responsible for making access orders for the Comptroller and Auditor General. We believe that the requirement to consult is constructive and should remain. On that basis, I hope that the noble Baroness will not press the amendment.
  Baroness Noakes: I thank the Minister for his reply. When I said that this is a long Bill, I did not mean in absolute terms, rather that it is long relative to the subject matter. I, too, have been involved with considerably longer pieces of legislation.
  I thank the Minister for saying that the Government will look again at the relationship between Clauses 11 and 18 in the context of my proposed seven words. However, for the moment I shall not pursue the point. When we come to the Treasury and Amendment No. 26, we are up against our old friend—consistency with England—rather than consistency in Wales. I cited the equivalent order-making powers under Clauses 18 and 52 in which the Treasury has no interest whatsoever— a good thing too, we might say.
  I leave with the Minister that inconsistency among many inconsistencies in the Bill and I hope that, between Committee and Report, the Government will take the opportunity to reflect on whether more consistency for Wales would be a desirable principle on which to base the Bill. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 26 not moved.]
  Clause 11 agreed to.
  Clause 12 [Local government bodies in Wales]:
  [Amendment No. 27 not moved.]
  Clause 12 agreed to.
  Clause 13 agreed to.
  Clause 14 [Appointment of auditors]:
  Baroness Noakes Baroness Noakes moved Amendment No. 28:
  Page 12, line 32, leave out subsection (3).
  The noble Baroness said: We come now to the appointment of local authority auditors under Clause 14. I shall move Amendment No. 28 and speak at the same time to Amendment No. 33. The thrust of the amendments is to enable the Auditor General to deal with local authorities as he does with public bodies in Part 1. In other words, he should be able to audit local authorities himself and should certainly not be expressly prohibited from doing so as proposed in

  GC 43
  subsection (3). That is why Amendment No. 28 seeks to delete the subsection. The key question is why there is such special treatment for local authorities. After all, they are funded very substantially by central government through the Assembly.
  The facile answer is that the Bill follows the pattern established by the Audit Commission Act, which still applies to local authorities in England. We have already debated the fact that that is a principle that appears to hold sway with the Government, but will not impress those on our Benches.
  We assume that local authorities in Wales wish to continue with the current arrangements. Perhaps the Minister can say whether that is the case. But it would also be good to hear why advantage was not taken of the opportunity presented by the Bill to place all public sector bodies on the same footing so far as concerns the appointment of auditors. The opportunity has been taken to take NHS auditing out of the Audit Commission model and put it into a new model for Wales. It is not simply a question of consistency with England because after the Bill has been passed there will be a new inconsistency between England and Wales in relation to NHS audits. So I would suggest to the Minister that it is not such a strong principle after all.
  Furthermore, under subsection (7), before appointing an external auditor, the Auditor General has to consult the local authority concerned. One wonders about the purpose of that, other than for courtesy. I do not believe that a local authority can refuse an auditor recommended by the Auditor General. If it were to object, what impact would that have? Amendment No. 33 seeks to delete subsection (7) in order to find out what is the purpose of the consultation and what would happen if the Auditor General and the local authority held different views.
  There is a close relationship between local authorities and the Assembly; partnership between them is provided for in the Government of Wales Act. It could be argued that the unitary authorities in Wales—they are all unitary authorities—are in a very different position from their English counterparts and therefore the Government could easily justify treating them differently in the context of the Bill.
  It appears to us that a great opportunity related to local government audit has been missed. The Select Committee on Welsh Affairs in another place and the Assembly, which considered the Bill at the pre-legislative stage, felt the same way. We have not yet heard an argument of principle for the position taken in the Bill, although I shall listen carefully to the Minister's reply to see whether there is such an argument. I beg to move.
  Lord Davies of Oldham: The effect of Amendment No. 28 would be to remove the prohibition on the Auditor General from appointing himself as the auditor to a local government body. The difference between local government and the National Health Service is obvious. The constitutional dependence of
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  local government is different from that of the National Health Service and that is why we seek to tread with care in this area.
