§ 4.22 p.m.
§ The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin)
My Lords, belatedly, with the permission of the House, I should like to repeat a Statement which is being made in another place on local government audit in England and Wales.
§ The Statement was as follows:
§ "In their report on the role of the Comptroller and Auditor General the Public Accounts Committee made recommendations on this subject among others. The Government's response to the committee's report as a whole is being published today in a White Paper. Since early legislation on local government audit is proposed it was thought right to make a separate Statement to the House on this.
§ "The Government entirely endorse the PAC's conclusion that the present arrangements for local authority audit need to be improved and that greater attention needs to be given to value for money work. In addition, we do not believe it is right in principle that a local authority should appoint its own auditors. We also wish to see the experience of private sector accountants used in substantially greater measure in local government audit.
§ "The PAC concluded that the Comptroller and Auditor General should assume responsibility for the district audit service. The Government have considered this very carefully, but have decided that such an arrangement would be fundamentally inconsistent with the constitutional position of local authorities. Parliament's proper interest in monies voted as Exchequer grants to local authorities is best pursued through the accountability to Parliament of the Ministers responsible for the payment of those grants.
§ "The Government accordingly propose to introduce early legislation to establish a new audit commission which would be responsible for the audit of local authorities in England and Wales. Its members would be appointed by my right honourable friends the Secretaries of State for the Environment and for Wales, partly from local government and partly from people with relevant expertise in industry, commerce and the professions, with an independent chairman.
§ "The commission would appoint auditors to the local authorities, either from district audit or from the private sector. It would take over from my department responsibility for the district audit service. Discussions with the staff about possible transfer arrangements will start now.
§ "The commission would also subsume the functions of the Advisory Committee on Local Government Audit.
§ "The commission would not be responsible for the audit of water authorities, whose auditors would in future be appointed by the relevant Secretary of State.
§ "The commission would have powers to promote or undertake work on value for money and efficiency. It would thus cover some of the area of work of the Local Authorities Management Services and Computer Committee, and I intend to discuss this with the local authority associations.
§ "The commission would be self-financing, primarily from audit fees, as the audit service is now. Some increase in the present scale of fees would be required to accommodate the increased audit effort.
§ "My right honourable friend also intends to use his powers under the Local Government Act 1972 to appoint as additional district auditors members of private accountancy firms. We believe that their diverse experience will be helpful to local authorities facing the challenges of a period of declining resources. They will undertake the audit of the accounts for 1981–82 of a small number of authorities in England, working under the general supervision of the Chief Inspector of Audit. The authorities will be selected to give a variety of types of authority, geographical locations, and expenditure patterns. Their names will be announced in due course
§ "Mr Speaker, local government expenditure in England and Wales will be about £22,000 million this year. The need to secure value for money for such a scale of public expenditure is crucial. The Government wish to establish an audit system for the future which is well equipped to meet this need. We believe that the measures I have announced are the right way to achieve that system ".
§ That, My Lords, is the end of the Statement.
§ 4.26 p.m.
§ Baroness Birk
My Lords, I thank the Minister for giving us the Statement this afternoon. The comments I shall make on it will include some of the points in the consultation paper because the two things go together and in this short period of time it has been rather difficult to gather them together.
The newly proposed audit commission is a much more expanded and expensive Quango which is replacing the present system of audit in local government. These proposals certainly appear to be a further and serious erosion of local government independence and accountability. In fact, paragraph 2 of the consultation paper rejects the unanimous advice of the Public Accounts Committee for a new national audit office under the Comptroller and Auditor General. It uses the following phraseology:In the Government's view, this would bring local authorities into a relationship with Parliament which was fundamentally inconsistent with their constitutional position, confusing their line of accountability at a time when the Government's aim is to strengthen their accountability in the direction in which it constitutionally lies, to their electors".This is from a Government which unfortunately again and again—I say this sadly—in recent months have undermined the local accountability of elected local authorities. We have seen this running through every piece of recent legislation—orders, motions—which has come before this House and another place and has connection with local authority affairs.
