Lords Sitting of 13 May 1982

Preamble
The House met at three of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Exeter.

Consumers and the Nationalised Industries
Baroness Burton of Coventry: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether in view of the fact that the Minister for Consumer Affairs stated on 28th March that he wanted to see an active, vigorous consumer movement working with the Government, a decision has been reached on the publication of a Green Paper dealing with consumers and the nationalised industries including suggestions received in connection with their consultative document, Consumers' Interests and the Nationalised Industries; and whether they will make a statement both upon this and the holding of a debate in Parliament.
Lord Lyell: My Lords, we shall publish proposals on NICC reform as soon as possible; we hope before the Summer Recess.
Baroness Burton of Coventry: My Lords, while being glad of getting a more positive response, may I ask the noble Lord whether it is correct that he has answered the first part of my Question and not the last? If I heard him aright, did he say that the Government hoped to make a Statement before the Summer Recess? Can the noble Lord enlarge on that and say whether we may have a debate in this House on that Statement?
Lord Lyell: My Lords, I hope that I said to the noble Baroness that we shall publish proposals. Whether she believes that constitutes making a Statement, I shall leave to her. But, as to having a debate, I am sure the noble Baroness will know that is a matter for the usual channels.
Baroness Elliot of Harwood: My Lords, do the Government realise that there is a terrific head of interest about this particular consumer report? I get any number of letters. It is vital that we should have some discussion in the House, otherwise we are dependent on noble Lords and the noble Baroness, Lady Burton—who never fails to bring this matter up—and it is something we desperately want. Is it possible for the Government to make some proposal for a date some time so that we can really get going on this matter?
Lord Lyell: My Lords, I hope that we shall be able to make firm proposals before the Summer Recess. Everybody is aware of a tremendous head of steam on this matter, particularly when it is expressed by the
306
noble Baroness, Lady Burton, and indeed by my noble friend.
Baroness Burton of Coventry: My Lords, is the Minister aware that the noble Baroness and I will both be glad when the head of steam finally has effect? Arising from what he has just said, may I ask the noble Lord whether he will ask his noble friend the Secretary of State for Trade whether he feels able to look at the matter of our having a debate? If this is not before the Summer Recess, could it be in what will probably be the spillover period before the House adjourns at the end of the Session?
Lord Lyell: My Lords, I shall certainly bring the remarks of the noble Baroness to the attention of my noble friend. But I say again to her that a debate in your Lordships' House is entirely a matter for the usual channels.
Lord Leatherland: My Lords, as this Question originally dealt with the interests of consumers, will the Government bear in mind that Members of the House of Commons are also consumers and have just received an increase in their salaries?
Lord Lyell: Yes, my Lords.

North Sea: Deferred Development Proposals
3.9 p.m.
The Earl of Lauderdale: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether any North Sea oilfield development proposals have recently been deferred by the licensees.
Lord Skelmersdale: My Lords, the House will be aware that Shell and Esso have recently announced their decision to defer further design and development work on the Tern oilfield. This proposal has not been formally submitted to the Department of Energy. No proposal which has been formally submitted has been deferred recently.
The Earl of Lauderdale: My Lords, I thank the noble Lord for that reply. May I ask him whether he is aware that both Philips and BP have recently deferred proposals for developing their oil and gas fields? These together mean that we are losing more than £3½, billion worth of investment in the North Sea. Perhaps my noble friend would care to give some explanation as to how this has come about.
Lord Skelmersdale: My Lords, it is inevitable that in the light of lower oil prices licensees will be more cautious in appraising the current generation of smaller, more complex reservoirs before reaching development decisions. I ask your Lordships to keep this matter in proportion, because there are three things which affect the decisions of the oil companies. First, the

307
price of oil; secondly, the cost of development; and thirdly, taxation. The Government accept that this enormous pressure which is coming from the oil companies is under the third of these reasons because it is the only one that the Government can realistically do anything about.
Lord Strabolgi: My Lords, are the Government aware that the Tern oilfield to which the noble Lord refers contains 140 million barrels of reserves? Esso and Shell informed the department on this matter and one of the reasons that they gave for not being able to go on with this project was the onerous tax regime. Will the Government consider this and do something about it because the whole of our production from the North Sea, as the noble Earl has said, is beginning to become in jeopardy?
Lord Skelmersdale: My Lords, the UKOOA organisation is currently in correspondence with my right honourable and learned friend the Chancellor of the Exchequer on exactly this matter. The Government are looking into this. I repeat what I have said several times in your Lordships' House: the last Budget Statement of my right honourable and learned friend said that the position of taxes is now stable.
Lord Strabolgi: My Lords, is the Minister aware that UKOOA are on record as saying that they are very disappointed with the Budget since it contained absolutely nothing for them? They put up a very strong case last autumn to the Chancellor, which I have seen, and very little action seems to have been taken on it.
Lord Skelmersdale: My Lords, it is not true that very little action has been taken. There has been correspondence in the past six weeks and this correspondence is still going on. I admit that the ball is currently in my right honourable and learned friend's court, but I do not think that the House can draw any allusions from that at this stage.
Lord Balogh: My Lords, does not the Minister realise that the vacillations of Her Majesty's Government's policies, which can no longer be monitored by BNOC, have caused a great deal of uncertainty and that is reflected in the figures for profits?
Lord Skelmersdale: My Lords, again referring to the Budget Statement, we realise that a constant "yoyoing" of forms of tax is neither necessary nor desirable. My right honourable and learned friend has said that the new regime would be stable, and I cannot take it any further than that.
The Earl of Lauderdale: My Lords, would not my noble friend agree that the stability to which he refers is the stability of death? Is it not the case that some 4,000 construction jobs are now in jeopardy in the North of England and in Scotland as a result of these deferments? Is he also aware that these deferments mean the loss for many years now of some 30 million tonnes of oil a year, which is a very serious slow-down in our production programme?
Lord Skelmersdale: My Lords, the stability I was referring to was not the stability of death at all but the stability of types of tax. There is an argument on the rate of tax and I accept that; this is what the correspondence is all about. So far as the offshore construction industry is concerned, to which my noble friend was referring, I think, I admit that in the absence of further major orders this industry is likely to suffer redundancies. Few major orders are expected from the United Kingdom sector of the North Sea in the next 18 months. United Kingdom companies, however, may be able to compete for other sectors of the North Sea if they are prepared to accept that final assembly takes place elsewhere. I would expect other export opportunities to offer additional employment, but I must tell the House that I would expect this to be only at the fully skilled engineering level.
Lord Bishopston: My Lords, does the Minister not agree that his reply and the comments of his noble friend indicate a great amount of uncertainty in this area? Is this not the wrong time to be adding to the uncertainty by proceeding with the Oil and Gas (Enterprise) Bill?
Lord Skelmersdale: No, my Lords, I do not think that the two things are in the slightest bit connected. Noble Lords will know that the offshore production part of BNOC is shortly to become a private company and I would expect the new company, Britoil, to be part of UKOOA at comparatively short notice.
The Earl of Lauderdale: My Lords, can my noble friend enlarge on one remark? He seemed to suggest just now that the rate of tax is under discussion at the present time. Can he confirm that I understood him aright? Can he also say whether the question of setting off advance PRT as a cost against corporation tax may also be under consideration?
Lord Skelmersdale: My Lords, at this moment I am afraid I cannot help my noble friend any further, except to say that the rates of taxation are always under discussion.

SSSIs: Code of Guidance
3.16 p.m.
Lord Chelwood: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will give an assurance that the code of guidance for owners and occupiers of SSSIs, provided for by Section 33 of the Wildlife and Countryside Act 1981, will be considered by both Houses before the Summer Recess, so that the renotification of these areas by the NCC will not be unduly delayed and the serious risk of damage to them will be reduced.
The Earl of Avon: My Lords, Her Majesty's Government intend to lay the code of guidance before both

309
Houses of Parliament in time for it to be considered before the Summer Recess.
Lord Chelwood: My Lords, I am most grateful for that reply. Will my noble friend use his influence to make sure that time is found for this by drawing the attention of the business managers to the fact that, were it not found, the Nature Conservancy Council would find itself in a very embarrassing and difficult position since it not only has to bring the code of guidance to the attention of some 30,000 owners and occupiers of SSSIs but also to bring to their attention, on our instructions, the scientific value of the areas they occupy and the damage that could easily be caused unwittingly?
The Earl of Avon: My Lords, I take note of my noble friend's remarks, but of course this is a matter for the usual channels.
Lord Leatherland: My Lords, as this Question refers to the owners and occupiers of SSSIs, can he tell us what they are, in case any of us perhaps do not know?
The Earl of Avon: My Lords, I am very sad to know that the noble Lord, Lord Leatherland, did not attend the few days we spent on the Wildlife and Countryside Act. "SSSI" stands for a site of special scientific interest.
Lord Melchett: My Lords, are the Government aware that there are a number of sites of special scientific interest which have been damaged or destroyed since the passing of the Act and that at this very moment one of the most important of the proposed sites on West Sedgemoor has drainage equipment on it, in clear breach of the voluntary agreement by the local farmers and landowners that they would do no such thing? Would the Government expedite the introduction of those sections of the Act which would allow the Nature Conservancy Council to do something about this quite deplorable state of affairs?
The Earl of Avon: My Lords, it would be impossible for me at Question Time to comment on all the various sites which are at the moment under discussion. However, as the noble Lord is aware, we are progressing quite speedily in this matter.
Lord Melchett: My Lords, when will the Government introduce the sections of the Act which will allow the NCC to delay these destructive operations for 12 months?
The Earl of Avon: My Lords, as soon as we can.

Nurses' Pay
3.19 p.m.
Lord Molloy: My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what progress
310
has been made in settling the National Health Service nurses' pay claim.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Lord Trefgarne): My Lords, on 8th March the Government announced that an additional £63 million was to be made available for nurses' pay. This has enabled the management side of the nurses' and midwives' Whitley Council to make an offer representing 6·4 per cent. overall. The next meeting of this Whitley Council is scheduled for 8th June.
Lord Molloy: My Lords, while I thank the noble Lord for that reply, is he aware that the modified recommendations of the TSRB have made a total mockery and revealed the injustice of this Government's policies, in that top judges and admirals have an increase of around 14 per cent. while those who care and serve in the health service when the people of this country are sick and ill have been treated in a scandalous manner? Before indignation escalates too high, would the noble Lord be prepared to see his right honourable friend and to meet the leaders of the health service, in view of the anger felt at the acceptance of the modified TSRB recommendations?
Lord Trefgarne: My Lords, with respect to the noble Lord, I think that he over-eggs the pudding somewhat in regard to the announcements made yesterday which, in any event, have no relation to the health service, which is the subject of the Question on the Order Paper. I think the offer that has been made through the nurses' and midwives' Whitley Council is a very proper one and I hope that it will be accepted.
Lord Gisborough: My Lords, can my noble friend give the House some idea of the increase over the last two or three years for the nurses?
Lord Trefgarne: Yes, my Lords. It was something in excess of 50 per cent.
Lord Boothby: My Lords, is the noble Lord aware that a widespread impression has been given to the public that the disparity between the increases now offered to the nurses and those to high civil servants, Members of Parliament, admirals, generals and so on is too great, and will the Government take some steps either to correct this impression or to explain it?
Lord Trefgarne: My Lords, the increase for Members of Parliament is, of course, 4 per cent., which is somewhat less than the latest offer to the nurses through their Whitley Council. As for the other matters to which the noble Lord refers, they really have no relation to this particular matter. But perhaps I may say that they were, of course, related to increases forgone in some years past.
Lord Wells-Pestell: My Lords, will the Minister not agree that, when he replies to his noble friend and says that the increases given to nurses over recent years amount to 50 per cent., that was because it was estab-

311
lished beyond all reasonable doubt that they were well behind the pay levels of other organisations?
Lord Trefgarne: My Lords, I wonder who was responsible for that.
Lord Wells-Pestell: My Lords, will the noble Lord say Yes or No to my question—that they were well behind?
Lord Trefgarne: My Lords, there was indeed some catching up to be done, but the noble Lord and his colleagues had been in office for some years before that.
Lord Brockway: My Lords, would not the noble Lord agree that we ought seriously to look at our priorities when we are considering income advances? Is it not the case that on Tuesday a high percentage increase was allowed to officials with top salaries, who do not need to spend it on necessities and can spend it on enjoyment, while the nurses, who perform the most essential service given to our community of curing illness and saving life, do not even have a wage which could meet first necessities, not to speak of enjoyment?
Lord Trefgarne: My Lords, I do not think that the noble Lord accurately reflects the truth of the position. As I said earlier in response to one of my noble friends, the percentage increase that has been allowed to nurses in recent years is very substantial. With regard to other increases that have been announced recently in other areas, there was a very considerable element of catching up in those increases.
Viscount Hanworth: My Lords, would the noble Lord agree that the differentials in the Communist countries are very little, and possibly less than they are here, and that the hardest thing in the world is to decide exactly what differentials there should be between different kinds of work?
Lord Trefgarne: Yes, indeed, my Lords. Of course, these decisions are always very difficult and I cannot think that they have found a solution on the other side of the Iron Curtain.
Lord Paget of Northampton: My Lords, can the noble Lord tell us how the earnings of nurses compare with those of secretaries employed in the Houses of Parliament, both as to money and as to holidays?
Lord Trefgarne: Not without notice, my Lords. In any event, I am not responsible, nor are the Government, for what is paid to secretaries in the other place.
Lord Gisborough: My Lords, is my noble friend aware, in regard to the question of differentials, that the differential in China is approximately four; that the differential in the United Kingdom after tax is approximately six, and that the differential in Russia is approximately 40?
Lord Trefgarne: My Lords, I accept the accuracy of my noble friend's observations, if that is what he says. I have no means of checking them, but I am not sure what inference to draw.
Lord Wallace of Coslany: My Lords, is the noble Lord aware that it is no good him glossing over the top salaries review position? Is he further aware that there is considerable discord among nurses and threats of industrial action, which of course would be deplored? The noble Lord, Lord Boothby, is quite right in saying that at this time the announcement of the top salaries awards has made an impression on the public, and that this is a very important irritant factor in the negotiations in the industrial situation.
Lord Trefgarne: My Lords, I did not seek to gloss over the announcements relating to other salaries, to which the noble Lord and other noble Lords have referred. But they do not relate to the Question which is upon the Order Paper and, in any event, different considerations apply.
Lord Molloy: My Lords, is the noble Lord the Minister aware that millions of our fellow citizens in Great Britain now suffer under the interventionist policy of this Government, which is just as interventionist as the policy in the Soviet Union? There is no free negotiation, they are held down—
Several noble Lords: Speech!
Lord Molloy: Is the noble Lord aware that there is no free negotiation and that they are dictated to by the Government? Is he further aware that, if he were to refer to his right honourable friend the feeling of employees within the National Health Service, he might then be prepared to see the leaders? Finally, is the noble Lord aware that some aspects of management are acting with what is almost a Polish junta attitude to some of those who are demonstrating, which could be serious—
Several noble Lords: Order!
Lord Molloy:—and would he put that to his right honourable friend?
Several noble Lords: Order!
Lord Trefgarne: My Lords, I can assure the noble Lord that all my right honourable friends are well aware of the strong views held by the members of the health service, and by others, in respect of this matter. But, of course, we have to establish an order of priority and, if additional funds were made available for a wage settlement now, that would mean a reduction in the level of services in the health service, which I do not think is what the noble Lord would wish.

Business
Lord Denham: My Lords, it may be for the convenience of your Lordships if I announce that dinner will be available this evening at the usual time. The

313
Committee stage of the Local Government Finance (No. 2) Bill will be adjourned at approximately 7 p.m. for approximately one hour. During this adjournment, the Report stage of the Administration of Justice Bill will be continued.

Local Government (Miscellaneous Provisions) Bill: Procedure on Report
3.28 p.m.
The Parliamentary Under-Secretary of State, Home Office (Lord Elton): My Lords, I beg to move the Motion which stands in my name on the Order Paper.
Moved, That the amendments for the Report stage be marshalled and considered in the following order:

Clause 1,

Schedules 1 and 2,

Clause 2,

Schedule 3,

Clause 3,

Schedule 4,

Clauses 4 to 20,

Schedule 5,

Clauses 21 to 37,

Schedules 6 and 7,

Clauses 38 and 39.

—(Lord Elton.)
On Question, Motion agreed to.

Land Compensation (Northern Ireland) Order 1982
Viscount Long Viscount Long rose to move, That the draft order laid before the House on 26th January be approved.
The noble Viscount said: My Lords, the order consolidates the law relating to the assessment of compensation in respect of the compulsory acquisition of land. It was considered by the Joint Committee on Consolidation Bills on 24th March 1982 and the committee was satisfied that it is purely a consolidating measure. It therefore makes no changes of substance in the existing law, but brings it together in one order. My Lords, I beg to move.
Moved, That the draft order laid before the House on 26th January be approved.—(Viscount Long.)
On Question, Motion agreed to.