  The Auditor General is the statutory auditor of the National Assembly and receives significant funding from the Assembly to enable him to undertake his work in the non-local government sector. The prohibition on him with regard to local government avoids any perception of a conflict of interest that could arise if the Auditor General were to be the statutory auditor of both the Assembly and a local government body.
  There are additional practical difficulties as well as what I think is an issue of very considerable principle. If the Auditor General were able to be appointed as the auditor of a local government body in a personal capacity, it would open up the possibility of operational conflict of interest. For instance, under Clause 16, the Auditor General would have the authority to issue a code of audit practice for local government to which, in his capacity as an appointed auditor, he would have to adhere. Under Clause 20 he would be required to provide a scale or scales of fees from which he may personally benefit as an appointed auditor. Under Clause 37 he could theoretically require himself to undertake an extraordinary audit.
  Those are important issues and present real and practical difficulties if the prohibition on the Auditor General acting in respect of local government bodies is removed, as sought in Amendment No. 28.
  Amendment No. 33 would have the effect of absolving the Auditor General from consulting a local government body on the appointment of its auditor. It is accepted practice for local government to be consulted on the appointment of auditors and to end the practice would be detrimental. High standards of financial accountability are achieved to a great extent through a positive relationship between auditor and client—withdrawing the right of local government to be consulted on audit appointments would risk alienating local government bodies and undermining the potential for a positive working relationship. It would also provide a stark contrast with the existing consultation arrangements for local government in England. On that basis, I ask the noble Baroness not to press the amendment.
  6.45 p.m.
  Baroness Noakes: I thank the Minister for setting out the Government's views on and justification of the way the Bill has been constructed in relation to local authority audit. The Minister rested his case on the threat of conflicts of interest between auditing the Assembly and auditing local authority bodies. I have to say that I simply cannot see that, just as I cannot see any conflict of interest between auditing the Assembly and auditing NHS bodies, which is what will happen when the Bill is enacted. If there is a conflict of interest for local authorities, there is also one for the NHS.
  The Minister went on to describe the problems with the Bill and at that point I believe he made the case for me. He demonstrated that the Bill is complex because

  GC 45
  we have lifted the Audit Commission model. That model has a code of practice because particular named auditors are appointed and they must have something with which to comply. A scale of fees for all auditors is so drafted because of the way in which auditors are appointed. There is no fundamental difficulty in achieving all those aims for local authority audit—as they have been attained, for example, for fees and audit for the other bodies dealt with in Part 1. Part 2 creates its own problems as a consequence of Amendment No. 28 simply because of the model that has been lifted here. With a different mindset about the model, Part 2 would become much simpler.
  Although I thank the Minister for setting out the Government's rationale, I should report that thus far I am unmoved. However, I shall read his remarks carefully in Hansard.
  Turning to Amendment No. 33, I thought that the Minister said that there is no real substance in subsection (7), but that it is like the point we discussed a moment ago—the relationship between the Public Accounts Committee of another place and the Audit Committee for the Welsh Assembly. This drafting has been produced to satisfy sensibilities rather than to meet any other substance.
  I shall consider again the implications of Amendment No. 28. In the meantime, I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  Baroness Noakes Baroness Noakes moved Amendment No. 29:
  Page 12, line 37, leave out paragraph (b).
  The noble Baroness said: I shall speak also to the other amendments included in the group. We move on to other aspects of the appointment of auditors for local government bodies. These are all probing amendments. The Minister may think that I have put on my anorak in drafting and speaking to these amendments, because I recognise that they will not be proposals in which many people have an interest. Although they are only probing amendments, I hope that the Minister will be in a position to provide some answers.
  Amendment No. 29 seeks to delete paragraph (b) of Clause 14(4). Paragraph (a) is straightforward, stating that those eligible for appointment should be eligible for appointment as a company auditor, which has its own set of references. If a person is a member of one of the recognised accounting bodies, they may be an auditor. For example, if one is, as I am, a member of the Institute of Chartered Accountants in England and Wales, one must also be an approved auditor, which I am not. The Minister will be pleased to know that I could not be appointed as an auditor under the provision.