Paragraph 18 of the consultation document makes it clear that under the new audit system the auditor will have extended powersto make an immediate report if he considered that a matter of public concern should be borough urgently to the public attention.Does this mean public irregularities or the unlawful use of public funds? If so, we would readily support this proposal. Or does it mean that these new auditors will be empowered to make political judgments and to report upon areas of public policy where the responsi 689 bility is from the local authority to its electors? I should be grateful if the Minister could tell me what are the criteria for "a matter of public concern".
In paragraph 20 of the consultation paper, the Secretary of State proposes to take powers to direct an extraordinary audit additional to those which already exist. Again I ask, what does this mean? What are the public interest criteria which the Secretary of State will apply? Again, is it in the area of public policy? If so, then the Secretary of State is not only taking away the powers of local authorities to appoint their own auditors; he is taking powers to direct the audit commission into areas of public political policy and controversy.
In paragraph 2 of the Statement, the Government say that they do not believe it to be right in principle that local authorities should appoint their own auditors. I would ask, whyever not? Most business organisations do so. These include the largest companies in this country. To paraphrase, I hope one can say that what is good enough for business is surely good enough for local government.
Value for money features largely in these proposals. No local authority in today's economic climate can possibly refute the necessity of research for value and economy. Research has gone on for many years and it is not new. Local authorities set up their own central organisation, LAMSAC, to head the search for efficiency, yet in paragraph 16 of the consultation paper the Government say that there is a case for transferring some of LAMSAC's work to the commission. The Government go on to say that they will discuss this question with the local authority associations. I very much hope that they do and that they will take their points of view into very strict account. In addition, when there is talk of an independent chairman of the commission being appointed I hope it will be done in conjunction with the local authority associations and that the local authorities will be represented in the majority on the Commission and not be relegated to a minor role.
I should like to ask the Minister what is the justification for appointing additional district auditors from private firms—paragraph 11 of the Statement. I believe it was done, with agreement, a year or so ago by Barnet and Sutton at a quite considerable extra cost to the ratepayers. Can the Minister tell us whether it was worth while and does it justify the extension financially in the coming year? In conclusion, we should like to know what is the estimated cost of these proposals, which the Secertary of State has said is going to involve some extra cost, and, even more important, what are the estimated savings which may be made.
My Lords, on behalf of my noble friends on these Benches I wish to join with the noble Baroness, Lady Birk, in thanking the noble Lord the Minister for repeating the Statement. The noble Lord may be glad to hear that we do not take quite such a jaundiced view of the Statement as a whole as apparently does the noble Baroness, Lady Birk, although we do agree with her in wishing to oppose any further limitations on the freedom and autonomy of local government. Nevertheless, we believe that the mea 690 sures contained in this statement may well prove in the long-run to be of benefit to local government and to those who depend on it.
However, we have one particular anxiety which the noble Lord the Minister may be able to relieve, and I will put one question to him. As the Statement appears to focus largely on value for money and the cost effectiveness of local government expenditure, we wonder whether the noble Lord the Minister would agree with us that it would be difficult for the commission to decide whether certain local government expenditure is in fact cost effective unless the commission is empowered to look at consequential effects on public expenditure in other areas. For example, if local government spends a lot of money on home helps it undoubtedly cuts down National Health Service expenditure, because it enables people to be discharged home who would otherwise have to remain in costly hospital or other institutional care. So my question to the noble Lord is that: Will the commissioners, in undertaking this very important task of looking at items of local government expenditure, have power to examine the consequential effects—savings or other wise—on Government expenditure in other areas?
§ 4.34 p.m.
§ Lord Bellwin
My Lords, may I deal first with the points raised by the noble Baroness, Lady Birk. When she asks whether the new auditors will be empowered to make political judgments, the answer, of course, is clearly, No, any more than district auditors make political judgments now. The people who will be appointed through the commission will be district auditors: they have not made political judgments, nor will they, and I should not have thought that it was a matter for public concern that such outside expertise should be brought in. It should be a matter of some public relief, in fact, because although I pay great tribute to the work of the district auditor service, which I think does an excellent job (and I have not heard anyone say other than that), the fact is that in the main they have not concentrated on value for money exercises to the extent that we hope will be possible for others who come in and bring with them certain commercial expertise and knowledge. So that is one benefit which I think will be gained.