Probation Board (Northern Ireland) Order 1982
Viscount Long Viscount Long rose to move, That the draft order laid before the House on 22nd April be approved.
The noble Viscount said: My Lords, this order will implement one of the recommendations in the report of the Children and Young Persons Review Group. The review group, which is popularly known in Northern Ireland as the Black Committee after its chairman the late Sir Harold Black, recommended a strategy for
314
dealing with young offenders based largely on treatment within the community. It saw the Northern Ireland probation and aftercare service as the main agency for carrying through this strategy. It suggested that if it were to be able to call upon the support of the community at large, in doing so it should cease to be administered directly by a Government department and should in future be managed by a probation board set up for that purpose.
The Black strategy as a whole has been endorsed by the Government and in a recent statement the Secretary of State indicated that significant progress had been made towards its implementation. In particular, the Government have welcomed the proposal to establish an independent board to manage the probation service. The Northern Ireland service has until now been the only probation service in the United Kingdom to be centrally administered and while there may in the past have been good reasons for this, this is no longer the case.
I should mention that one particular aspect of the service's work—the Community Service by Offenders Scheme—has been supervised since 1979 by a community-based committee. The Government have been much heartened by the success of this scheme—a success which has been due in no small part to the work of that committee. The noble Lord, Lord Blease, was at one time closely associated with that committee. Indeed, at one time he was the chairman-elect before assuming his present responsibilities, and his help and guidance in the preparation of the scheme was invaluable. He undoubtedly has an intimate knowledge of the work of the Northern Ireland probation service gained through his close association with the service at that time.
I have explained the principles behind the order. I will now outline its content. Article 3 and Schedule 1 provide for the establishment of the board and set out its constitution. The board will be a body corporate whose members are appointed by the Secretary of State for a period of three years. The Secretary of State will endeavour to ensure that the board's membership is broadly representative of the community in Northern Ireland, and to this end he will seek nominations from groups with an interest in the work of the probation service. These will include the district councils, the lay magistracy, the legal profession, the trades unions, commerce and industry, the universities and voluntary organisations concerned with the treatment and welfare of offenders.
Schedule 2 provides for the transfer of existing property and staff to the board. Probation officers and probation assistants thus transferred will become employees of the board and this should ensure the continuity of service and experience necessary to launch the board.
Article 4 lists the main fun. Lions of the board. As well as providing an adequate and efficient probation service, the board is required to provide such staff as the Secretary of State considers necessary to perform social welfare duties in prisons and young offenders centres. The board may also, either directly or in co-operation with the voluntary sector, provide hostels and other facilities designed to assist the reintegration of offenders into society.
Article 5 requires the board to assign probation

315
officers to the Northern Ireland courts. The provision of a proper and adequate service to the courts is of paramount importance. Advice in the form of social inquiry reports is helpful in determining sentences, and the availability of probation officers to give practical help to convicted persons and their families can also be a significant benefit to the operation of the courts. This article also empowers the board to give financial or other assistance to probationers, bailees or others in connection with whom probation officers are required to perform any duties.
The Secretary of State retains overall responsibility for the treatment of offenders in Northern Ireland. This is reflected in Article 6 which enables him to give the board directions of a general character as to the exercise and performance of its functions. Articles 7 to 10 and Schedule 3 make financial provision for the board and for the protection of the staff of the board for acts done in the course of their duty.
Article 11 empowers the board to make provision for the training of its own staff or the staff of voluntary organisations working closely with the probation service. Such training may be provided for those working on an unpaid voluntary basis as well as those working on a full-time basis for the board or for voluntary organisations. Article 12 enables the board to make loans to its staff to enable them to purchase vehicles essential to the efficient carrying out of their official duties. Article 13, by empowering the board to conduct or promote research relevant to its functions, reflects the importance of a continuous and rigorous assessment of its professional competence and effectiveness. Article 14 authorises inspectors appointed by the Secretary of State to inspect hostels and other establishments provided by the board or by voluntary organisations. Article 15 enables the Secretary of State to make rules for their proper regulation and management. These controls are made necessary by the fact that such establishments will provide accommodation for offenders, many of whom will be required to reside therein by the courts. Article 16 enables steps to be taken in advance of the transfer of functions to the board to enable the provisions of the order to be brought into operation.
Finally, I would draw the attention of noble Lords to another recommendation contained in the Black Report. As part of its wider recommendations in respect of children and young persons, the review group recommended that the proposed management board for the probation service should also have responsibility for the management of a custodial establishment. This would cater for the more serious and persistent juvenile offenders. The recommendation is not addressed in this order but will be the subject of whatever further legislation flows from the on-going consideration of the wider Black Report recommendations.
I commend this order to your Lordships as an important contribution to the better administration of the Northern Ireland probation service. It provides a management structure which will enjoy the confidence both of the staff of the probation service and of the community at large. I beg to move.
Moved that the draft order laid before the House on 22nd April be approved.—(Viscount Long.)
3.37 p.m.
Lord Blease: My Lords, the House will be grateful to the noble Viscount for his explanatory outline of this draft order. We on the Opposition Benches welcome the legislation and believe that it has the general support of all parts of community life in Northern Ireland. The order provides for the establishment of a probation board for Northern Ireland which should enable a large measure of independence and of community influence to be exercised in the achievement of the aims and objects of the probation and after-care services.
The noble Viscount has drawn the attention of the House to the fact that in general the order arises from the recommendations of the Black Report. I wish to take this opportunity to place on record my tribute, along with the many others which have been made, to the chairman of that committee, the late Sir Harold Black. Those of us who knew Sir Harold found him to be a dedicated civil servant. In his public involvement he did much to promote the good and the wellbeing of the people of Northern Ireland. The probation board is a tribute to the type of work which he undertook.
The noble Viscount referred to the remaining recommendations of the Black Report. We on this side of the House look forward to the implementation in due course of the other recommendations, as we consider these to be of vital importance to this aspect of life in Northern Ireland. May I thank the noble Viscount for his kind remarks regarding the part I played in the setting up of the community service scheme. I found it to be a very worthwhile experience. May I also draw attention to the fact that I was a founder member of the Northern Ireland Association for the Care and Resettlement of Offenders, known as NIACRO.
I am still a vice-president of that body. The reason I wish to draw the attention of the House to that association is because it was from my involvement with it that I gained some little knowledge and direct experience of the administrative arrangements under which the probation services have operated in Northern Ireland. Certainly the Civil Service departments responsible for these probation services and also for the involvement of the after-care voluntary arrangements have had to work in very difficult and awkward community circumstances. It has been my experience that the Civil Service personnel, the probation service staff, and the voluntary service organisations have carried out their duties and responsibilities with a great degree of sensitivity and skill and a keen sense of the need for active co-operation to achieve positive results in these services.
The reason why I have drawn attention to this background is that, whatever might be the immediate difficulties confronting the new board, they have a very firm foundation on which to build the new services. They have an excellent team of experienced and professional personnel in all departments, supplemented and supported by reliable and active voluntary groups dealing with probationary matters. There are a few matters in the order which I wish to draw to the attention of the noble Viscount, Lord Long, in the hope that he will be able to clarify some of the issues involved.

317
The noble Viscount dealt with the point concerning the appointment of board members. I believe that the House will be aware that, on such occasions, the Secretary of State for Northern Ireland receives a considerable number of publicly-stated views and opinions about the type of persons who should fill such positions and the qualities it is desirable that they should have. I understand that a chairman, a deputy chairman, and 10 members of the board are to be appointed and that there are to be five co-opted members of the board. It is not my wish to add further to the kind of advice which has been offered already both in public and in private, but I feel that I should ask for some assurances that direct trade union interests and the clearly discernible interests of the Northern Ireland Association for the Care and Resettlement of Offenders will be fully considered in regard to aspects of the board appointments.
Another point on which I should like some clarification is that, so far as I can ascertain, the order makes no reference to the post of chief officer. The duties of a chief officer and his relationship with the board are surely of paramount importance to the success and effective working of the board and the service. Will the appointment of
the chief officer be made by the Secretary of State in consultation with the board? To whom will the chief officer be directly responsible—to the board, to the chairman of the board, to the Secretary of State, or to all three? Will the chairman—who, after all, is a part-time chairman as I understand it—and the chief officer be jointly responsible for conducting direct communications with the Secretary of State and the Northern Ireland Office? These are all aspects of the establishment of a board of which this House has had experience in the past. I feel that the lines should be clearly defined in this instance and that these aspects should certainly be clarified now rather than wait until the board has been set up.
With regard to staff matters, I understand that some 300 existing staff members will be transferred to the new probation board. Up to the present, a good number of them have been employed under Civil Service conditions and new contracts of service will have to be drawn up between the board and the transferred staff. My understanding of the position is that there are four groups of staff under various gradings; the chief officer and senior officials, probation officers, probation assistants, and then clerical and ancillary workers. May I ask the noble Viscount whether appropriate negotiations with the staff representatives have been satisfactorily completed? Have the necessary new procedural and substantive agreements been drafted and discussed with the staff representatives concerned? I should like to underscore my belief that these are all important aspects which require firm assurances being given by the Northern Ireland Office before the transfer of staff takes place, in order to avoid acute staff problems when the board has been set up.
The noble Viscount also made reference to the role and responsibility of all-round provision of assistance to offenders and ex-offenders. This will involve the board's powers to set up hostels and special projects and grant aid to voluntary organisations to assist in this type of work. Will the noble Viscount give an assurance that the board will have powers to encourage
318
the active support of programmes for the prevention of crime? In other words, in this order and in the setting up of the probation service we are concerned with dealing with offenders and ex-offenders and with rehabilitation work. But there is a clear and sharp distinction between the rehabilitation of offenders and appropriate measures required to help those at risk—especially those young persons in our community who are living in environments which are not conducive to leading what would be considered a normal life in our society.
The noble Viscount, Lord Long, also dealt with the question of training at some length. I was pleased to hear him say that training will be available within the service. I hope that a reasonable amount of this training will be undertaken within the service and that expertise will be built up in order to carry the training on, because it is a specialised service peculiar to Northern Ireland and one that requires its own type of training, expertise, personnel and facilities. Will the noble Viscount give an assurance that these training provisions will be extended, not only to the staff members at all levels but also to the board members? The noble Viscount has already made reference to the voluntary workers connected to the service. Will he give an assurance that the fees, lost-time allowances and other matters will be met in connection with the training of both voluntary workers and board members? With these remarks, I wish to give full support and approval to the order.
3.48 p.m.
Lord Hampton: My Lords, I too would like to thank the noble Viscount for this introduction to this order. I wish to make only a few points and to put two questions of which I have given "Prior" notice—or perhaps I should word that differently and just say that I have given notice of them. May I also pay great tribute to the work in this field undertaken by the noble Lord, Lord Blease.
The setting up of a probation board will come as a direct result of the investigations of the committee under Sir Harold Black and it would be of interest to debate those investigations more fully at some other time. It should be made clear that, while the setting up of this board is considered a step forward, the work of the probation service in Northern Ireland at present is highly spoken of by those in touch with its members. At the same time, it does seem sensible—in line with Government thinking and that of my party—that management of Northern Ireland affairs should be passed to those in the Province where possible. "Community participation" is the expression which has been used and this is very much in line with Liberal thinking. In the present climate in Northern Ireland, with serious unemployment in many areas the need for an efficient probation service is, unfortunately, highly important.
The questions I should like to ask the noble Viscount, Lord Long, are these. First, it has been said in the other place that the numerical strength of the probation service in Northern Ireland has shown a substantial increase between January 1978, when its staff numbered 107, and January 1982, when it numbered 170. This was treated as a considerable achievement. Another way of looking at this is that it is a sorry state of affairs that the increase is necessary.

319
Can the noble Viscount give the House the figures for offenders on probation at those respective dates, so that we can see the important contrast of the ratio of probation officers to offenders?
The second small point I would put is this. Under Article 14(2) it is said that any person who obstructs any inspector in the exercise of his powers under paragraph (1)—that is, the inspection of probation hostels et cetera—shall be liable on summary conviction to a fine not exceeding £25. For quite a serious offence is this really an adequate maximum allowable penalty in this age of inflation?
Viscount Long: My Lords, I am most grateful to the noble Lord, Lord Blease, and the noble Lord, Lord Hampton, for the great interest they have taken in this very important draft order for the new Northern Ireland probation service. If I may go straight to the questions that have been asked, the noble Lord, Lord Blease, asked what is the position of the chief officer. The chief officer is, and will be, the professional head of the probation service. The board obviously will rely heavily upon the chief probation officer for the day-to-day management of the service and for professional advice on how the service should operate and develop. I hope that will help the noble Lord. One further point about the chief officer. It will be for the board to appoint the chief officer, but the Secretary of State's approval to the appointment is necessary. I hope the noble Lord will agree with that.
As to NIACRO and the unions, the various bodies working now in the probation field, and this includes NIACRO, will be invited to put forward nominations for membership of the board. It will be for the Secretary of State to decide who should be appointed. The noble Lord also asked about terms and conditions of service for staff, including pensions. There is a worry here, quite understandably. It will be for the board to agree terms and conditions of service with the staff associations, but any representative grade will require the approval of the Secretary of State. Both NIACRO and the Northern Ireland Public Service Alliance were fully consulted during the preparation of the order, following its publication as a proposal for legislation. Both were fully in support of the concept of a probation service managed by an independent board.
I think that the word "rehabilitation" is one that may cause some uneasiness to probation officers. I can see that point. It was for this reason that it was avoided in the body of the order. The reference to it is in Schedule 4, in the context of the Prisons Act (Northern Ireland) 1953. I think there was a further question on the victims scheme, which I think the noble Lord was worried about. I have no doubt the board would wish to consider the possibility of participating in some form of victims support scheme. Obviously the noble Lord will not wish me to commit myself at this moment. I am also fully aware of the Bulldog scheme managed by the Inner London probation service. I can see no reason why the board should not consider introducing a somewhat similar scheme in Northern Ireland. Again this would be a matter for the board. I think the noble Lord was
320
worried as to where this leaves the social service. The order is not concerned with the question of professional practice. This will be a matter for another day.
On the question of payments to members, as the draft order makes clear, payments to members will be
determined by the Secretary of State with the approval of the Treasury. Once they have been determined it will be the duty of the board to make the payments. The intention is that the chairman should be paid an honorarium, and other members, including the deputy chairman, an attendance allowance. This is consistent with the current practice in Northern Ireland in regard to statutory boards.
I am most grateful to the noble Lord, Lord Hampton, for his intervention in this important debate. He asked me about the adequacy of the fine proposed under Article 14(2) of the order. The Treatment of Offenders (Northern Ireland) Act 1976, which introduced the offence of obstructing an inspector, provided for a fine of then £10. The proposed fine of £25 in the order, while still modest, is in line with other proposals for increases in fines generally in Northern Ireland. The noble Lord then asked me about the number of offenders under the control of probation officers in 1978 and 1982. The total number of persons on probation at 1st January 1978 and 1st January 1982 was respectively 1,165 and 1,550, there being an increase of about 33 per cent. I hope that information is of assistance to the noble Lord.
With regard to staff negotiations, provisional negotiations are now taking place between the Northern Ireland Office and staff, and I think most of those negotiations have been held already. There was an important question put by the noble Lord as to what role the board will be expected to play in the prevention of crime. One would hope that the work of the board and its staff generally will be directed towards a reduction in the incidence of re-offending, and thus help to reduce and prevent crime. Job training, education and provision of accommodation will all help in this respect, but above all the supervision of offenders placed by the courts in the care of probation officers should help in this important task.
My Lords, I have answered as many questions as I feel it is possible to answer, and I recommend the order to the House.
On Question, Motion agreed to.