  However, paragraph (b), which my probing amendment deletes, allows the Assembly to approve many bodies of accountants whose members do not have demonstrated audit competence. It is quite unlike paragraph (a). It would allow the Assembly to approve members of the Chartered Institute of Management Accountants, for example, an excellent body which
  GC 46
  has no pretensions whatever, to audit. It would allow the Assembly to approve a whole host of non-UK European accounting bodies. I would stretch the patience of the Committee if I explained why that is the minefield—I invite the Committee to accept that it is.
  I am aware that, historically, local authority audits have been carried out by members of the Chartered Institute of Public Finance and Accountancy. I will not argue any case against that, being a pragmatist. Accepting that, in practice, CIPFA accountants need to be capable of being appointed, I want to hear from the Minister why that extensive power of approval is necessary instead of simply naming CIPFA. I believe that that is the reason for the drafting.
  I invite the Minister to say how the Assembly intends to use the powers. The Minister may well be aware that approving an overseas accounting body as appropriate to carry out audit functions requires very extensive investigation. The Department of Trade and Industry has similar functions in relation to company audits in the UK. The DTI takes years over individual bodies—and I do not exaggerate—because of the nature of the inquiries that are conducted. Perhaps the Minister would comment on what, in practice, the Assembly might do to use its power to approve particular accounting bodies, in particular those outside the UK.
  Amendments Nos. 30 and 31 propose the deletion of paragraphs (c) and (d) of subsection (4). They allow a form of grandfathering to individuals whose qualifications do not pass muster under paragraphs (a) and (b). These provisions have been in existence in different legislation for quite some time. I am always mystified as to whether any specific individuals still need to be grandfathered under these provisions.
  I hope that the Minister will say how many people are expected to receive the protection of paragraphs (c) and (d) in terms of their appointment. I hope that the Government are not simply repeating legislation that has been used in the past without substantive reason. The circumstances which the provision seeks to address should, in my view, already have been time-expired. It will be interesting to know whether there are any particular instances. I accept that the Minister may not be able to answer that today.
  Finally, I turn to Amendment No. 32 which deletes, on a probing basis, the power of joint auditor appointment in subsection (6). I am sure the Minister will be aware that joint audits are not the norm in the private sector—and for good reason. They nearly always involve duplication and therefore cost. They also run a risk of gaps—things falling between auditors and escaping audit. I am aware that there is a similar provision in the Audit Commission Act, but I hope that the Minister will be able to explain how that power has been used in the past and for what purpose. A power to have joint audits ought to be justified on its own merit because one would not choose them as a matter of course.
  The Explanatory Notes on Clause 14 are, to be polite, sparse. I hope that the Committee will be enlightened by the Minister's comments. I beg to move.
  Lord Davies of Oldham: The noble Baroness said that she would don an anorak for the purpose of these amendments. The problem is that anyone who wants to follow her to the same event that evening would be unsure of the appropriate dress code. Some of us would not qualify for an anorak in the same terms—and from our earlier discussions, she is well aware that I would not do so.
  With regard to Amendments Nos. 29 to 31, I listened to her expositions most carefully. The practical effect of the amendments would be that members of the Chartered Institute of Public Finance and Accountancy—a body which we all recognise is most relevant to local government audits—would not be eligible for appointment. CIPFA is not a "recognised supervisory body" for the purposes of Section 25 of the Companies Act, yet we believe that CIPFA would be an obvious candidate for recognition by the National Assembly. That is our main anxiety about the implications of the amendments tabled—
  Baroness Noakes: The Minister said that CIPFA would be covered and I conceded that. I was trying to establish whether anyone else was expected to be covered and, if so, why we have such convoluted drafting approving all kinds of accounting bodies when all we are trying to do is legitimise the status quo so that CIPFA accountants who are not subject to a recognised supervisory body can carry on audits in the public sector.
  Lord Davies of Oldham: Of course, the situation could be solved by naming CIPFA. The problem is that it is a non-governmental organisation and it has every right to change its name, as bodies do. However, the problem is that legislation referring to a particular body which may undergo change which none of us can foresee would present obvious problems. We seek to provide legislation that is expressed in more general rather than ad hoc terms because of such difficulties.