When the noble Baroness asks why should not local authorities appoint their own auditors, may I remind her that in the larger businesses it is in fact the shareholders who appoint the auditors, not the management as such. Management appoint them, but they have to be confirmed by the shareholders; so I would ask, who in fact is the shareholder in local government? Is it the ratepayer, is it the council staff, is it the councillors? I think really the question does not come off the ground at all.
The noble Baroness, Lady Birk, asked what justification there is for the additional auditors coming from private firms and was it worth while in the case of individual authorities who called in auditors to have a look. In fact they did not call in auditors as such; they called in management consultants to look at that aspect of their work, and only they will be able to say whether they felt that it was worth while in terms of what they received by way of advice. I could give opinions in one or two cases that I know, but I do not 691 think that is something upon which I should embark now.
As to the last major question with regard to cost, it is difficult to say. We estimate that the cost of the administration of the commission will be something between £100,000 and £150,000 in a year. If the noble Baroness was referring to what will be the actual cost in each case to an authority and what would it be in total, clearly I cannot give her that answer, but I hope she will be satisfied to take into account not so much what it might cost but what it will save. Surely if it is thought—and it is—that a great prize is there to be achieved, then it is worth embarking upon.
§ Baroness Birk
My Lords, before the Minister leaves that point, may I say that I asked about the estimated cost. Obviously I did not mean to the individual authorities—the Minister is quite right there. And I asked about the projected savings. I should have thought that there must be some even fairly notional figure in the mind of the Secretary of State or the department when they are bringing this forward, because otherwise all we are left with are increased administrative costs.
§ Lord Bellwin
My Lords, if local government was able to save 0.1 of 1 per cent. it would represent £20 million, so when I said that there was a prize to go for I do not think I was exaggerating.
I took the point made by the noble Lord, Lord Winstanley, with regard to being concerned about the consequential effects, but I do not think he need worry unduly. The basic object of the exercise is, first, to help the district audit, as it is now, to bring in the know-how of private sector people with commercial expertise to add to the pool of thinking—and there can be nothing wrong with that. Basically, that is what it will be doing. It is not to take political judgments, which the noble Baroness was concerned about; it is certainly not to criticise the level of a service being provided, unless that is so excessive in some ways as to be clearly unreasonable, which is very rare indeed. In that sense it will not lead to the kind of concern that the noble Lord, Lord Winstanley, mentioned.
§ Baroness Gaitskell
My Lords, just now the Minister said that 1 per cent. of something resulted in whatever it was—I could not follow it. One cannot follow such a statement if one is not an economist. Unless the Minister can spell this out and say what 1 per cent. is, I am unable to understand or believe it. I apologise to the noble Lord for intervening at this stage, having not heard the Statement.
§ Lord Bellwin
My Lords, I am sorry that the noble Baroness does not believe what I say, but I was only giving an indication; I was not saying that this is the justification for the basic motivation of what we are doing here by appointing an audit commission. I was trying to indicate the opportunity that would exist for there to be general savings. However, I must touch on a point also made by the noble Baroness, Lady Birk, when she referred to accountability. 692 That also is a major aspect of what we are looking for. I know nobody in local government—and I know as many people in it as most—who really objects at all to there being the maximum degree of accountability, and they have no concern that it should be a district auditor or anybody else who highlights what they are doing. They are always prepared to justify it and are usually well able to do so.
§ Lord Boyd-Carpenter
My Lords, is my noble friend aware that, notwithstanding the comments of the noble Baroness opposite, many of us are very glad indeed to hear this announcement of the strengthening both of the quality and of the independence of local government audits. In view of the enormous sums of money to which he referred, and in view of one or two unhappy cases in local government of which noble Lords are well aware, is my noble friend aware that many of us feel that this action is well timed and of very great importance.
Would he, however, reassure me on two points? Will the creation of this new organisation slow up, as centralisation sometimes does, announcements of auditors' decisions, because in local government time is so very important, and, as he knows well, things can go wrong in a matter of additional weeks. Secondly, will the very effective power of the district auditor to surcharge individual councillors who are responsible for irresponsible decisions persist tinder the new arrangements? Finally, will my noble friend join me, as a former chairman of the Public Accounts Committee, in saying how very much some of us admire the really splendid work which that Committee has put in on this extraordinarily difficult, complex and important subject.