Local Government Finance (No. 2) Bill
3.57 p.m.
The Parliamentary Under-Secretary of State, Department of the Environment (Lord Bellwin): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Bellwin.)
Lord Denham: My Lords, I think it would be appropriate if I were to say a brief word about how it is proposed to proceed with this Committee stage. The House will recall that on Monday last the Committee stage was adjourned, at the request of noble Lords

321
opposite, during discussion of Amendment No. 34 in the name of the noble Lord, Lord Evans of Claughton. This was to enable certain Government amendments to Clause 4 to be tabled for the Committee stage. It has now been agreed through the usual channels that we should not proceed with the amendments to Clause 4 today. I hope the noble Lord, Lords Evans, will agree to withdraw Amendment No. 34. I would then suggest that Amendments Nos. 35 to 40 should not be moved, and that the Question that Clause 4 stand part should be taken formally. The Committee would then proceed with Amendment No. 41 and subsequent amendments on the Marshalled List.
It is proposed that after the Committee stage has been completed the Bill should be recommitted in respect of Clause 4. I cannot yet say whether the recommitment will take place on the same day as the conclusion of the Committee stage, but the Public Bill Office will accept amendments to Clause 4 for recommitment before the Committee stage is concluded. This procedure will enable the Committee to discuss all the amendments to Clause 4, a clause which constitutes a separate part of the Bill, and I commend this course to the House. I think in the circumstances this is the most sensible way to proceed.
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD ABERDARE in the Chair.]
Baroness Birk Baroness Birk moved Amendment No. 41:
After Clause 4, insert the following new clause:
("Local authority not to be liable
. Where a local authority are subject to financial restrictions, whether as a result of the local authority being unable to leyy a supplementary rate or issue a supplementary precept or by the refusal of the Secretary of State to consent to the exercise of borrowing powers by the local authority, or by the action of the Secretary of State in reducing or otherwise adjusting any block grant payable to the local authority no action shall lie against that local authority in respect of any damage resulting from their failure to carry out duties imposed by or under any enactment or at common law by reason of such financial restrictions and no such duties shall be enforceable by proceedings before any Court.").
The noble Baroness said: This amendment follows Clause 4, to which we shall be returning. The reason for this amendment is that it is well known that local authorities are under statutory duty to provide certain services and to discharge certain functions in a manner laid down by Parliament. For example, highway authorities are under a duty to maintain adopted highways. Public transport Acts provide that it is the duty of the transport authority to exercise and perform its functions in conjunction with the executive to secure or promote the provision of a properly integrated and efficient system of public passenger transport. There is a duty to maintain an adequate and efficient police force for the area. Similarly, the Fire Services Act 1947 places fire authorities under a duty to make provisions for fire-fighting purposes. There are provisions for refuse collection and disposal. Section 8 of the Education Act 1944 places local education authorities under a duty to secure the provision of primary and secondary schools, and such schools shall not be deemed to be sufficient unless they are sufficient in number, character and equipment for the area.
Similarly, on housing, Sections 3 and 4 of the Housing (Homeless Persons) Act 1977 imposes duties upon housing authorities to secure that accommodation is made available for persons falling within the statutory categories of homelessness. Similarly, there are duties under the various social services Acts and particularly under the Chronically Sick and Disabled Persons Act.
However, if the local authority is in breach of a statutory duty—for example, by not maintaining a highway—then the local authority may be open to an action by an aggrieved person either for damages or for an order requiring the duty to be carried out. Such a remedy is obviously sensible, but the remedy itself assumes that the local authority has the resources to meet its statutory obligations and to perform its statutory duties. The effect of Parts I and II of the Bill, if enacted, may prevent a local authority from being able to do that and it would thereby be open to actions from people requiring particular duties to be performed, but the authority could be without the resources to meet those demands.
While a local authority can finance its own expenditure, it can decide on the level of performance for its statutory functions and can raise additional finance should this be needed from time to time. However, if the power of a supplementary rate or precept is denied, as it is under Part I of the Bill, and if the Secretary of State is able to cut the grant retrospectively for individual authorities under Part II of the Bill, the local authority may easily find itself without funds to perform its functions and also without the power to raise more funds during the year.
The effect would be that the right of a local authority to determine its own level of expenditure through the rates would be undermined, and the Government have the equivalent of a power of direction over the level of expenditure. Further, it is the local authority and not the Secretary of State which is still liable to those people who feel aggrieved for not performing duties which it would want to perform, but it is unable to do so because the Secretary of State has denied the grant and the ability to raise fresh finance.
Obviously, an argument that the Government will use and which the Minister will no doubt bring out when he replies to this debate, is that faced with a retrospective loss of grant and no supplementary rate or precept, a local authority should maintain its statutory functions at the expense of its discretionary services. Presumably the argument would also follow that if further resources are needed, then a choice will have to be made between the statutory functions performed by the authority. But is that how local government should work?—the Secretary of State, rather than the locally elected members of the council, deciding what services are provided, the level at which those services are provided and to what extent statutory functions are performed. We must not forget the actions that there may be for non-performance of the duties.
There are, therefore, it seems to me, two points to consider. First, there is a major constitutional change which Parts I and II will bring about if enacted. Second, there is the need to protect local authorities from the consequences of not being able to meet their statutory obligations simply because of lack of finance. Therefore, we feel that the Bill should be amended to

323
protect local authorities from the consequences of the actions of the Secretary of State causing them to be unable to fulfil their statutory obligations.
Unless this clause is enacted, local authorities will be vulnerable to litigation in two ways. First, those with a "service" interest will be attempting to prove non-performance of statutory duties. Second, ratepayers' groups will be taking action in cases where an authority, in order to meet its statutory duties, has exceeded its "targets", lost grant and thus breached the fiduciary duty owed to ratepayers. So the local authority in these circumstances and under this Bill would be in an impossible position. We are talking not about any sort of frills on the local cloth, but about the basic statutory duties that the local authority has to carry out. I hope that at the start of this new day of the Committee stage, on a sunny afternoon, the Minister will give this amendment a sympathetic hearing and response. I beg to move.
Lord Evans of Claughton: Briefly, I support the amendment moved by the noble Baroness, Lady Birk, for precisely the reasons that she has outlined and for the reasons that I was outlining on Monday evening on Amendment No. 37 before it suffered such a sad but temporary misfortune. I do not think that I need to add anything further, except to say that, from these Benches, we support the amendment.
Lord Beliwin: It is the start of another day but I fear that I cannot help the noble Baroness. I have to say that the new clause is misconceived. Local authorities are under a duty to rate or precept at a sufficient level to cover their estimated expenditure for the year, including an amount for contingencies. The abolition of supplementary rates and precepts just means that authorities will make a single rate or precept for the year, without imposing any further demands on ratepayers during the year. Authorities remain free to determine their expenditure and rating at precepting levels at the start of the year.
If an authority does have an urgent need for additional revenue which could not have been anticipated when making its rate or precept, then it can come to the Secretary of State for temporary borrowing approval. Where he considers it absolutely essential then, of course, he would allow the authority to meet unforeseen, unavoidable commitments within the year, and if it cannot do so from balances then such approval will be given. Each case will be carefully considered on its merits. So that dismisses two of the three examples of so-called "financial restrictions" outlined in the new clause.
The case is no better when it comes to grant losses during the year, whether it be by way of mid-year revisions to GRE, close-ending "or holdback. Any mid-year changes to GRE in 1982–83 should be manageable for authorities. As regards close-ending, we now know that the amount of close-ending required in 1982–83 on the basis of initial budgets will be less than 1 per cent. overall. So authorities should have been able to anticipate changes attributable to close-ending and GRE revisions, and make provision in setting their rates or precept. Similarly, we announced our differential grant holdback proposals for England
324
last December so authorities could take this into account in determining their rate levels; and in future years the principles on which holdback is to be applied will have to be spelt out in the rate support grant report.
We never needed this type of clause provision previously. We had close-ending and we had the resources element clawback. It had become almost a way of life. There were other adjustments. But we never needed to have supplementary rates to adjust for that. That is what contingencies were all about. Therefore, all in all, I see no good reason why an authority should fail to meet its statutory and other obligations in the circumstances given in the new clause. The onus has always been on authorities to get their sums right in the light of all the information available to them at the time that they set their rates and precepts, and then to allow for the unforeseen by contingencies.
It would seem to me that the new clause is designed to reopen the arguments about allowing supplementary rates in special circumstances. I have indicated what our attitude would be to granting borrowing approval in cases of unforeseen and absolutely essential expenditure. I should have thought that that took care of the problems that might arise. It is for that reason that we cannot accept the amendment.
Lord Bruce of Donington: I am sorry that the noble Lord cannot accept this perfectly reasonable amendment. If, of course, one was dealing with the noble Lord himself as the supreme chief of the department concerned, it would probably be a different ball game. But we are, of course, dealing with his right honourable friend the Secretary of State, and there is nothing in the record of his right honourable friend the Secretary of State that gives us any profound confidence that he will behave reasonably. We are quite sure the noble Lord will. When he indulges in nostalgia about what happened in the old days and how everything went very well indeed in co-operation with the department, he gives every appearance that he will behave reasonably.
However, he must remember that we are no longer in the old days. We know perfectly well—whether at the behest of the Treasury or whether as a matter of profound political conviction—that from time to time his right honourable friend imposes arbitrary limits, in respect both of grant and of what he would call his cash availability. These are most difficult to predict. Even though the grant may be fixed in respect of any local authority—and I put the terms in parenthesis—nevertheless that local authority cannot be sure when cash limits come to be imposed as well that it will receive the revenue during the year in respect of which the precept is made.
The noble Lord knows perfectly well that, following the edicts of his right honourable friend last year, a number of local authorities bent over backwards to try to conduct their affairs so reasonably that it was not even funny. Nevertheless, they found themselves penalised. It was not their fault and I, personally, am not blaming it on the noble Lord because he is a most reasonable man.
All this amendment says—and I think that it needs to be read out—is:
"The right shall not be exercised for the purpose specified in paragraph (cc) of that subsection so as to decrease the amount of block grant payable to a local authority where the local authority have taken all reasonable and prudent steps to avoid an

325
unreasonable increase in expenditure, having particular regard to local economic conditions".
What can be more reasonable than that? Of course, the word "reasonable" itself has a value because the courts are able, or at any rate they are said to be able, to determine what is reasonable. It is one of those legal terms that has a certain omnibus connotation, but nevertheless the courts have very little difficulty in determining what is reasonable under particular circumstances, which they themselves review.
I should have thought that the Government would be in no peril whatever if they accepted this amendment. The noble Lord has said many times that the main drive of the Bill has largely been actuated by what he terms—we do not necessarily agree—"unreasonable" authorities; that is to say, authorities that he thinks cut loose and go in for all kinds of expenditure which, in his view, is not essential. We will call them the unreasonable authorities.
But this would afford relief to the vast number of authorities which, for no reason of their own, find themselves deprived of funds. As I say, I should have thought that the noble Lord would have accepted this amendment with alacrity, if only to prove that the department of which he is a member is in fact far more reasonable than some people suppose.
Lord Bellwin: I suppose that we are back to the noble Lord's definition of what is reasonable. The noble Lord referred to the old days; I would point out that they were not so long ago. We are talking about three years ago, and I do not think that that can be termed "the old days". "Former days" might perhaps have been a better way of putting it.
The noble Lord also referred to the present Secretary of State. All Secretaries of State take the line which they think right at the time when they are in office, regardless of their political colour or of the party which they represent. I can certainly remember some decisions of the Secretary of State in the former Labour Administration which at the time I considered were hardly reasonable; but then he was doing his job as he thought best. I do not think that this whole problem is because the Government, to quote the noble Lord, Lord Bruce, consider themselves to be in peril. Perhaps that is going a little too far.
I return to the points I made previously; it is all about what is likely to happen and what has happened in the past. I repeat that local government was always able to decide for itself what its outgoings were likely to be in relation to its expenditure. It always took into account the possibility of the unforeseen arising; that is why we had contingencies and balances. In practice, I am absolutely certain in my own mind that there will not be problems again in the present circumstances. Should there be, that would be a different matter. I just do not think that the amendment is necessary at all. I do not think that we shall have the kind of problems which the noble Baroness, Lady Birk, and the noble Lord, Lord Bruce, fear. I am really very confident about that. I am confident not least because I know how local government manages and sets up its estimates in the first place. I do not think that we shall have these difficulties.
Lord Plummer of St. Marylebone: In case it should be thought that my noble friend the Minister is a lone
326
voice in this matter, I think one should carefully consider what this amendment means. It would drive a coach and horses through the Bill. Indeed, what has happened to local government that it should now be allowed to estimate its expenditure and then have another bite at the cherry at the expense of the ratepayers? For years and years local government has successfully estimated its expenditure from year to year, and any local authority officer worth his salt has put aside money for expenditure unforeseen. To allow them to come back again—and bring forward expenditure by their political masters—for money in the middle of the year is something we should not contemplate, and I fully support the Minister in what he says.
Baroness Birk: I think that the Minister's reply was very unsatisfactory. While his nostalgia is rather charming and enchanting in a way, it is getting rather ragged because we hear it all the time. I feel almost back in the old days when the noble Lord speaks, but it really is not good enough to answer always on that same note, because we are all aware—and he knows just as well as anybody else here, even better—that circumstances have changed, and demands on local authorities have changed. There have been demographic changes, all sorts of changes, and now the local authorities are being strangled to such a degree that it is very difficult for them.
The reason why an amendment like this is brought forward is that it is really impossible to get any give from the Government by any other route. This makes it extremely difficult. As this comes after Clause 4 and we have not yet discussed Clause 4, which I imagine we shall be doing in a couple of weeks, I shall not take it to a Division at this moment. I shall see whether, when the Government bring forward their amendments to Clause 4, they show rather more generosity and give more help to local authorities that would find themselves in this plight; and then we shall have a look at it again and see what to do after we have discussed Clause 4.
Amendment, by leave, withdrawn.
4.22 p.m.
Lord Evans of Claughton Lord Evans of Claughton moved Amendment No. 42:
After Clause 4, insert the following new clause:
("Special charging orders
.—(1) In section 147 of the Local Government Act 1972 (expenses of principal councils) the following subsections shall be inserted after subsection (3)—
"(3A) If in any part of a district the district council is exercising as principal one or more of the statutory functions held by the parish or community councils (as the case may he) in its district, and such function or functions is elsewhere in that district being exercised by one or more parish or community councils (as the case may be) the district council shall make such charging resolution as is described in subsection (3) above as is appropriate in all the circumstances of the situation.
(3B) The Secretary of State may by order made by statutory instrument prescribe (a) the factors to be taken into account by the district council in making any charging order under subsection (3A) above and (b) the procedure by which any parish or community councils desirious that any such charging order be made may secure the making of an appropriate order.
(3C) Subsection (3A) of this section shall not come into force until the first day of April in the year next after the year in which the Secretary of State shall have made the first order under subsection (3B) above".