  We are not aware of the number of people covered by paragraphs (c) and (d), which I recognise the noble Baroness spoke about with greater insight and knowledge. We simply do not want to disqualify people without justification. I hope that she will forgive me for saying what a hullabaloo would be caused if, by some inadvertence, legislation were drafted in such a way as to disqualify those who we had no intention of disqualifying simply because we were unaware of the full range. Those are our reasons for keeping the clause as it stands and why I am anxious about the amendments.
  With regard to Amendment No. 32, the noble Baroness is right in saying that the Auditor General would be deprived of the discretion to make a joint audit appointment, but that is not likely to be used on many occasions. They are sometimes used when
  GC 48
  specific skills not held by the initially appointed auditor are needed for complex audits or for a peer review undertaken during an audit. But the fact that the power is not used frequently does not detract from its potential value. If we restricted the power with regard to the Auditor General for Wales, we would be removing a discretion which obtains for the Audit Commission in England. The noble Baroness may consider that a step forward, hut, as she will have recognised, one of my abiding commitments with regard to the legislation is the degree of consistency between England and Wales.
  I recognise that on both counts the noble Baroness has made an interesting case. We are not talking about a wide range of institutions or occasions, but it is right that we should frame legislation that is not restrictive and does not cause difficulties in future. In particular, it should not prove restrictive when comparable legislation elsewhere has it merits. On that basis, I ask her to withdraw the amendment.
  7 p.m.
  Lord Thomas of Gresford: I understand from the Minister's response to the amendment to delete subsection (b) that he does not wish to be tied down to a particular body. That causes problems—one thinks of the position of the Lord Chancellor, for example, and the problems the Government are facing in redefining his role and the powers of anyone replacing him.
  Surely, the Secretary of State has a list of individuals who have been approved under the Audit Commission Act 1998 and approved under the Local Government Finance Act 1982. If there is such a list, are they still in practice?
  Lord Davies of Oldham: I cannot give a direct answer to the noble Lord. If I could, I would be in a different profession. Let me make the obvious point, which I believe he recognises. We are seeking to keep the situation as wide and as open as possible because the only conceivable criticism of a government operating in this area of professional expertise is where they were proven wrongly to have been restrictive; that in their legislation they had restricted that which they had no intention of restricting, but had done so through narrow drafting based upon a degree of ignorance of the situation.
  I hear what the noble Lord says about these categories and that the Government must have all these names somewhere. I cannot answer the question now, but I know the principle on which the clause is based. If he is saying, "If you were totally secure about the information which you have, you would not need that subsection", I would agree with him. I merely reflect the fact that where there are areas of uncertainty, it is only right that we should not be too restrictive.
  Lord Thomas of Gresford: I am grateful to the Minister for that response. It is wrong in principle to legislate in an unnecessary way. The word used is "individuals". If the Secretary of State does not have

  GC 49
  access to a list of individuals and knows what they are currently doing under the 1998 and 1982 Finance Acts, that would suggest that perhaps there are people practising in this field who are not known to the Secretary of State. Surely, they must be known, there must be a list and their current status must also be known. One does not want unnecessary verbiage in what is already a complex enough Bill.
  Lord Davies of Oldham: I do not have a great deal to add. I assure the noble Lord that I have heard what he has said. It will be noted most carefully and we will look at the matter. We will reiterate our response to him more accurately on Report or we will produce a different solution.
  Baroness Noakes: I thank the Minister for his explanation and I thank the noble Lord, Lord Thomas of Gresford, for intervening in relation to these amendments. I, too, was going to challenge the Minister to produce a list because that is all that is required. It would encourage the Minister not to legislate unnecessarily. I do not believe that many people were ever involved under this section and I suspect that none is still practising. I may be wrong and there may be one or two, in which case paragraph (c) or (d) may need to remain. I will read carefully what the Minister said in respect of the other points I raised.
  On Amendment No. 32, relating to joint audits, the Minister will not be surprised to hear that I was not comforted by the model used for the Audit Commission as now applies to England. If his officials look at its history, they will see that it is something to do with large complex audits in London. It is also concerned with the opening up of the local authority audit market for private firms so that individuals could carry out audits on a low-risk basis while making the transition to the new audit players in the audit sphere as a consequence of the introduction of the Audit Commission in the early 1980s. That provision, too, has no real relevance in today's world, certainly not in the much less complex environment of Wales.