§ Lord Bellwin
My Lords, I am grateful to my noble friend for his remarks and his encouragement. So far as the Public Accounts Committee is concerned, of course I think everyone is indeed glad that they look so closely as they do at this work. In fact I ought to have said to the noble Baroness, Lady Birk, that what we are embarked upon here with an audit commission in fact is not the recommendation of the Public Accounts Committee. Local Government would have felt—frankly we felt, too—much more concern had we gone the route that they proposed. Nevertheless, we felt that their basic concern and their recommendations for greater accountability and involvement in this way were very valid; hence the point of my noble friend, with which I very much agree.
On the two questions he put to me; first, will it slow up announcement of audtiors' decisions; I see no reason at all why it should; quite the contrary, because it is in fact in many ways supplementing the existing service, which hopefully should enable any decisions to be taken that bit sooner, although I would not like to make any commitment. But there is no reason at all why it should be slower as a result of what we are proposing. Neither should it have any effect at all upon the powers to surcharge councillors, happily a very rare occurrence. They will be exactly district auditors in any case, and they will have neither more nor less powers than the district auditors at the present time.
§ Baroness Stedman
My Lords, from these Benches we would also like to give a somewhat cautious welcome to the Statement and to the consultative document, which we have seen briefly. The noble Lord, looks surprised. I am sure there is no reflection intended on the integrity of the present district audit unit staff or indeed of LAMSAC, I hope there will be the widest consultation with the local authorities, particularly with regard to the work of LAMSAC and as to how much of that ought to be taken over properly by the new commission. I would ask the noble Lord to have another look at the date by which the reflections of the local authorities have to be in to him. The date given in the Statement this afternoon and in the consultative document is 15th September. Most local authorities, like Parliament, have a recess in August. That only gives them a bare two weeks to make up their decisions and to make their views known to their local authority associations. I hope the noble Lord is not going to be too hard and fast on the 15th September, and that he will, if necessary, lengthen it to get proper consultations with the local authorities. We also welcome the fact that the commission's annual report is going to be laid before Parliament, and if it is necessary there will be an opportunity for either or both Houses to discuss it. We would applaud anything that takes away the powers from the Secretary of State in the Local Government Act 1972, even if it puts them on to a new commission.
§ Lord Bellwin
My Lords, on the last point the noble Baroness, Lady Stedman, makes, the powers are the same and will be the same as they are now, neither more nor less. They are independent; the district auditor is independent. If anything, the new Commission will be less attached to the tenuous relationship there is at the present time with the Department of the Environment. As to the work of LAMSAC, I do know that this is a matter of concern. We can only decide it together with the local authorities, who, after all, pay half the cost of LAMSAC anyhow.
If the local authority associations feel that the date of 15th September is a difficult one to meet, I am sure they will make that known to us. This is something we want to do together because it is for the betterment of everybody involved. So without making any commitment—I know the noble Baroness does not expect me to—I would feel entitled to say that if the local authority associations feel there is great difficulty for their members we would want to know about it and consider it accordingly.
§ Lord Marshall of Leeds
My Lords, I think that most people concerned with local government will be very welcoming of this Statement made by the noble Lord. Would the noble Lord care to say that a view was taken by the Advisory Committee on Local Government Audit in regard to the Public Accounts Committee's recommendation, that the audit commission should be under the surveillance of the Comptroller and Auditor-General; the fact that he has announced that it is not going to be so will be greatly welcomed by those in local government.
§ Lord Bellwin
My Lords, I am deeply grateful to my noble friend, who quite properly reminds me that it was in fact the unanimous feeling of the Advisory 694 Committee on Local Government Audit that it should be an audit commission in this way. While it would be fair to say that on some aspects they have reservations, in the main—and there are some very distinguished members on that body, not least my noble friend Lord Marshall—it was their unanimous view that they approved of an audit commission, albeit with reservations on some aspects, and they certainly thought it a more preferable route than the one through the Comptroller and Auditor- General.