327
(2) In section 54 of the Local Government, Planning and Land Act 1980 after subsection (8) there shall be inserted the following subsection—
"8A Where 'relevant expenditure' includes sums payable under precept to the councils of parishes or communities the Secretary of State may by regulations made under secton 113 of the General Rate Act 1967, provide for the transfer of the amount of block grant attributable to any such precept from the local authority to the council of the parish or community as the case may be.".").
The noble Lord said: We have had criticism of people indulging in nostalgia. This is a fairly nostalgic amendment in that this amendment, or something similar to it, has been put down by the noble Baroness, Lady Stedman, and by my honourable friend David Alton, and by the honourable Member, Mr. Roberts, in another place. It has been put down so many times, and so many attempts have been made to deal with it, that I think there is genuinely a feeling on the part of the Government that this would be a suitable amendment to amend the Local Government Act 1972 and the Local Government, Planning and Land Act 1980, to give parish councils the opportunity of receiving some of the rate support grant which is given to district councils, but usually, or more often than not, not passed on to the appropriate parish.
If you read the reports in Hansard of the debates on this you will see that several noble Lords and several right honourable gentlemen have said that it cannot be beyond the wit of Government to do this desirable thing, and that eager anticipation has been shown of the Government introducing an amendment along these, or similar, lines in your Lordships' House to do this precise thing. But I understand from the conversation I have had with the noble Baroness, Lady Stedman, that the noble Lord the Minister has now declared that he has lost hope of being able to devise a scheme which could be carried through without enormous expense.
I personally do not think this is impossible. It may be difficult. I concede that it is a difficult proposal. I think that the amendment I have put down would do it. But I understand that the Minister believes that it would be impossible to amend the rate product rules to apply to Section 150 of the Local Government Act 1972. Would it not be possible—because I think that theoretically it is in order—for the parishes to precept under Sections 12 and 13 of the General Rate Act 1967?
The matter is obviously not impossible to calculate because there are a number of district councils in various parts of the country who have succeeded in amicably passing on the appropriate amount to the parish councils, but other authorities have refused to countenance this. I think far more district councils refuse to assist the parish councils than assist them. As things stand, precepts of, I think, 8,600 parish, town and community councils which are wholly met from, and levied on, those ratepayers are taken into account in determining block grant payable to district councils, but none of this relevant grant has to be paid to the parish council, and it is not credited to them in many cases; so that the parish ratepayers in fact receive no benefit, but the ratepayers of the whole district council receive the benefit even though they did not bear the initial expenditure.
This seems to me under any assessment to be grossly
328
unfair. I can speak in a disinterested way because the part of the country that I live in does not, unfortunately, have parish or community councils. I agree that it is difficult. I concede that the Government have tried to find ways of doing it, but I am sure that with a little more will and backbone on their part they could do this. It is apparent that there are many district councils—I can name names, as they say in the popular press, if necessary—which have said that they will not pay their parish councils unless they are forced to. Parish councils in these areas are, in effect, double rated. The parish ratepayers pay parish rate and district rate, and the rate support grant element designed for parish use is used to alleviate district councils' expenditure generally.
Therefore, in fact areas with active parish councils, which I should have thought would be an activity that your Lordships on all sides of the Committee would approve, are in fact subsidising areas which do not have active parish councils. It seems to me on any assessment, and from reading the reports over two years now, that this is widely accepted as being unfair and anomalous. I hope that the noble Lord the Minister will have second, third or fourth thoughts on this, and try to find a means of doing this desirable thing and make it compulsory on district councils to hand over the resources to the parish councils where it is applicable. I beg to move.
Baroness Stedman: I should like to support the noble Lord in his amendment. I should also like to express my thanks to the noble Lord, Lord Bellwin, for the care he has taken to try to meet this point. But my mind goes back to 1980 and the passage of the Local Government, Planning and Land Bill when we spent a long time late one night discussing this. We got a lot of sympathy and a lot of good words from the noble Lord opposite, who promised to take it away and have a look at it. Nothing was able to come out of that. We had a further go by means of questions, and suggested a possible way out which was not found to be acceptable. There have been discussions in the course of considering this Bill in another place with no successful result at all.
I then wrote and put another proposition to the noble Lord, and he sent me a very long letter saying why that too is also unworkable. In the meantime, some of our parish councils get some money and some do not. While local government is being squeezed as it is of money, the districts are pulling in their horns and retrenching, and one of the casualties is the parishes because funds that at one time districts might have given to parish councils they now say they can no longer afford to give.
The noble Lord tells me in his letter that it would be impracticable to calculate the grant related expenditures for 8,600 local councils in England and Wales, and without having such a calculation the local councils' entitlement to block grant could not be calculated in the same way as for other authorities. He goes on to say that he is convinced that we can only continue to rely on district councils using their discretionary powers.
However, district councils, while facing the music resulting from the cutbacks in local authority expenditure, are going to need a lot more than just pious words to the effect that we hope that they will continue

329
to use their discretionary powers. We really need something a little stiffer than that from the Government, either as a part of this Bill or as a direct circular to authorities drawing their attention to the difficulties that parish councils have and to this concept of double rating that applies in part of the country. I hope that the Minister is not just going to give up. We shall not give up, and we hope that he is going to continue to try as well. I assure the Minister that, if he cannot accept this proposal, I shall come back at him time and again until we get something done for parish councils.
Lord Bellwin: I only wish the noble Baroness, Lady Stedman, had come back time and again at her Administration when they were in power for many years and did not do anything about the parish councils. However, the rules have changed a little. As the noble Lord, Lord Evans, explained, his proposed new clause is concerned with the two matters relating to parish and community finance which have been debated in another place at an earlier stage and in your Lordships' House during the passage of the Local Government. Planning and Land Act 1980.
It is true, as has been said, that I expressed sympathy with and understanding of the problem. The noble Baroness, Lady Birk, mentioned my reference to experience as being nostalgic. She can call it what she likes. I call it experience because I know it happened, as I was concerned with many of the situations which she fairly outlined. I faced the problem with which we are concerned as well, and after reorganisation, my authority acquired 27 parish councils when we did not have any previously. That was quite an experience, I assure the Committee. I understand exactly the problem, although I am sure the Committee will appreciate that many representations are made the other way round; by district councils who give reasons, into which I will not go today, why they would not want to take the step proposed. I am concerned, however, with the practicalities of the matter. It is true that we have looked at the subject, and I will give a little more detail about the problem.
The noble Lord, Lord Evans, explained that the precepts which district councils pay can contribute to district's "relevant expenditure" for grant purposes and suggested that the local council concerned should have a right to the grant which accrues as a result of the district's expenditure in paying the local council's precept. As my honourable friends the Under-Secretaries of State for Wales and for the Environment explained in another place, there are insurmountable difficulties which prevent the existing RSG procedures being redesigned to pay block grant to parish and other local councils in the same way as to other local authorities.
The noble Baroness, Lady Stedman, said I had told her in my letter—and I repeat—that it is impracticable to try to assess the spending needs of some 8,600 English and Welsh parish, town and community councils. This new clause tries to get round the problem by stating the principle that the local councils should be entitled to have a share of block grant passed on to them by the districts, and would leave the Secretary of State to make, by order, arrangements as to how the entitlements should be calculated. That would not be possible because grant entitlement depends on total
330
relevant expenditure and it would not be possible to say for sure how much of a district's grant was due to precepts it had paid to local councils. The possibility of negative marginal rates of grant and grant abatement for unreasonably high spenders complicates matters further. The new clause would give the Secretary of State an impossible job and provide him with powers which he would never in practice be able to exercise.
The noble Lord, Lord Evans, referred to the possibility of a way round the problem through the rate product rules and suggested it might be simple to pass on to councils some rough and ready clement of block grant as of right by means of the rate product rules which are made under the section of the General Rate Act, Section 113, which is quoted in the new clause. Those are rules for the calculation of a penny rate which are used, among other things, by certain local authorities to precept on rating authorities. It seemed at one stage that such an approach might be practicable, but on closer examination it founders because the rules apply only to authorities which precept under Section 12 of the General Rate Act 1967; county councils, the GLC and the Metropolitan Police District. The rules do not apply to the great majority of parish councils. Although in theory the provisions of Section 12, and thus the rate product rules, can apply to particular parish councils when they have been specifically applied by means of statutory schemes made by the district of parish under Section 13 of the 1967 Act, no such schemes have been made in practice. Parish councils precept under entirely separate powers provided by Section 150 of the Local Government Act 1972. The rate product rules, therefore, unfortunately do not provide an easy solution to the problem.
I have a great deal more detail with me, but I fear it would not help to go into it; basically, what the noble Lord and the noble Baroness are concerned with is that they should have an answer to the problem. I suspect they know many of the difficulties. They are really only concerned to know what are the possibilities; not the reasons why not, but how something might be done. I am replying that unfortunately—as I say, for other reasons which I could give the Committee, and will give noble Lords if they care to correspond on the subject or discuss it further—in practice we feel we cannot overcome the difficulties, and therefore we cannot accept the new clause.
Baroness Birk: I can be brief because the noble Lord, Lord Evans, and the noble Baroness, Lady Stedman, described the situation fully. I, too, took part in the discussion of this subject when the 1980 measure was going through, and I have also been in correspondence about it with the Minister and the Parish Councils' Association. Whether or not the Minister finds the proposal of the noble Lord, Lord Evans, workable is one thing, but not to be able to find a way round the problem, perhaps by adopting an entirely different approach, seems strange. I appreciate that it is a difficult problem, but it should be possible to overcome it, if necessary by adopting a totally revolutionary approach. I am really asking the Minister whether, if he cannot accept the new clause—and of course it is up to the noble Lord, Lord Evans, to decide what to do about that—he can offer any hope, perhaps at a later stage in the Bill, of dealing with what is a knotty,

331
uncomfortable and worrying problem for a number of people and areas.
Lord Bellwin: If I were to say I could or would do what the noble Baroness, Lady Birk, asks, I would be misleading the Committee; I cannot give that assurance. I can only offer, as I have—though not within the context of the Bill—to talk to the noble Lady about it. The noble Baroness, Lady Stedman, says she will not leave the matter alone but will come back to me on it time and again. That is fine and I respect her for that, and there is no reason why we should not sit down and talk about it with officials and others. However, the problems are there. It is not that easy a matter and we cannot accept the new clause.
Baroness Stedman: I hope the Minister will not mind me quoting this paragraph from his letter:
"The provisions of Section 12 can, in theory, be applied to particular parish councils when they have been specifically applied by means of a statutory scheme under Section 13 of the 1967 Act, 15ut no schemes exist in practice".
Is there any reason why schemes should not exist? If in theory they could have one, why cannot someone ask for one?
Lord Bellwin: There is no reason at all, so far as I am aware, why somebody should not ask for one, and if they did it might be interesting because one could then see exactly where it led. She might wish to instigate such a request, but I am sure she will take great care, before doing so, to consider all the implications.
Lord Evans of Claughton: I am profoundly disappointed at the impasse we have reached. The standard bearer —if I may so describe the noble Baroness, Lady Stedman—has been heard throughout the debates on this subject, and whereas a few months ago I would not have said that, I can now do so because we have what I might call a more generous relationship. She has worked night and day on it, and the Minister's reply has therefore been a disappointment to all of us. One of my disappointments is that the Association of District Councils has not been very co-operative. They advised their members not to reply to a questionnaire asking if they passed money on to their parishes, so only a few district councils replied.
I would have hoped that the noble Lord the Minister would say, "I will send out a very strongly-worded circular, telling the councils that terrible things will happen to them if they do not pass on the money that is rightly belonging to the parish, and pointing out that people are being double-rated, which is unfair". I would also have hoped that the Minister might write to the district councils and say, "We want to know which of you passed it on, and do not avoid giving the information, do not bully the little parish councils". If the noble Lord the Minister is prepared to take a positive step in that way—I have now probably finally severed any relationship that might have existed between myself and the ADC—then it would be something. But, as things stand at present, it really is a disgraceful situation, one that I believe universally people think is wrong for the parish councils.
332
I think that there is a general view in this country that parish councils should be encouraged to involve the community, so that people know what is going on at the lowest level of local government. Parish councils should be given every encouragement, rather than the discouragement that they feel every time the subject is debated. I wonder whether the noble Lord can give any indication along the lines that I have mentioned.
Lord Bellwin: I am sure that no one would thank us for sending the kind of strongly-worded circular that the noble Lord suggests. I am also sure that he knows that there is very strong opposition by many district councils to what is being proposed. I can tell him that personally I have received between six and 10 delegations from district councils, which have complained bitterly that the actions of parish councils have caused them to exceed their spending targets and all the rest. The delegations have told me of all the dreadful things that parish councils do to them. As the noble Lord and the noble Baroness know, some parish councils are very large and their spending is very significant, while others, the majority, are small authorities, and these I think are the ones which mostly worry the noble Lord.
I could not undertake to send a circular such as the noble Lord suggests. I should like to suggest as a constructive idea that the bodies which represent the parish councils try to sit down with the ADC and see whether they can discuss something that on a voluntary basis might lead to a working relationship that is happier than that which often at present exists.
Lord Evans of Claughton: As the Minister has said, there are some enormous parishes. Halewood, near Liverpool, includes in its area the whole of the Ford factory. The parish council in Halewood is thought by very many people in the area to be much more representative of the views and the problems of Halewood than is the Knowsley Metropolitan Borough Council. I am disappointed that the Minister will not give us more encouragement. For once we are discussing this matter at a reasonable hour, rather than late at night, and so I feel that I should test the opinion of your Lordships' Committee by dividing on this amendment.
4.44 p.m.
On Question, Whether the said amendment (No. 42) shall be agreed to?
Their Lordships divided: Contents, 71; Not-Contents, 104.

DIVISION NO. 1

CONTENTS

Airedale, L.

Brockway, L.

Alport, L.

Brooks of Tremorfa, L.

Ardwick, L.

Bruce of Donington, L.

Aylestone, L.

Byers, L.

Barrington, V.

Caradon, L.

Beswick, L.

Cledwyn of Penrhos, L.

Birk, B.

David, B.

Bishopston, L.

Davies of Leek, L.

Blease, L.

Denington, B.

Blyton, L.

Diamond, L.

Boston of Faversham, L.

Donaldson of Kingsbridge, L.

Briginshaw, L.

Elwyn-Jones, L.

333

Evans of Claughton, L.

Melchett, L.

Ewart-Biggs, B.

Milford, L.

Fisher of Rednal, B.

Molloy, L.

Gaitskell, B.

Oram, L.

Granville of Eye, L.

Peart, L.

Grey, E.

Ponsonby of Shulbrede, L.

Hall, V.

Rhodes, L.

Hampton, L.

Roberthall, L.

Hanworth, V.

Ross of Marnock, L.

Henley, L.

Sainsbury, L.

Jacobson, L.

Seear, B.

Jacques, L.

Stedman, B.—[Teller.]

Jeger, B.

Stewart of Alvechurch, B.

Jenkins of Putney, L.

Stewart of Fulham, L.

John-Mackie, L.

Stone, L.

Kennet, L.

Strauss, L.

Kilmarnock, L.

Wallace of Coslany, L.

Leatherland, L.

Walston, L.

Llewelyn-Davies of Hastoe, B.

Wells-Pestell, L.

Whaddon, L.

Lloyd of Hampstead, L.

Wigoder, L.—[Teller.]

Lloyd of Kilgerran, L.

Winstanley, L.

Longford, E.

Winterbottom, L.

Lovell-Davis, L.

Wootton of Abinger, B.

NOT-CONTENTS

Abercorn, D.

Loudoun, C.

Airey of Abingdon, B.

Lyell, L.

Alexander of Tunis, E.

McAlpine of Moffat, L.

Ampthill, L.

McFadzean, L.

Auckland, L.

Macleod of Borve, B.

Avon, E.

Mancroft, L.

Belhaven and Stenton, L.

Mar, C.

Bellwin, L.

Marley, L.

Beloff, L.

Massereene and Ferrard, V.

Caccia, L.

Mersey, V.

Campbell of Alloway, L.

Monckton of Brenchley, V.

Campbell of Croy, L.

Montgomery of Alamein, V.

Cathcart, E.

Mottistone, L.

Clitheroe, L.

Murton of Lindisfarne, L.

Coleraine, L.

Northchurch, B.

Cork and Orrery, E.

Nugent of Guildford, L.

Cottesloe, L.

Onslow, E.

Craigavon, V.

Orkney, E.

Cross, V.

Orr-Ewing, L.

Cullen of Ashbourne, L.

Peel, E.

Dacre of Glanton, L.

Platt of Writtle, B.

Darnley, E.

Porritt, L.

Daventry, V.

Rankeillour, L.

Davidson, V.

Richardson, L.

De La Warr, E.

Ridley, V.

Denham, L.—[Teller.]

Rodney, L.

Digby, L.

Romney, E.

Dormer, L.

St. Aldwyn, E.

Elliot of Harwood, B.

St. Davids, V.

Elton, L.

St. Just, L.

Enniskillen, E.

Sandford, L.

Ferrers, E.

Sandys, L.—[Teller.]

Fortescue, E.

Sempill, Ly.

Fraser of Kilmorack, L.

Sharples, B.

Gainford, L.

Skelmersdale, L.

Gainsborough, E.

Somers, L.

Gisborough, L.

Spens, L.

Glenarthur, L.

Stradbroke, E.

Gormanston, V.

Strathspey, L.

Greenway, L.

Sudeley, L.

Gridley, L.

Swansea, L.

Hailsham of Saint Marylebone, L.

Swinfen, L.

Thomas of Swynnerton, L.

Hawke, L.

Trefgarne, L.

Hylton-Foster, B.

Trumpington, B.

Ilchester, E.

Ullswater, V.

Ironside, L.

Vaux of Harrowden, L.

Kemsley, V.

Vivian, L.

Kinnaird, L.

Wakefield of Kendal, L.

Kintore, E.

Westbury, L.

Lane-Fox, B.

Willoughby de Broke, L.

Lauderdale, E.

Young, B.

Long, V.