  With the same plea as the noble Lord, Lord Thomas of Gresford, not to legislate for things that are not necessary, I hope that the Minister's officials will look at these matters again before the Report stage. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendments Nos. 30 to 33 not moved.]
  Clause 14 agreed to.
  Clause 15 [Persons to assist auditors]:
  On Question, Whether Clause 15 shall stand part of the Bill?
  Baroness Noakes: We have tabled our objection to Clause 15 standing part of the Bill in order to probe what the clause is all about. We have already remarked on the curious construction of the Bill, which has separate audit arrangements for local government audits. Clause 15 is another example of this.
  The clause is headed "Persons to assist auditors" and it goes on to empower the Auditor General to approve arrangements for non-appointed auditors to
  GC 50
  assist the appointed auditors in carrying out their functions. There is no similar provision in relation to the other audits that the Auditor General will be carrying out, so a number of questions arise in my mind which I hope the Minister will be able to answer.
  What are these arrangements? What do they mean in practice? What types of people will the auditors be making arrangements with? Why will the Auditor General be appointing auditors who are not competent to carry out the totality of their audit functions in the first place? What kind of controls will the Auditor General place on these arrangements? In what circumstances would the Auditor General approve arrangements as allowed under subsection (2) and when would be stick to individual appointment?
  They are not idle questions because subsection (3) states that, in effect, these persons are treated as auditors under the Bill. So, these non-auditor assistants can avail themselves of the access rights conferred by Clause 18, with the possible consequence that criminal offences for non-compliance could be triggered. Perhaps the Minister will confirm that that is the case.
  In the ordinary course of events, we would expect to turn to the Explanatory Notes for assistance. I have already alluded to the not-too-helpful quality of the Explanatory Notes. But they merely repeal the wording of Clause 15, adding an extra word. There is nothing by way of explanation or example.
  The Committee is entitled to understand the purpose and effect of Clause 15, which is why we tabled this objection.
  Lord Davies of Oldham: The basis of Clause 15 is that it would enable an appointed auditor to seek assistance in the exercise of his duties on matters which might be of significant complexity to require a specialist contribution; for example, on aspects of taxation or the interrogation of complex information data bases. The support of a person with expertise in such an area would be of potential assistance to the appointed auditor and the clause clearly indicates that the Auditor General could oversee such arrangements.
  A facility is already available to appointed auditors under the provisions of the Audit Commission Act 1998. The resource would remain available to appointed auditors in England, irrespective of whether Clause 15 was part of the Bill. I know that the noble Baroness and I are engaged in an elegant dance around whether consistency on my part between England and Wales is an important principle and on her part whether advances cannot be made within the framework of this legislation. I presume that if they were advantageous, at some stage they would be followed in England in due course. We will continue that dialogue for some time. I attest to the obvious fact that the removal of Clause 15 would inhibit the Auditor General in Wales while not having the same implications in England. It would place appointed auditors in Wales at a disadvantage in comparison to auditors appointed to a local government body in England. I cannot see how that could be construed as advantageous.

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  If there is no need for the Auditor General in Wales to appoint someone to assist the auditor where he himself is the auditor, he can bring in such technical services as he needs. In making those arrangements, the Auditor General could take account of such issues as potential conflict of interests. It is to be recognised that the framework for that is supervised; it is to be carried out only where it is recognised that there is a particular difficulty.
  The noble Baroness asks how it is that the auditors appointed are not competent to deal with the problems in hand. I take second place to nobody in my admiration of auditors and their overall competence—in the past I have been more than grateful for their expertise, as we all have in some general way—but, nevertheless, the noble Baroness will recognise that there is some merit in having specialist expertise made available, subject to supervision. That is the concept in the Audit Commission Act. Apparently, the noble Baroness is of the view that it would be advantageous to Wales if no such comparable power existed for it. I am afraid that we will have to differ on that point.