Resolved in the negative, and amendment disagreed to accordingly.
4.52 p.m.
Clause 5 [Establishment of Audit Commission]:
Viscount Ridley Viscount Ridley moved Amendment No. 3:
Page 5, line 6, at end insert ("which shall consist of sixteen members").
The noble Viscount said: I beg to move Amendment No. 43, which stands in my name, and if it is to the convenience of the Committee I should also like to speak to Amendments Nos. 44, 48, 72, 73 and 80. We move now into Part III of this Bill, which provides for the establishment of the audit commission. I think it is no secret that the suggestion that there should be such a commission was not received with total happiness in local government circles—indeed, one might say quite the reverse—but I think it is probably necessary for your Lordships to accept the decision of another place and of the Government that they wish to have such a body. I should say at once, and before anything else is said about it, that the need for a proper, fair, detailed and thorough audit in local government matters is never questioned by me and never should be by anybody. Of course we need the whole process of audit more than ever, but how to do it is where we may find ourselves differing from the Government.
The amendments to Clause 5 which I have put down, and which should be taken with those proposed to Schedule 1, are entirely intended to seek to secure for the commission as proposed the real independence from central Government which is at present enjoyed by the district audit service. A body as suggested, whose membership, including its chairman and its deputy chairman, is to be appointed by the Secretary of State cannot, I submit, be truly independent of the Government of the day.
One of the greatest strengths of the present system of audit for local government is the statutory independence which Parliament has conferred upon the district auditor. This independence has encouraged the development of a totally impartial and, I believe, excellent audit service, which has gained the universal respect and confidence of all local authorities and, indeed, of the electors who elect them. If the district audit service is to be placed under the control of the commission, then that commission should be enabled to function with the same measure of real independence as district auditors presently enjoy.
The proposal that appointments to the commission shall lie with the Secretary of State will not inspire the necessary confidence in the independence of the new body, and this applies, I submit, even more acutely to the ability of the commission to appoint its own chairman and deputy chairman. I would quote my noble friend the Minister on Second Reading, when he said (and I do not disagree with a word of what he said):
"Audit must be an independent process and must be seen to be independent from central and local government.—[Official Report 22/4/82, col. 629.]
There is no doubt that that is what we are after, and I am here suggesting how to achieve it.
In the amendments I have tabled to Schedule 1, which are Amendments Nos. 72 and 73, the amendments seek to transfer the power to appoint one-half of the members of the commission to the Lord Chan-

335
cellor from the Secretary of State, in the certain knowledge that the Lord Chancellor is an official who is far above the detailed political struggles of Secretaries of State and is sufficiently independent to merit the confidence of those bodies to whom Part III of this Bill will apply. The remainder of the membership would be appointed on the nomination of the local authority associations, and that, I think, falls in with the Government's own wishes.
Amendment No. 43 suggests that 16 members is an appropriate number, so that the commission can be divided neatly into two halves; and Amendments Nos. 72 and 73 say how they are to be selected. Amendment No. 72 would of course be consequent upon Amendments Nos. 43, 44 and 48, and would remove from the Secretary of State the power to appoint the membership of the commission and, indeed, its chairman and deputy chairman, as I have said. The clause enables one-half of the membership to be appointed by the local authority associations and the remainder by the Lord Chancellor, and it empowers the commission to elect its chairman and deputy chairman.
The distribution of members to be appointed by the local authority associations, as suggested, is three for metropolitan authorities, three for non-metropolitan counties and two for non-metropolitan districts. The reason why non-metropolitan districts suffer is, I think, the fairly reasonable one that their expenditure is rather less than an eighth of either of the two other classes of authority, and therefore their involvement should be considerably less. Amendment No. 72 is an alternative to No. 73; and No. 80 is consequential in that it deals with the appointment of the commission's chief officer by the commission itself. The whole package is designed to achieve and, I would suggest, does achieve, what I spoke of earlier—the total independence of the commission from the Government of the day. I beg to move.
Baroness Birk: In speaking to this amendment I am, as was the noble Viscount in moving it, speaking really to the group, because I think the point here is the principle involved. I am not at this moment concerned particularly with the final number of members of the commission or, indeed, whether it should be left to the Lord Chancellor to make the appointments. We have some amendments later on, which my noble friend will be moving, proposing a different number and a slightly different approach, but I think that the concern of the Committee this afternoon—and this is not confined, as one can see immediately, to any political party—is the basic principle of the independence of this commission. I think that most of us here do not like this commission anyhow, but if provision for it is to he in the Bill, and if it is to become part of the legislation on the statute book, then we should look at how it is to be composed.
If I may repeat (because I had also marked the passage to which the noble Viscount referred) the Minister's comments on Second Reading, he said:
"Audit must be an independent process and must be seen to be independent from central and local government".
Here we have proposals for a commission, every member of which has to be appointed by the Secretary of State; and, later on—and there are other amend-
336
ments on that—even when a member, having been appointed, wants to resign some time afterwards, the resignation does not go to the chairman of the commission (which, after all, is the usual practice in any organisation, business or institution) but goes, again, to the Secretary of State.
The whole control of the commission in its present form in this Bill is absolutely total. There is no flexibility whatsoever. The local authorities, through the associations, have all expressed tremendous dismay at this. Again, it is rare to find the local authority associations so much ad idem about any matter; there is usually a different approach. But the feeling here is very strong and the feeling among local authorities is very strong indeed. I think that the Government, in pursuing this particulalar line, and the Secretary of State at the moment insisting upon this, are causing tremendous trouble for themselves as well as for the local authorities.
Surely, what the Government must want in a Bill like this—and even those of us who cannot support the Bill must see that this must be an important concomitant for the Government—is that there should be some feeling of co-operation engendered by the Government among local authorities. If this stands as it now does, then antagonism will grow. Looking at it as a question of local government and central government and from the point of view of the welfare of the country as a whole, it cannot be right to set up the tremendous conflict that there is and will be between local government and central Government in this country, or for local government to feel that they are being marshaled and treated like small schoolchildren without the right to have any say in their own destiny on this commission. My noble friends and I support the noble Viscount's amendments because we feel the great importance of the independence (which has been spoken about and which is not yet there) of any audit commission.
Lord Evans of Claughton: We support the amendment moved by the noble Viscount. I think it is true to say that we are opposed to the whole concept of an audit commission. We think that the district auditor system has worked very well and has been very successful and objective. From what I hear, the experience in Scotland on the commission does not fill me with confidence for it here. However, the noble Viscount is probably right: we shall be stuck with it. The Government will probably insist that it goes through. I do not see them climbing down on this.
Therefore, it is important that the independence not only of the commission but of the chairman and deputy chairman should be seen to be complete and absolute and they should not look (as they will look if the legislation goes through as at present) as though they are a poodle to the Secretary of State. I believe strongly that, if we must have an audit commission, then its independence of outside influence of any kind, from local government or from central Government, should be complete and should be seen to be such. I think that the amendments that the noble Viscount has put down would succeed in doing this. I support the amendment.
Baroness Stedman: I, too, should like to support the amendments of the noble Viscount. When we had

337
Second Reading, the noble Lord, Lord Bellwin, said in reply to a question of mine that local government representation would be generous on the audit committee. While I accept that he said that in good faith, one must ask the question: what is generous? Therefore, it is better that we spell out clearly what is to be the local authority representation on that commission. Like the noble Lord, Lord Evans, my gut reaction is that there is no need for an audit commission; that the district auditor has managed quite well. But I sense that we shall not win on that and therefore we must try to make the audit commission more acceptable to the local authorities and their association and ensure that there is an adequate number of members on that commission who have deep practical knowledge of how local government works.
We cannot be sure that the members appointed by a Secretary of State, of whatever party, will not assume that they are being appointed just to wield the big stick on local authority expenditure and to keep tabs on the local authorities. Local government direct representation of the kind proposed by the noble Viscount would ensure that those at the sharp end of local government administration and who are doing it day by day do have fair representation on the commission and will know what they are talking about. I support the amendments.
The Earl of Gainsborough: Having been involved in local government for many years, may I join with other noble Lords who support the series of amendments moved by the noble Viscount? All of us, irrespective of political affiliation, are concerned that the local authorities of this country have their accounts properly and fairly audited—and in the vast majority of cases the district auditor has done this very successfully for many years. It seems to me that, if we are going to have a change, we should take very great care—and I am sure that your Lordships' Committee would be the right body to insist on this —that the new arrangements are fair and represent a proper balance of the audit commission's composition, Therefore, I should like to add my small voice to those on all sides of the Committee who support the noble Viscount on this series of amendments.
5.5 p.m.
Lord Bellwin: There are so many amendments down which deal with different aspects of the membership and so on, that I think I will try to deal with them as they come on their own merits rather than have a broad brush, across-the-table discussion on the principles. May I begin by saying that the independence of the commission and of those who carry out the audit is not in any way questioned. I said at Second Reading that that, in my opinion, was vital. It always has been vital and has always pertained; it continues to be vital and it will continue to pertain—and, some might say, to a greater extent than hitherto. I hope that the noble Earl, Lord Gainsborough—and I am sure that he will follow closely the debates which will follow on the detailed amendments—will agree with me, as I hope will all noble Lords.
Can I say that in coming to this express amendment there are a number of important issues? I propose to discuss them in turn in detail and I think my noble
338
friend Lord Ridley would want me to do that. The issues are: who should appoint the members of the commission and the chairman and deputy chairman; the need for consultation over the membership; how large the commission should be; what the balance of interests represented on the commission should be; whether the appointment of the commission's chief officer should require the approval of the Secretary of State.
These amendments suggest an interesting system for appointing the members of the commission, but I cannot accept that system because it runs contrary to an important issue of principle. That issue is the accountability of the Secretary of State to Parliament for bodies that he has established. One of the criticisms of quangos is that they are not accountable. Here we have the Secretary of State seeking parliamentary approval to set up a body. It is essential that he should have functions in respect of that body to enable him to be answerable to Parliament, and therefore it is equally essential that he should have the ultimate responsibility for appointing the membership.
Amendments Nos. 72 and 73 will split the appointments between the local authority associations and the Lord Chancellor. This appears to ignore the fact that the associations are interested parties to the commission and its work. It is surely undesirable that the commission membership should be shared between such interested parties. There may well be other groups which should be represented. What about the accountancy profession, industry and commerce? The Secretary of State has a duty to the community at large. There may also be talented individuals of no clear cut organisational affiliation who could make major contributions. Appointing by the the Lord Chancellor is not without attraction but it is more appropriate for judicial functions, which is not the case here. I cannot accept the proposal on the appointment of members set out in these amendments.
Regarding the appointment of the chairman, again, as the Secretary of State will be responsible to Parliament for the commission, it seems right and desirable that he should have the power to determine the chairmanship as part of that responsibility. Moreover, it will be helpful for the commission to have its chairman and deputy identified from the start.
A requirement on the commission to select for these positions might present difficulty. It is important for the commission to have a straightforward and unhampered start. For the reasons given already in relation to the appointment of members I do not feel it would be appropriate for the noble and learned Lord the Lord Chancellor to appoint the chairman and deputy as proposed in Amendment 73.
Amendment 44, to delete subsection 5(2), would remove the consultation provisions in that subsection. Yet, it is clearly vital for all interested parties to be consulted on the appointment of members. The reference to consultation with the local authority associations would no longer be appropriate, since this group of amendments would allow them to appoint half of the members. But no provision would be left requiring consultation with the accountancy bodies, the trade unions and others. I respectfully suggest that this is a major defect in these amendments.
The appropriate size of the commission membership

339
is a matter of judgment. The provision in Clause 5(2) for a range between 13 and 17 (including the chairman) was deliberately chosen in order to provide flexibility over appointments; I hope that the arrangements provided for in the Bill will stand for a long time to come, and the most appropriate balance of interests to be represented on the commission, and the availability of talented and appropriate individuals to serve, will probably vary from time to time. A fixed number of members would therefore be undesirable and inflexible; we do not want to have to be in the position of having to make appointments for the sake of it.
Finally, there is the question of the balance of interests among the commission members. Again, this must be a matter for the Secretary of State to determine. The essential point is to ensure that the commission membership reflects the main interests involved and that the individuals have appropriate experience and talents. Surely that must be an overriding factor. If we attempt to spell out the balance of membership in the Bill we get into all sorts of difficulties over which interests should be represented, how they should be defined and what weight should be attached to each interest. We must leave this to the Secretary of State to determine in the light of the suggestions he received about membership during his consultations—and he has had those consultations. I can, however, assure my noble friend Lord Ridley that a large number of members—it has been said before, and I gladly repeat this assurance—will be drawn from local government and others from relevant professions. We shall also consider members from industry, commerce and consumer interests.
Amendment No. 80 raises the issue of the Secretary of State's involvement in the appointment of the commission's chief officer, who will be known as the Controller of Audit. I know this provision has caused some concern. But let me assure the Committee that this is a well precedented provision. Parallel provisions apply, for example, to the Scottish Accounts Commission, the Sports Council, the Nature Conservancy Council and the Countryside Commission.
It is included in this Bill for a number of reasons. First, to underline the importance and status of this post. Second, to enable the Secretary of State to prevent the appointment of an unsuitable candidate. This of course is very unlikely; but it is possible that the commission might wish to appoint someone who, for example, local government found totally unacceptable. They could then make it clear to the Secretary of State that they wanted him to withhold approval of the appointment. A third point—linked with the other two—is, as I have already mentioned, the Secretary of State's answerability to Parliament in respect of his functions over the commission. This provision means that Parliament will be able to question Ministers about the Secretary of State's exercise of his approval of this important appointment.
I have tried to cover the individual recommendations that are called for by individual amendments. I say as I sit down that this is the first of a number of amendments on this matter and I understand the concern and I respect it. It is right that we have to go for as independent a body as we can get. That independence is as paramount now as it was with the previous
340
arrangements which we had for auditing local authority accounts. I think we will get this through the commission. We will get the advantages which we will bring forth as we debate this further, and I am quite happy with the position as it is.
Lord Bruce of Donington: Could the noble Lord tell the Committee to which Ministry the Controller of Audit is responsible? Who answers for the Controller of Audit in the other place?
Lord Bellwin: To the best of my knowledge, the controller answers to Parliament and does not answer to a specific Minister as such. I do not think that in any way detracts from anything that I have said. I have tried to explain that the Secretary of State here is answerable to Parliament and that is one of the key factors of this particular issue.
Viscount Ridley: I am grateful for the support of several Members of the Committee. It is the first time that I have ever achieved support from four different political parties in one afternoon: the Labour Party, Liberal Party, Social Democrats and the Cross-Benchers. I am grateful to them all. I listened very carefully to the Minister's replies. He must have seen from this relatively brief debate that there is some concern about the independence of the Audit Commission, to say the least. I accept that some of his criticisms of my amendments in detail are probably justified. I am not pretending for one moment that this is the last word on it. I hope that if I have the leave of the Committee to withdraw the amendment, the Minister will consider what might be some hopefully agreed solution to finding how the genuine independence of this commission can be guaranteed.
I do not believe that in his reply my noble friend will have satisfied those who are still worried about it. It is for those who must have greater forces than I do sitting here to decide whether this is worthy of taking further. In the present circumstances, I should like to withdraw Amendment No. 43.
Amendment, by leave, withdrawn.
[Amendment No. 44 not moved.]
5.18 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 45:
Page 5, line 7, leave out ("thirteen nor more than seventeen") and insert ("five nor more than seven").
The noble Lord said: Initially, I should like to express a view on behalf of my party, that, although we must accept the political will of another place as to the appointment of the Audit Commission, we ourselves should not like it to be thought that we had no confidence in the audit inspectorate or the whole system resting on the activities of district auditors these many years. I hope that it will be agreed by the Committee that they have done a very good job of work indeed. There can be no doubt that the Government's proposal to appoint an Audit Commission stems very largely from the considerations that were set out in very great detail in the Layfield Report. That, among other things, went rather outside the realms of audit in articulating the need for some steps to be taken to ensure that local authorities functioned more economically and

341
efficiently than appeared to emerge from the evidence that was given to them. So the concept of the Audit Commission arose.
I am sorry that the noble Lord in emphasising the Audit Commission's independence—which is reinforced by a direct statement at the commencement of Schedule 1—did not take the point that responsibility to the Secretary of State is not always compatible with complete independence. Many of us on all sides of the Committee would have preferred a situation with an Audit Commission roughly corresponding to the Comptroller and Auditor-General, who is responsible to no Minister, as the noble Lord indicated, but is responsible directly to Parliament. However, that is an issue which can be debated at a later stage when we come to the schedule.
The amendment in my name and the names of my noble friends reduces the number which we have put to "not less than five nor more than seven". The reason for that is because, in the experience of many of us, a very large committee is not always best able to come to practical conclusions within a reasonable period of time. I trust nobody will take it amiss if I say that perhaps there is a tendency, where there are large committees, for them to be somewhat prone to taking the advice of their Civil Service establishments. It is well known that in a committee of any kind the committee member who is well prepared beforehand and has all his briefs ready is more likely to be the one whose views will prevail. Therefore, large committees sometimes tend to be a little unworkable, or rather less workable than the more compact ones.
The Audit Commission has various responsibilities. It is charged with the task of drawing up a code of conduct, a code of practice. It is charged with the selection of specific auditors and with the responsibility occasionally to order extraordinary audits and comparative studies. It has a fairly wide degree of responsibility, and I cannot help feeling that local authority finance officers must now be feeling that they are being assailed from all sides. Your Lordships will be aware of the very stringent and meticulous provisions we were debating here some time ago under the Local Government, Planning and Land Act 1980, when very detailed accounting provisions were made covering clause after clause and going into the utmost detail as to how local authorities should do their own accounts in respect of direct labour organisations and in respect of maintenance contracts, with reports to be rendered by 30th September of each year. If your Lordships read through these provisions once again you will see the responsibilities that are specifically laid upon them.
Also, of course, they are going to be laid on the auditors appointed by the Audit Commission, and the auditors appointed by the Audit Commission will have a very difficult task, because whereas in respect of these maintenance contracts under the Local Government, Planning and Land Act 1980 the auditors are required to arrive at a true and fair view so far as the remainder of the local authority account auditors are concerned, they are not required to arrive at such a view. Indeed, they could not possibly do so on the basis of the records kept by local authorities. So they are going to be in some dilemma in regard to their code of practice, and I would have thought that a smaller commission
342
would have been able to arrive at decisions much more easily than a large one.
The second amendment which goes with the one I have laid before your Lordships is intended to ensure that at least half the members should be appointed from nominations by such associations of local authorities as appear to the Secretary of State to be concerned. That makes quite sure—this is compulsory, as it were, on the Secretary of State—that at least half shall be appointed from those bodies which are principally concerned. One would hope that the remainder of the commission would be appointed by the Secretary of State from those professional bodies that are most likely to be interested.
Auditing and accounting are not very bright subjects. They do not arouse the sparkle of champagne in debate, and it is very difficult to get public interest in technical matters of this kind. However, I would hope that the noble Lord would give us an assurance, on the basis of the proposals that we have ventured to lay before him, that for once on a commission of this kind the accountancy profession was very well represented indeed, because, as will emerge when we come to examine the clauses in detail, some of the matters that are put down here in fine legal terminology are very complex when it comes to translating them into action, from both the accountancy and the auditing standpoints.
Therefore, I would very much hope that the accountancy profession, and in particular the consultative committee of accountancy bodies will be well represented on the Audit Commission. I think the noble Lord will find it of considerable advantage if that is done. I am one of those who have always subscribed to the view that experts should be on tap but never on top, so I would not wish to have a commission which is dominated by any one of the professions. But I am bound to say I think we could have avoided many of the contortions that appeared in the Local Government, Planning and Land Act, from Section 10 onwards, if the new Audit Commission had been able to see and digest the proposals that were then enacted before they ever came before your Lordships' House.
They will, of course, in due course be found to be unworkable, in any case; so I do hope that some heed will be taken of this and that a small, compact commission which is well represented and well sprinkled with experts will be formed. Although, as I say, we on this side of the Committee regret the necessity for the appointment of the Audit Commission and we think that the arrangements that existed before were working perfectly satisfactorily, nevertheless we would wish the Audit Commission, if successfully formed, to do well and we give it a fair wind. I beg to move.
Lord Mottistone: May I say, with a fair amount of experience of the size of committees and bodies of this nature of a public and semi-public nature, that I wonder whether the noble Lord, Lord Bruce, is not going a bit small in his numbers. From my experience, which is spread over quite a long time, I would entirely agree with him that committees of more than 20 members do become unmanageable, and when they get up to 30 they can hardly take decisions. But, generally speaking, one has found that the right size for a committee is around the 15 mark, because you can usually assume over the years that about one-third of the

343
members—they will all be different ones—will not turn up at particular meetings, for all kinds of reasons such as holidays, sickness or more pressing business, particularly if they are busy people. So you generally have to allow for the fact that the effective size of your committee or your commission when meeting will be around two-thirds, which is around the 10 mark. Therefore, it is very wise of the Government to choose the figures that they have, which happen to fit very well with what a fair amount of experience has indicated to me is about the right number.
Lord Bellwin: It may help if I begin by saying—it is worth repeating as often as necessary—that the audit commission will be independent and will itself be responsible for the discharge of its functions; not the Secretary of State. The Secretary of State can be answerable only for the discharge of his functions in relation to the commission—for example, the appointment of its members—so the Secretary of State cannot be answerable to Parliament for individual decisions of the commission. He can be questioned only about decisions which he has made—for example, about persons whom he has appointed to the membership.
There would be a major problem caused if this amendment were accepted. The Secretary of State faces a difficult task in appointing the members of the commission. There are a number of parties with an interest in the commission's work who will all have claims to be included in the commission's membership. The various bodies representing local authorities spring to mind. Indeed, we are already committed to ensuring that the membership includes local government representation. As I said when speaking to the previous amendment, the accountancy profession will also have an undeniable interest in the commission's work and other groups might well claim an interest—groups such as local authority trade unions, and commerce and consumer interests.
I am not saying that all these interested parties will have their own identifiable representatives among the members of the commission. But I do believe that, in appointing the members, the Secretary of State will wish to ensure, so far as possible, that the interests of the many and varied groups on whose affairs the commission will impinge are fully taken into account. This will help to ensure the commission's success.
The task will be difficult enough within the size of the commission proposed in the Bill; namely, 13 to 17 members. But I submit that it would be impossible if there could be no more than seven members. Of course, there is no absolutely correct size for the commission. That is why in the Bill we have allowed flexibility over the number of members. But I am certain that a seven-member commission would be too small, for the reasons that I have given.
The noble Lord, Lord Bruce, said that he hoped the accountancy profession would be well represented and that the commission would be "well sprinkled with experts". He was absolutely right about that. But if half of the membership came from the local authority associations, the balance being well sprinkled with experts—and no one has quarrelled with what I said about the need for there to be some representation of the other bodies concerned—how could we do all
344
this with from five to seven members? It is not practicable. I accept the argument that even 13 to 17 is not right, but someone has to take a view. Obviously, the Government think that that number is about right and my noble friend Lord Mottistone, with his experience of this kind of work, agrees. I think that it is about right, too. I understand exactly what the noble Lord, Lord Bruce, is saying and I agree—the smaller the better. There are those who say that the ideal committee is a committee of one, but I am not saying that today. However, although I understand the noble Lord's point, I think that in this instance it is about right with 13 to 17.
Baroness Birk: When the Minister addressed himself to this amendment, I think that he also addressed himself, though not in such depth, to Amendment No. 47, to which my noble friend spoke at the same time. Amendments Nos. 45 and 47 go together and they are two halves of the same amendment. As regards Amendment No. 45, there is certainly room for disagreement about the numbers. Speaking personally, I think that five to seven is rather on the small side. On this occasion, I agree very much more with the noble Lord, Lord Mottistone.
But the question of numbers is not the main point. These amendments differ in several ways from the amendments of the noble Viscount, Lord Ridley: first, because of the difference in numbers, and, secondly, because he takes away the appointment of members from the Secretary of State. Under our amendments, the appointments will remain with the Secretary of State. But what we have done is to say that consultation, in itself, is not enough; that local authorities should be able to put forward a list of people whom they want, and from that list the Secretary of State should make the appointments.
In the context of what the audit commission stands for, these are fairly mild, reasonable and moderate amendments. They would certainly give far greater satisfaction to the local authority associations than does the present situation. They would also give more of a flavour of the independence to which the Minister keeps referring, but which really is not there. That is because the Secretary of State has power to direct the commission, as we shall see when we come to later amendments on paragraph 3 of Schedule 1.
The question of independence, which is of such concern to local authorities, is not an imaginary problem; it is a very real one. I come back to what I said when speaking to an amendment of the noble Viscount, Lord Ridley—that the Government must surely see, from the expression of opinion in another place and in this House today, that they ought to take note of what has been said about local authorities having a right not just to be consulted, but at least to put forward a list of nominations to serve on the commission.
"Otherwise, the use of the word "independence" will seem absurd and, to put it at its lowest, it is rather insulting to say to local authorities: "We cannot even trust you to put forward the names of people who will be good enough, but we will consult. "The Secretary of State says that he will consult about the rate support grant, but he makes the decision. It is the decision-making that is important. This will take the matter

345
a little further but, curiously enough, not as far as the noble Viscount's amendment.
Lord Houghton of Sowerby: May I make two comments. First, it is obvious to anyone who has had any experience of trying to arrange committees, of getting people there and of deciding a reasonable quorum, that you cannot run a committee with five to seven members. It is quite impossible, so I think that we should dismiss it straight away. I am glad that my noble friend who has just spoken agrees.
If we are looking also at Amendment No. 47, what worries me about it is that the Secretary of State would be required to make his appointments, as to half the number on the commission, from nominations made by the various local authority associations. In other words, he could not go outside the names put forward by the local authority associations. What about the political bias? Who would decide on the nominations to be put to the Secretary of State? I am not familiar with the present political bias of the various local authority associations. However, I question how the nominations would be made and what sort of political line-up, on one side or the other, there would be behind the nominations. I shall have something to say later about corruption on local authorities regarding the audit and so forth.
We want the complete independence of this commission to be maintained. In my opinion, it is up to the Secretary of State to ensure that the balance is right. He must be free to adjust the balance if the nominations put forward by the local authority associations do not preserve that balance. I am not suggesting for one moment that he should not ask for names. He may well do that, but he must be free to make a choice. This is common form in the appointment of members to arbitration tribunals and Heaven knows what else. It is not right that the nominations should be binding upon the Secretary of State. He should not be required to choose from those nominations and those nominations alone. That is the danger, and I am very concerned about it.
Lord Bellwin: May I thank the noble Lord, Lord Houghton of Sowerby, for what he has just said. I agree very much with him. If at the end of the day the Secretary of State gets the membership out of balance—if the weighting is wrong—he has to answer for it to Parliament. This is the great safeguard. Local authority associations could of course nominate political appointments. The associations must have representation, and we have said all along that they will have representation on the commission. Quite clearly they need it. However, at the end of the day it will have to be the decision of the Secretary of State, because he is answerable if he gets it wrong.
We are indeed dealing with Amendment No. 47 as well, so may I make one or two points about it. If we were to accept this amendment, the Secretary of State would then have to appoint a set proportion of members to represent local authorities—one half of the total. The amendment also forces him, as has just been said, to choose all those members from nominations made by the local authority associations. That cannot be acceptable, because there are all kinds of bodies which have on them many talented people
346
—people, I use this expression again, of real calibre and ability. We shall very much want them to serve on this commission. This does not mean that they are not independent. The chances are that they are more independent because they are individuals. I hope very much that we shall have such representation.
I concur entirely that the local authority associations are bodies of high standing—I know that; I ought to—and that they have a role to play on the commission. However, it has also to be said that they are bodies with a direct interest in the commission's work and, as such, should not have a direct share in the responsibility for appointing the members. Furthermore, the local authority associations are not answerable to Parliament, whereas, as I said a moment ago, the Secretary of State is and he can be questioned in another place on his appointments.
Let me say once more—and I hope that I shall not keep repeating myself, because so many amendments have been tabled which are similar to this one—that the local authority associations should have a say in the appointment of members. That is why we have made provision for them to be consulted about the appointment of members. However, having a say is one thing. Being responsible for the final appointment is another. That is where the difference lies. I understand that this is part of the whole debate on the Audit Commission. The importance of membership is also understood. If, however, noble Lords —in particular noble Lords opposite, the movers of the amendments—think very carefully about all the implications behind the proposal, they will conclude that there is another point of view. We are all anxious to have the best kind of independent commission that we can get, and I believe that the way we are going about it will prove to be the right way.
Lord Bruce of Donington: I am indebted to the noble Lord for his reply. I am sorry to have had a difference of opinion with the noble Lord, Lord Mottistone, about the right number. I willingly concede that where one has such an august body as a Royal Commission, which hears evidence, assimilates views, reads all kind of memoranda, takes evidence, written or otherwise, from bodies and studies various statistics with a view to producing a considerable report for the attention of Parliament, or even for the attention of the Minister, the Commission has to be of a reasonable size. In those circumstances, I entirely concur with the noble Lord that one needs a rather larger body.
I may be wrong but, having read the Bill, I had thought the Audit Commission was not going to be a body which will be given to much philosophical discussion or theoretical argument. Essentially it will be a body designed for action. It is charged with action, not with contemplation, although of course it must obviously contemplate and reason. But the principal emphasis is on action. This is made quite clear throughout the Bill. May I remind the noble Lord, Lord Mottistone, that I, too, have some experience of industry. I find that smaller rather than larger committees very often work better where action is involved. But we shall see who is right. The proof of the pudding will be in the eating. I am not dogmatic about this. If after listening to the arguments the Minister feels that, on the whole, he agrees with the views of the noble

347
Lord, Lord Mottistone, I shall not cavil in the slightest. Therefore, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Stedman Baroness Stedman moved Amendment No. 46:
Page 5, line 8, after ("members") insert ("of whom not less than eight shall be representatives of local authorities").
The noble Baroness said: If we have to have an Audit Commission, then perhaps the noble Lord the Minister is right and 15 or 16 people need to be on it to ensure that a workable number is present at all stages. In that case, it would seem that my suggestion that eight of them should be representatives of local authorities might be about right and might fit in with the earlier amendment of the noble Viscount, Lord Ridley, to which he spoke. In view of the support which the noble Viscount received from all sides of the Committee for his general package, perhaps the wisest thing for me to do at this stage would be to withdraw the amendment and to try to persuade the noble Viscount to have all-party talks with some of us as to the kind of package we might put forward at the next stage. Therefore, I beg to leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 47 and 48 not moved.]
Baroness Birk Baroness Birk moved Amendment No. 49:
Page 5, line 15, at beginning insert—
("After consultation with such associations of local authorities as appear to him to be concerned and with such other organisations or persons as he may think appropriate,").
The noble Baroness said: I will be very brief because I believe that this might also come into the question of the "packages" and the talks which we might have between this stage and the next stage of the Bill. This is a very modest amendment which just seeks to restrict the Secretary of State's powers slightly in respect of the Audit Commission. Although the Secretary of State will be prepared to consult the associations on the membership of the commission, subsection (3) gives the Secretary of State absolute power over the appointment of the chairman and deputy chairman. With bodies of this type, the chairman can be very powerful.
This amendment seeks only to extend the need for consultation to those appointments, so the requirement will be to consult such associations of local authorities before appointing a chairman and deputy chairman. The basis for this is that it will obviously make the working of the Audit Commission very much smoother if the chairman and the deputy chairman start off with the solid support of the local authority members —and indeed, there is no reason why this should not be extended to the other members of the commission. I beg to move.
Viscount Ridley: May I add my support to Amendment No. 49? As I have already spoken on the question of the chairmanship, I have no intention of repeating what I have already said. The noble Lord, Lord Houghton of Sowerby, raised the question of political bias of local authority associations. I personally feel that the greatest danger of political bias comes from the Secretary of State in appointing a friend or whoever,
348
as a political appointee, to be chairman or deputy chairman. The suggested alteration does seem to go some way to stop this from happening. We have plenty of evidence from both sides of Parliament and from both sides of politics that jobs of this kind are given to those who support the Government of the day —perhaps rightly, because I do not think that is always wrong. But again, this would chip away at the independence of the Audit Commission and I believe that this amendment might be a very good way of putting some curb on the activities of the Secretary of State in appointing the chairman and deputy chairman.
Lord Bellwin: The great safeguard in respect of the latter point made by my noble friend Lord Ridley is the one I have been setting all along; that the Secretary of State will have to answer to Parliament for the appointment which he makes. In any case, I am pleased to say that the Government are prepared to accept at least the spirit of this amendment. We do not regard it as essential since we believe that Clause 5 already provides for consultation on the chairmanship, in that there must be consultation on the membership and the chairman must be appointed from among the members. But I accept that this does not put the Secretary of State under a clear duty to consult about the chairman, which this amendment does.
However, I would draw the Committee's attention to an inconsistency in the amendment. Clause 5(2) provides for consultation with the local authority associations, the accountancy bodies, employees' bodies, and other appropriate organisations on membership. The references to accountancy bodies and employees were added in Committee in another place. The present amendment provides only for consultations with local authority associations and other appropriate organisations. Logically I would have expected the duty to consult on the chairmanship to be the same as that relating to membership, but I am in the Committee's hands on that point. If, on reconsideration, the noble Baroness thinks it would be desirable to have the same consultation provision for both membership and chairmanship, then if the present amendment is withdrawn I undertake to introduce a new amendment on Report which achieves this effect. I will leave that to the noble Baroness.
Lord Bruce of Donington: We are most grateful to the noble Lord, Lord Bellwin, for his co-operative attitude. On the basis of what he has said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
5.55 p.m.
The Deputy Chairman of Committees (Lord Alport): The Question is, That Clause 5 shall stand part of the Bill? As many as are of that opinion will say, Content. To the contrary, Not-Content. The Contents have it. Clause 6, Amendment No. 50—Lady Birk.
Baroness Birk: I do not think that the Deputy Chairman has put the Question, That Clause 5 shall stand part of the Bill?
The Deputy Chairman of Committees: I have put it,