  Lord Thomas of Gresford: On behalf of my party, we support the Government in retaining Clause 15. However, the Minister should appreciate that it is quite right that Wales should have its own methods of innovation for building up new techniques and training and should lead the way for England to follow; it should not necessarily be the other way round. In the field of rugby football, England won the World Cup as a result.
  Baroness Noakes: I thank the noble Lord, Lord Thomas, for that intervention. Rugby is a game that I will never understand. I cannot follow it. I thank the Minister for his response.
  I wish to ask two questions. If a private-sector auditor were appointed under the basic appointment provisions of Clause 14, would anyone who works on the audit—from the most junior audit clerk to the most senior tax or IT partner—have to be approved under those arrangements? My second question repeats what I asked in the introduction of the clause stand-part debate: does subsection (3) mean that all those people are treated as the auditor for the purpose of the access rights and therefore the ability to trigger a criminal sanction under Clause 18? I wish to be clear on those aspects.
  7.15 p.m.
  Lord Davies of Oldham: In response to the first question, provided that the firm was approved, each individual would not have to be approved. The answer to the second question is that each individual would be liable to be sanctioned.
  Baroness Noakes: Does the Minister mean that each individual would be able to trigger the sanction, rather than be liable to it?
  Lord Davies of Oldham: Yes, I am sorry.
  Baroness Noakes: On that basis, I thank the Minister for his explanation, which I shall consider carefully in Hansard, and withdraw my objection to the clause.
  Clause 15 agreed to.
  Clause 16 [Code of audit practice]:
  Baroness Noakes Baroness Noakes moved Amendment No. 34:
  Page 14, line 6, leave out subsection (4).
  The noble Baroness said: In moving the amendment, I shall speak also to Amendments Nos. 35 and 36. They are probing amendments concerning the code of audit practice, which is clearly an important part of the local government audit framework that we are borrowing from England.
  The point of Amendment No. 34, which would delete subsection (4) of Clause 16, is to question the precise role of the Assembly in relation to the code. I can understand the Assembly's interest in the code, because it is the paymaster of local authorities and will want to look at the code. But my question is whether the Assembly can amend the code before giving its approval. I would not have thought that the Assembly would basically wish to do so, on account of its professional character and because that would undermine the authority of the Auditor General. The question is: can it do so? I would be grateful for the Minister's view on that.
  Amendment No. 35 leaves out subsection (7) because that provision is a mystery to us. Subsection (7) says that the code, even after it has been issued by the Auditor General and approved by the Assembly, can be annulled by statutory instrument in either House of Parliament. Will the Minister say why that power has been taken and in what circumstances it might be used? It seems to go too far from designing a solution fit for Wales.
  Amendment No. 36 is probing; it is intended to ascertain the role of the Audit Commission's code of practice in relation to local government audits in Wales. Clause 16 provides that the Auditor General may issue a code of audit practice. Clause 17 says that the auditor must comply with it. But Clause 17(4) says that "code of audit practice" means not only a Clause 16 code but also the code issued by the Audit Commission. Amendment No. 36 would remove that paragraph.
  Again, the Explanatory Notes are unhelpful in that respect. I am sorry to keep repeating that point, but it can become frustrating when Explanatory Notes give no further information and simply repeat the draft of the Bill. My question is: what relevance has the Audit Commission's code of practice to Wales? If the Auditor General is to issue his own code, why should Welsh local government auditors also have to comply with the English code, and what is to happen if the codes do not coincide in all respects? I beg to move.
  Lord Davies of Oldham: I am grateful to the noble Baroness for the way in which she has moved the amendment. Amendment No. 34 would remove the Assembly's ability to approve a draft code of practice in respect of the audit of local government bodies in

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  Wales before its introduction by the Auditor General. The code would incorporate best professional practice with respect to standards, procedures and techniques to be adopted by auditors in the exercise of their functions.