349
but I did so rather quickly, perhaps. I will put the Question again, if the noble Baroness wishes to speak on it.
On Question, Whether Clause 5 shall stand part of the Bill?
Baroness Birk: I must apologise to the Committee, but my noble friend Lord Bruce of Donington and I got rather mixed up over who moved the last amendment when it came to the reply.
I do not believe that we can let this clause go by without expressing from this side of the Committee our deep unhappiness with the whole concept of the Audit Commission. In the amendments which we have been discussing, we have been trying to tinker around with the membership of the commission to try to make it a more acceptable animal. This does not alter the basic question of whether the Audit Commission itself ought to be introduced and be part of this Bill. The reasons against it are that there has not been any proven case for necessary change.
It has been said during discussion on the amendments we have just been debating that the district auditor has a very good reputation, that local authorities also have the opportunity to use private auditors if they wish to do so, and that the system does work. As the noble Lord, Lord Evans of Claughton, pointed out, the comparison with Scotland in this context is not a particularly happy one.
The Audit Commission will be another quango. It will be more expensive. Possibly the effect on the Exchequer will be neutral; in that case it will be paid for by the local authority and will make another demand on their finances. As I have said, local authorities have a right to choose between private auditors and the district auditor, and I believe we must get away from the idea spread in some quarters, in support of this concept of the Audit Commission, that the district auditor is a soft option. This is definitely not so. I can give the example of two local authorities, one Labour and the other Conservative, where the district auditor came down very heavily on them both. The auditing profession is against this, and local authorities and the elected councillors are against it. The officials who are going to have to work for the Audit Commission are against it. It does seem a very great pity and awful to me at this moment that the Government should pursue something which has taken quite a bashing in another place and which does not yet appear to have received a great reception in your Lordships' House.
I hope that we may get some change by Report stage, to allow the Secretary of State to let local authority associations nominate their own members, in spite of the difficulties mentioned by my noble friend. What it all comes down to—and we shall see this is an even worse light as we go on debating the amendments which follow—is that the Audit Commission is a tool of the Secretary of State. I believe it is important that we should be quite clear that whether the Secretary of State is Conservative or Labour, it does not really make any difference to the principle involved. No member of the Government who is politically involved and who has not only to stand up in Parliament and defend it but who also has an extremely strong political interest
350
in this, should be put in this position of power. I find it quite wrong and, again, this is irrespective of the political party from which the Secretary of State comes.
I believe that this clause, which is the basis of this, the one that sets up the Audit Commission, is the one on which the Committee will want to express their views about the Audit Commission itself. Whether or not we make any dent in the fact of the Audit Commission carrying on through the legislation does not make it any less necessary. I think all of us on all sides of the Committee who are unhappy with the concept and concerned about how it will work in practice and about its effect on local government in this country ought to say what we feel and at this moment stand up and be counted. It is for the benefit not just of individual political parties; we are discussing the future of local government in this country and its relationship with central government.
Finally, there are ways, as we shall see as we go through this part of the Bill, of strengthening local government where it needs it. There has been nothing shown which makes this necessary. Whether it is expensive or not, it is expensive in terms of public expenditure. It is another layer of bureaucracy, and nobody has yet shown the need for it. The Secretary of State himself may like the idea; it is another way of central control of local government, but I think the local authorities and the local authority associations, and indeed local people, are getting a little tired of this. I hope that the Committee will show its displeasure with this whole concept this afternoon.
Lord Bellwin: May I say briefly—because we do not want to go over the whole subject once again—that the noble Baroness will expect that I entirely disagree with just about everything she has just said. When she talks about it being an increase of central control over local government, I do not see what on earth this has to do with that. Are we to have another Second Reading debate, when one spells out the philosophies, the motivations, behind this part of the Bill, as I did at some length on Second Reading? Clearly this is not the time to do that.
We believe there are many functions for the Audit Commission which were not able to be carried out under the Audit Inspectorate as it was before, although I entirely endorse what the noble Lord, Lord Bruce, said earlier about the Inspectorate; it is highly respected, and with justification, and its independence has always been beyond question. I submit the same at least will apply to the Audit Commission, not least when it is seen exactly how the membership will be made up; it will be people who can contribute ability and talent.
If I were to go into the other points we have been debating it would be just to repeat what has been said. The Audit Commission is not there, as the noble Baroness said, to be a tool of the Secretary of State. It is there to carry out specific functions and duties beyond those which the Audit Inspectorate carried out, in the interests, first, of local government itself. They will become involved in the whole value for money field in a way which has not pertained in the past. Equally important, there will he the confidence of the public at large, just as there was in the Audit In-

351
spectorate, because we will see certain opportunities for a quicker response to problems that arise than has been the case with the inspectorate as it exists at the present time.
So I strongly commend this clause to your Lordships. To suggest that one should divide on it in the same breath as saying that clearly we have to listen to the views expressed and the decisions of another place takes some reconciling, but that of course is the privilege of the noble Baroness.
Baroness Birk: I am not quite sure what the Minister meant. I do not know what he was talking about in his last sentence. I did not hear what he said.
Lord Bellwin: Perhaps if the noble Baroness had listened to me with the same attention with which I listened to her, she might have known.
Baroness Birk: I was listening very carefully. It may be I did not hear quite what the noble Lord said; I did not hear the last comment about another place. When he says that the commission will not be the tool of the Secretary of State, and compares it with the district auditors and their independence, there was nothing, as far as I am aware, that ties up with what is now in Schedule 1, paragraph 3. It says:
"The Secretary of State may give the Commission directions as to the discharge of its functions and the Commission shall give effect to any such directions".
That does not seem to me to indicate a great deal of independence, and in these circumstances I shall divide the Committee.
6.6 p.m.
On Question, Whether Clause 5 shall stand part of the Bill?
Their Lordships divided: Contents, 80; Not-Contents, 62.

DIVISION NO. 2

CONTENTS

Abercorn, D.

Enniskillen, E.

Auckland, L.

Fortescue, E.

Avon, E.

Gainford, L.

Belhaven and Stenton, L.

Gisborough, L.

Bellwin, L.

Gormanston, V.

Beloff, L.

Grey of Naunton, L.

Brougham and Vaux, L.

Gridley, L.

Campbell of Alloway, L.

Hailsham of Saint Marylebone, L.

Cathcart, E.

Colville of Culross, V.

Halsbury, E.

Colwyn, L.

Henley, L.

Cork and Orrery, E.

Hornsby-Smith, B.

Cottesloe, L.

Hunt of Fawley, L.

Cullen of Ashbourne, L.

Hylton-Foster, B.

Dacre of Glanton, L.

Kemsley, V.

Daventry, V.

Kinnaird, L.

Davidson, V.

Lane-Fox, B.

Denham, L.[Teller.]

Long, V.

Dormer, L.

Loudoun, C.

Drumalbyn, L.

Lyell, L.

Elliot of Harwood, B.

McFadzean, L.

Elton, L.

Macleod of Borve, B.

352

Mar, C.

St. Aldwyn, E.

Margadale, L.

St. Davids, V.

Marley, L.

St. Just, L.

Massereene and Ferrard, V.

Sandys, L.—[Teller.]

Mersey, V.

Sharples, B.

Monckton of Brenchley, V.

Skelmersdale, L.

Montgomery of Alamein, V.

Spens, L.

Morris, L.

Stamp, L.

Murton of Lindisfarne, L.

Stradbroke, E.

Northchurch, B.

Strathspey, L.

Nugent of Guildford, L.

Swansea, L.

Orkney, E.

Swinfen, L.

Peel, E.

Trefgarne, L.

Platt of Writtle, B.

Trumpington, B.

Rankeillour, L.

Vaux of Harrowden, L.

Renton, L.

Vivian, L.

Ridley, V.

Wakefield of Kendal, L.

Rodney, L.

Young, B.

Romney, E.

NOT-CONTENTS

Airedale, L.

Jacobson, L.

Ardwick, L.

Jacques, L.

Aylestone, L.

Jeger, B.

Barrington, V.

Jenkins of Putney, L.

Bernstein, L.

Kaldor, L.

Beswick, L.

Kennet, L.

Birk, B.

Kirkhill, L.

Bishopston, L.

Llewelyn-Davies of Hastoe, B.—[Teller.]

Blease, L.

Blyton, L.

Lloyd of Kilgerran, L.

Boston of Faversham, L.

Lovell-Davis, L.

Briginshaw, L.

Mayhew, L.

Brockway, L.

Milner of Leeds, L.

Brooks of Tremorfa, L.

Mishcon, L.

Bruce of Donington, L.

Nathan, L.

Chitnis, L.

Oram, L.

Cledwyn of Penrhos, L.

Peart, L.

Collison, L.

Pitt of Hampstead, L.

David, B.

Ponsonby of Shulbrede, L.—[Teller.]

Davies of Leek, L.

Donaldson of Kingsbridge, L.

Seear, B.

Elwyn-Jones, L.

Stedman, B.

Evans of Claughton, L.

Stewart of Alvechurch, B.

Fisher of Rednal, B.

Stewart of Fulham, L.

Gaitskell, B.

Stone, L.

Gardiner, L.

Strabolgi, L.

Gladwyn, L.

Tordoff, L.

Gosford, E.

Underhill, L.

Granville of Eye, L.

Wells-Pestell, L.

Gregson, L.

Whaddon, L.

Hall, V.

Wigoder, L.

Hampton, L.

Winstanley, L.

Resolved in the affirmative, and Clause 5 agreed to accordingly.
Clause 6 [Accounts subject to audit]:
6.15 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 50:
Page 5, leave out line 24, and insert ("either by an auditor or auditors appointed by the Commission or, at the discretion of the body concerned, by an auditor or auditors appointed by that body from the list of auditors approved by the Commission for that purpose as provided by section 7 below and the body may make different provision in relation to different accounts.").
The noble Lord said: I beg to move Amendment No. 50 and I should like also to speak to Amendments Nos. 52, 54, 55, 56, 57, 62, 66 and 70. The purpose of this amendment is, notwithstanding the appointment of the commission, to give the local authority or other body whose accounts are to be audited, a degree of

353
choice. The choice would be restricted to the list approved by the commission but they would have the discretion of being able to select from at any rate a number of approved names submitted to them, and that might be considered desirable.
Under the old 1972 Act the auditors were of two types: there was the district auditor and then there was the approved auditor. The approved auditor had to be approved by the Secretary of State and he was drawn from what we would call"private sources". Private firms of accountants were allowed to become approved auditors. They did not have quite the same power and responsibilities as a district auditor because, under the 1972 Act, the district auditor had certain judicial functions: he could determine what was illegal or what was legal, he could give effect to surcharges and so on; whereas the approved auditor, being a private firm, of course had to make his representations direct to the Secretary of State and had no such powers. The new Bill that we are now considering effectively abolishes the distinction. Whether the auditor appointed is a district auditor or whether it is an outside firm of accountants or an individual qualified person other than a district auditor, the powers will be exactly the same.
The experience of the 1972 Act, so far as many authorities were concerned, is that their audit arrangements were dictated to them by the Secretary of State who approved certain firms of auditors to audit certain accounts, and one is bound to say they were normally selected from the rather larger firms of accountants rather than the medium or smaller ones. There may have been perfectly good reasons for that, but that was the tendency and it did not always meet with the approval of the authorities concerned.
I have no doubt that the noble Lord in presenting this Bill has the utmost of good intentions. In fact, he beams benevolence most of the time. But I think he would agree, given the establishment of the commission, that some latitude should he given to the local authority or other body to whom this part of the Bill applies, in at any rate having some choice from an approved list. That is quite reasonable and I think that the local authorities themselves would much appreciate it.
It is very often said by some of those who are perhaps more party politically interested than completely disinterested—which, of course, is a very difficult posture in which to put any Members of your Lordships' Committee—that a kind of cosy relationship grew up between the district auditor and the authority whose accounts he would normally audit. I would suggest that that is hardly borne out by events.
There have been some very strident reports by district auditors over the past few years, which indicate that this body of district auditors is very independent indeed. Indeed, the noble Lord himself has already paid tribute to them and he would hardly do that if he suspected for one moment that the district auditors are in any way in the pockets of the authorities whose accounts they audit. So this is a very modest proposal —in fact, I am astounded at my modesty in the matter—to give some element of choice to the local authority. In that spirit of sweet reasonableness, which I trust
354
will be reciprocated, I commend the amendment to the Committee. I beg to move.
The Deputy Chairman of Committees (Baroness Wootton of Abinger): I have to point out to the Committee that if this amendment is agreed to, I shall not be able to call Amendment No. 51.
Lord Bellwin: Perhaps I might also follow the noble Lord, Lord Bruce, in speaking to Amendment No. 50 and covering the others that he mentioned. I agree with him that they are very much of a kin. Can I say at once that I have sympathy with what the noble Lord seeks to do because, while not liking the commission, once it is in being he wants to see it working as best it can. I preface my remarks by saying that.
But the central point of this amendment is to provide that local authorities should retain the right to appoint their own auditors. I realise that local authorities feel strongly on this, but I have to inform the Committee that we think this is a major issue of principle. Quite simply, we believe that it is undesirable that large public bodies, such as local authorities, should appoint their own auditors. That is not a reflection on the audit inspectors, to whom I have paid tribute before, but as a principle, starting with a new body of this kind, we believe that is wrong.
There is nothing new here: it has long been recognised that auditors of public bodies should be appointed by a third party. I should like to draw your Lordships' attention to support for this view given by two eminent groups with an interest in this field. The Layfield Committee came to this conclusion in chapter 6 of its report, as did the Advisory Committee on Local Government Audit in its second report. I have extracts to quote if noble Lords would like me to do so.
I shall not bore your Lordships by listing all the nationalisation legislation sponsored, indeed, by the party of noble Lords opposite, which provide for auditors to be appointed, not by the industry concerned, but by the Secretary of State. The National Health Service is another example. There is also a lengthy list of quangos whose auditors are appointed by sponsoring Ministers; the Sports Council, the Nature Conservancy Council and the Countryside Commission are just three from the DoE's area of responsibility.
I have just mentioned examples from the public sector which support our decision to remove from local authorities the power to appoint their own auditors. There is also a relevant analogy with the private sector, where auditors are appointed by the shareholders, not by the directors of the company. Although it is true that for much of the time this is a distinction without a difference, the fact is that the very existence of the shareholders' power over the appointment of auditors must temper the actions of directors towards auditors. There are no central records of occasions when shareholders have rejected the advice of the directors on appointment of auditors, and I accept that such cases are rare. But this only serves to underline that the existence of the power is a deterrent.
I repeat that the main point at issue is whether it is right for local authorities to appoint their own