  The provision enabling the Assembly to approve the code has been incorporated in the Bill as a result of representations made during pre-legislative scrutiny and public consultation on the draft Bill. We believe, therefore, that we have been meeting representations voiced in earlier stages of the drafting of the Bill. The Assembly would not have the power to amend, but Parliament has an interest through providing taxpayers' money. Existing arrangements are that the code of practice requires the approval of Parliament by affirmative resolution. We have no brief in the framework of this legislation to seek to take away what pertains to the existing England and Wales code of practice, subject to affirmative resolution.
  The provision is included in the Bill because consultation representations indicated that it should be the basis of scrutiny of the code. It is appropriate that a code of practice discrete to Wales should be approved by the National Assembly, and that Parliament, should it wish, also has the opportunity to scrutinise the code and comment on it.
  I am used to the Government being berated for seeking to keep things away from Parliament and Assembly scrutiny—that is not novel—but it is a refreshing experience to be berated today for overdoing both the degree of prior consultation and for subsequently creating the framework for scrutiny. It is on that basis that the Bill is drafted. Fairly significant sums of taxpayers' money fund local government services, and it is right that there should be an opportunity for democratic scrutiny of the way in which local government bodies are audited. It is not as if from time to time this has not been a matter for considerable public controversy and concern.
  Amendment No. 36 has the effect of disapplying the extant code of audit practice for local government made under Section 4 of the Audit Commission Act 1998. It would mean that the Auditor General for Wales would have to prepare a Wales-only code of practice, and have it in place by 1 April 2005, with no flexibility for carrying forward and applying the existing code for England and Wales.
  One of the duties imposed on an appointed auditor of a local government body is to ensure that he or she complies with any code of audit practice applicable to the accounts being audited. The clause makes it clear that such a code of practice could be a discrete Welsh code introduced under Section 16 of the Public Audit (Wales) Act—should it be enacted. It could also be the existing code of audit practice for local government enforced in relation to both England and Wales under Section 4 of the Audit Commission Act 1998.
  It is unnecessary to disapply the existing code, as the amendment seeks to do. That could create real operational difficulties for the Auditor General, particularly in the early days of the new arrangements. If for whatever reason the Auditor General was unable
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  to prepare a discrete code under what would be Section 16 by the implementation date, it would leave appointed auditors with no framework or instructions. The Committee will recognise that that would be untenable.
  I recognise what the noble Baroness seeks to achieve but, given the time scales involved, we are engaged in a belt-and-braces operation to make absolutely sure that the profession is properly regulated, irrespective of developments over the next nine months.
  Baroness Noakes: I thank the Minister for that reply. I shall deal with his last point first in relation to the two potential codes. I understand the issue about the transitional arrangements, although I would have thought that a year was quite enough for the Auditor General to produce a Welsh code. However, let us assume that he cannot do that by next year and it takes, say, another year. From April 2005, the code of audit practice will mean only a code prepared under Section 4 because there is not one issued under Clause 16.
  The way in which the Bill is drafted means, however, that when a code is issued under Clause 16, if there is still a code under Section 4 of the Audit Commission Act—which there will be—the poor old auditors in Wales will have to comply with both. I put it to the Minister that the Bill does not reflect the fact that it is intended that the Auditor General's code should take over. So there could be two codes running in perpetuity. That is not the right position. I hope that the Minister will think about that.
  As to consistency with the code of practice in England and Wales and all the scrutiny that goes with it, I remark merely that NHS audits no longer have a code of practice. So, despite all the arguments about the Assembly needing to look at that code of practice, there is not one. However, under the existing arrangements there is reference to a code of practice that applies to NHS audits. So perhaps there has been a little too much stress on how important the code of practice is and how important the scrutiny arrangements are. But that matter need not detain us further, certainly not today. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  [Amendment No. 35 not moved.]
  Clause 16 agreed to.
  Clause 17 [General duties of auditors]:
  [Amendment No. 36 not moved.]
  Clause 17 agreed to.
  Clauses 18 and 19 agreed to.
  Lord Davies of Oldham: This might be a remarkably convenient moment for the Committee to adjourn until Wednesday at 3.30 p.m.
  The Chairman of Committees (Lord Brabazon of Tara): The Committee stands adjourned until Wednesday, 25 February at 3.30 p.m.
  The Committee adjourned at twenty-seven minutes past seven o'clock.