355
auditors. One of the main objectives in this legislation is to make audit more independent of both central as well as local government. I am in no doubt that auditors are generally independent of local authorities under the present system. I keep saying it and I believe that is so. But so long as the local authority appoints its auditors, they are not seen to be independent, and that is a very important aspect of the matter. The enhanced audit role proposed in the Bill, especially in the field of value for money, makes it even more imperative that the auditor should be demonstrably independent.
I would remind your Lordships that there are two ways in which the local authorities' position is safeguarded. First, Clause 7(3) provides for consultation with the local authority before the auditor is appointed. I have no doubt that the commission will do all it reasonably can to ensure that the auditor is acceptable to the local authority. This is surely only sensible as the commission will be very well aware of the fact that the success of an audit depends to a large extent on a good working relationship between the auditor and the body under audit.
Secondly, as I have already assured your Lordships, a number of the commission members will be from local government. This means that local government as a whole will have a major say in the way in which audit is managed, which they do not have under the present system.
In speaking to this amendment I have not gone into a detailed discussion on its wording. I do not doubt that if we were seeking to retain the power for local authorities to appoint their auditors, this amendment might provide a basis for changing the Bill to achieve that effect. But, as noble Lords will have gathered, we are opposed to the principle of the change.
As to the many other points, I shall not go over them again. They are consequential to Amendment No. 50 to Clause 6, which we have been discussing. I shall not repeat the details again. But it has to be said that our overriding objection to this is that it would certainly frustrate the Government's aim of strengthening the independence of local government audit. So long as local authorities—and, it has to be said, uniquely among similar public bodies of equivalent importance —are able to appoint their own auditors, those auditors will never be seen as truly independent. This is why we propose to make the commission alone responsible for appointing the auditors and why we are opposed to the amendments. I shall not go into further detail unless pressed, but if the noble Lord, Lord Bruce, gives consideration to that aspect of it alone—the fact of the need to be seen—I think he will not be unsympathetic to the points that I am making.
Viscount Ridley: As my amendment, No. 51, is likely to be destroyed by this amendment, perhaps it would be for the convenience of the Committee if I said something now, which will probably mean that I shall not move Amendment No. 51.
Amendment No. 50 may not go as far as I would want to go, but, from my point of view, I believe that it is a very important amendment and I would support it.
356
I have listened carefully to the arguments, but the Committee must realise that in Clause 6, which is before us, the Government are suggesting taking away what has existed for a very long time in local at authority circles. They seek to stop the local authorities' right to choose their own auditors which, as I have said, they have had for very many years.
Naturally, I would have preferred my own amendment, which would provide a list of auditors who could be selected. But I believe that we must think very carefully before, quite honestly, we drive yet another nail into the local government body—or coffin, if you wish to go further—because this system has for so long provided that the authorities should have freedom of choice between the district auditor, which is the public sector, and the private sector. I believe that that has recognised the essential democratic accountability of local authorities.
I do not think that any real reason has been given as to why this should be changed. In the case of county councils it has existed for 94 years—since 1888—and before we throw out something that seems to me to work well, we must have a very much better reason than has been advanced. I do not believe that I have heard any evidence that any local authority has not properly exercised its discretion in the choice of auditors in such a way as to justify this change. Therefore, I hope that Amendment No. 50 will be successful, second best though it may be to Amendment No. 51.
Lord Evans of Claughton: May I say, in support of the amendment and the amendment which is likely to disappear in the name of the noble Viscount, that frankly it is a very sad moment when a system that has worked extremely well for very many years should now be destroyed. There is not a cosy relationship, as the noble Lord, Lord Bruce, said; and there are plenty of examples that the relationship is not cosy.
What is valuable, and has been valuable, is that in addition to discussing figures the directors of finance, or treasurers of councils, when dealing—if they are dealing—with a district auditor and an official auditor, can discuss purely local government financial matters with them. Whereas the private bodies often are not quite as aware of the level of legislation, or the type of legislation, that is affecting local government. This is something I have been told by a number of directors of finance.
May I pursue the analogy that the noble Lord the Minister made between public bodies having auditors imposed upon them and local government. The whole point about public bodies, nationalised industries, and countryside commissions is that they are quangos. They have not got an electorate; they are not answerable to electors. They have not got elected members. The noble Lord made an analogy of the shareholders choosing the auditors of a private company. It seems to me that the shareholders are represented by the councillors in local government, and surely it is they who should be choosing the auditor.
I would agree entirely with the Minister if he was saying that the chief executive or the director of finance was choosing his auditor. I would not approve of that at all. But it is the councillors who make the choice,

357
in the same way as it is the shareholders who make the choice in the private sector. I know of no other independent economic unit which is not allowed to choose its own auditors. At the end of the day local authorities are responsible to their electorate; they are not responsbile to central Government. That to me is the key feature, and that is why I hope this amendment will be carried.
6.33 p.m.
Baroness Platt of Writtle: I hope that my noble friend the Minister will be able to look at this matter again. I agree with him entirely on the importance of independence, and I can see that that is an important matter. But it seems to me that the question of a list of auditors appointed by the Audit Commission ensures this independence, because they will have decided who is on the list, and if the local authority is then able to choose from that list that is not the same as just choosing anybody.
As my noble friend the Minister knows, Essex County Council was one of the 14 pilot authorities where the Secretary of State decided that a private auditor should become the district auditor. We went to see the Secretary of State, and he kindly acceded to our request that we should meet the proposed private auditors before they were appointed. I agree with him when he mentions that Clause 7(3) in fact rather does what happened for us. But it was of great value to us to meet those auditors before they were appointed, because we were able to establish with them not a cosy relationship but a good relationship, an honest relationship, where we felt that we would work well together. Indeed, the auditors themselves expressed the view that they much preferred to operate under those circumstances. I have heard other auditors say the same. If my noble friend could move to the direction of the list, I think that would give local authorities a greater sense of freedom in their relationship with the auditors.
May I go to another point which perhaps my noble friend the Minister would clarify for me. The other point we took up with the Secretary of State at that time was that if a firm of private auditors is operating with local authority accounts, and perhaps they have not done that before, a lot of time can be wasted by local authority officers explaining to them how the accounts work. The private firm of auditors certainly should have the power to set what I would call a direct line of audit; but our auditors—and other auditors have mentioned this to me—were pleased with the idea that although they should be in charge of the audit, they should operate through the district audit service which knows our accounts inside out.
So far as our officers are concerned it is going to save us a great deal of time, and time is of the essence in local government. I am not sure whether Clause 7(2) deals with the possibility of that kind of arrangement. I should be grateful if the Minister could elucidate that for me.
Lord Bellwin: I think I should say one or two more things in answer specifically to my noble friend Lord Ridley. So far as concerns the basic philosophy underlining this matter, I am as jealous about the repu-
358
tation of local government as any Member of your Lordships' House. I am at least as jealous about that, and I sincerely believe that what we are proposing, which is the subject of this amendment, would in no way undermine that to which my noble friend referred.
My noble friend talked about the fact that for all these years there has been this understanding. I thought when I spoke before on this amendment that I had specifically made the point that clearly there would need to be discussion between the prospective auditor that the commission would want to propose for an authority and the authority itself. That picks up the point that my noble friend Lady Platt makes. The particular exercise to which she referred was a specific one for a specific purpose. It was vastly different from the kind of long-term audit arrangement that I would expect would apply when auditors are appointed for the whole of an authority's work.
Think carefully of what we are aiming at here. We are talking, first of all, of independence. We are talking of the importance of it being seen to be independent. In the past, I did not mind who came in, or who knew what, or anything else, and I know that that is what the majority of people in local government feel today. They do not mind that, What is it that we are so concerned about? The new element in this is that the Audit Commission will be expecting auditors in the future to do more value for money work than in the past.
It is quite true that the existing members of the Audit Inspectorate have a special know-how about local government audit, and that is fine. In the main they will be involved in any case. But there will be people coming in from the private sector who will also have something to contribute; they too will have an expertise. Why should we not have the best, if you like, of all the available talent and skill that we can get to help in working with authorities? Not in any way to seek to show up anything that they are doing. Quite the contrary; the idea is to make things work better.
I just do not feel that it is in the best interests of local government that they should be seen to be wanting to have a power to appoint their own auditors when, despite what the noble Lord, Lord Evans, said, it is right for public bodies, where great sums of money are involved, that there should be an independent organisation which appoints the auditors. I know what is being said on this and I know the almost emotional connotation that attaches to what has pertained in the past, but I just do not feel there is cause for the concern. Before I sit down, I should just confirm to the noble Baroness, Lady Platt, that Clause 7(2) does indeed do what she said.
Lord Bruce of Donington: The Minister did not really draw correct analogies when he said the arrangements now proposed applied to nationalised industries, quangos and so on. The difference between local authorities and those bodies is that the former are elected. The directors of nationalised industries are not elected; they are in a totally different situation, and that is why the change in this respect has aroused so much disquiet. I agree with the Minister about the desirability, in view of the new value-for-money concept and various matters associated with it, that local

359
authorities should be able to draw on auditing, accountancy and consultancy skills from whichever source it appears advantageous for them so to do. But is it to be imagined that local authorities are any the less sensible of those considerations than is the Secretary of State? The local authority—or, for that matter, the audit commission—is elected, and I can conceive of a situation, particularly when it comes to the provisions of the Local Government and Planning Act 1980 and the application of the maintenance provisions, when they may indeed find it necessary to go outside the normal scope of the district auditor.
Lord Bellwin: Perhaps I should interrupt the noble Lord to correct a point; namely, that it is not the Secretary of State but the audit commission who will be appointing auditors.
Lord Bruce of Donington: I corrected that when the noble Lord mentioned it. It is obviously desirable that the maximum skills, wherever they may be, should be drawn on. Local authorities have had experience of these matters in the last two or three years, but I will not abuse the privilege of your Lordships' House by mentioning various names which were mentioned in the course of the Committee proceedings in another place. Instances were brought forward there of very large firms of accountants bringing pressure to bear, by means of very elaborate representations, for the engagement of their services. Indeed, the distinguished head of the Government Accountancy Service, Mr. Kenneth Sharp, a former president of my own institute, has drawn specific attention to that. There is a fear in some quarters that the audit commission—which, let us not forget it, operates under the direction of the Secretary of State, as we shall see when we come to Schedule 3—may be tempted to follow the old mould of inflicting (if that is not too offensive a word to use) or perhaps I should say pressing on local authorities the services of very large firms whom they do not particularly want. At the same time, I am bound to say that bigness is not necessarily a vice, any more than smallness is a virtue.
I hope the Minister will feel able to give some assurance that the choices that are made will be from the widest possible spectrum throughout the profession and the various bodies to which we shall come at a later stage in the Bill. In the meantime, surely there can be no objection—provided the audit commission has a list and makes researches into the abilities of the various district auditors and researches the resources available to suitable firms and so on—to the local authority being given a limited discretion as to whether it wants a district audit or a private firm and, if it wants a private firm, which one it is inclined towards.
I should not have thought that would do violence to the whole concept of the audit commission. In fact, it might be more convenient; it might be that the audit commission could devote much more of its time to preparing, in conjunction with the professional bodies, a more comprehensive code of practice than hitherto has evidently been possible since the passing of the various Acts that have dealt with the matter. Therefore I commend the amendment to the Committee.
Lord Houghton of Sowerby: I hope my noble friends will forgive me for having a point of view of my own on the matter. No one who went through two years of the Royal Commission on standards of conduct in public life could come out of it without some deep anxieties about standards of financial control, especially in regard to malpractices, in local government. I regret that far too little has been done since the report of the Salmon Commission and the Redcliffe-Maud Committee on this subject six or seven years ago. There were a few nettles there to be grasped but they have not been grasped. The big spending public sector of this country today, which includes local authorities, should be prepared to submit with good grace to anything which, on examination, Parliament feels they should accept as a greater safeguard of the public interest and the public peace of mind. That as a principle should be followed.
Much has been said about accountability, and I take up the Minister when he said the Secretary of State was accountable to Parliament for appointments he might make. That is good constitutional theory, but in practice it is a nonsense because the Secretary of State is not really accountable to Parliament: he is accountable, if you like, to his own party in Parliament, but, having satisfied them—so long as he holds the majority —the rest of Parliament no longer matters. Many of our constitutional theories do not bear examination in practice.
That brings me to the question of the accountability of local authorities. My noble friend Lord Bruce said local authorities were elected and, if we wish, we can examine the electoral system on that. They are elected, but by whom? Are they representative of the majority of the local population or, on a first-past-the-post system, is the control of the council dependent on narrow majorities and a small vote of the electorate? Let us be realistic about the democratic accountability of councils. Further, I regret to say that democracy is not an adequate safeguard against malpractices. Democracy does not guarantee probity, and some additional safeguards have to be introduced.
I do not want to detain the Committee unduly on this subject. It is natural for local authorities to be jealous of their rights and traditions. But they are very big spenders today and big spenders in the public sector must, in my view, yield to public opinion, if that can be expressed through Parliament, which wants to be more satisfied about the standard of oversight over local accountability. Somebody really must represent the electors, other than the result of the election itself. Therefore, my general sympathies are with this part of the Bill because I believe there lie here—marginally perhaps, but in some cases materially—safeguards which are desirable.
I feel that my noble friends should look with some tolerance at a point of view that is based on experience —and I remind the Committee that we took a great deal of evidence from the accountancy profession in order to examine why certain things could happen. When some of the malpractices came to light people naturally asked, "What were the auditors doing?", probably not realising that the auditors cannot discover everything that goes wrong in local authorities. Nevertheless, naturally, if people have watchdogs and safeguards, they

361
expect them to be effective. If we consider, as I do, that the safeguards should be strengthened, then we have to judge the way in which that should be done. So I am sorry to say to my noble friends that I am not in sympathy with the amendment; I support the Government's point of view on this question.
Lord Bruce of Donington: I commend the amendment to the Committee.
6.51 p.m.
On Question, Whether the said amendment (No. 50) shall be agreed to?
Their Lordships divided: Contents, 59; Not-Contents, 74.

DIVISION NO.3

CONTENTS

Airedale, L.

Jenkins of Putney, L.

Ardwick, L.

Kennet, L.

Aylestone, L.

Kilmarnock, L.

Bernstein, L.

Kirkhill, L.

Beswick, L.

Llewelyn-Davies of Hastoe, B.—[Teller.]

Birk, B.

Bishopston, L.

Lloyd of Kilgerran, L.

Blease, L.

Longford, E.

Boston of Faversham, L.

Lovell-Davis, L.

Brockway, L.

Mayhew, L.

Brooks of Tremorfa, L.

Milner of Leeds, L.

Bruce of Donington, L.

Mishcon, L.

Chitnis, L.

Oram, L.

Ciedwyn of Penrhos, L.

Peart, L.

Collison, L.

Pitt of Hampstead, L.

David, B.

Ponsonby of Shulbrede, L.

Davies of Leek, L.

Ridley, V.

Donaldson of Kingsbridge, L.

Ross of Marnock, L.

Elwyn-Jones, L.

Seear, B.

Elystan-Morgan, L.

Stedman, B.

Evans of Claughton, L.

Stewart of Alvechurch, B.

Fisher of Rednal, B.

Stewart of Fulham, L.

Gardiner, L.

Strabolgi, L.—[Teller.]

George-Brown, L.

Tordoff, L.

Gosford, E.

Underhill, L.

Hall, V.

Wells-Pestell, L.

Hampton, L.

Whaddon, L.

Jacobson, L.

Wigoder, L.

Jacques, L.

Winstanley, L.

Jeger, B.

Wootton of Abinger, B.

NOT-CONTENTS

Abercorn, D.

Elton, L.

Airey of Abingdon, B.

Enniskillen, E.

Auckland, L.

Fortescue, E.

Avon, E.

Fraser of Kilmorack, L.

Belhaven and Stenton, L.

Gainford, L.

Bellwin, L.

Gainsborough, E.

Beloff, L.

Gisborough, L.

Brougham and Vaux, L.

Grey of Naunton, L.

Campbell of Alloway, L.

Gridley, L.

Coleraine, L.

Hailsham of Saint Marylebone, L.

Colville of Culross, V.

Cork and Orrery, E.

Henley, L.

Cottesloe, L.

Hornsby-Smith, B.

Crathorne, L.

Hunt of Fawley, L.

Cullen of Ashbourne, L.

Hylton-Foster, B.

Davidson, V.

Kemsley, V.

De La Warr, E.

Kinnaird, L.

Denham, L.—[Teller.]

Lane-Fox, B.

Digby, L.

Lauderdale, E.

Drumalbyn, L.

Long, V.

Elliot of Harwood, B.

Loudoun, C.

362

Lyell, L.

Romney, E.

McFadzean, L.

St. Aldwyn, E.

Mar, C.

St. Davids, V.

Margadale, L.

St. Just, L.

Marley, L.

Sandford, L.

Massereene and Ferrard, V.

Sandys, L.—[Teller.]

Mersey, V.

Sharples, B.

Monckton of Brenchley, V.

Skelmersdale, L.

Montgomery of Alamein, V.

Spens, L.

Morris, L.

Stradbroke, E.

Mottistone, L.

Trefgarne, L.

Murton of Lindisfarne, L.

Trumpington, B.

Northchurch, B.

Vaux of Harrowden, L.

Orkney, E.

Vivian, L.

Pender, L.

Ward of Witley, V.

Rankeillour, L.

Young, B.

Renton, L.

Resolved in the negative, and amendment disagreed to accordingly.
6.59 p.m.
The Earl of Avon: I think that this might be a convenient moment to resume the House. I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Administration of Justice Bill [H.L.]
7 p.m.
Further considered on Report.
Lord Elwyn-Jones Lord Elwyn-Jones moved Amendment No. 26:
After Clause 61, insert the following new clause:
("Documents disclosed in litigation
. The obligation to protect and maintain the confidentiality of the contents of a document disclosed to a party to litigation or his solicitor shall terminate if and to the extent that the contents of the document are read aloud in open court in proceedings which are not subject to any limitation on reporting.").
The noble and learned Lord said: My Lords, this amendment has been round the course before, the last time finishing in a dead heat. As your Lordships will know, it arises out of the Harman case, which was apparently brought by the Home Office in the hope that it would help to clarify the law on contempt of court. Unhappily, it has failed signally to do so. The three-to-two decision of the noble and learned Lords of the Appellate Committee in that case has prompted considerable demand, particularly in the press and the media, for the legal position to be made clear, and that is the aim and purpose of this amendment.
As your Lordships will know, when parties are involved in litigation they are under a duty to disclose and hand over to their opponents all the documents which are relevant to the issue in the case. It is a valuable part of the procedure in civil cases. Relevant documents are an important part of the evidence, and in some cases they are indeed of more value than the oral evidence itself. Because the documents are often private—indeed, usually so—the litigant and his lawyers who receive them from the other side are under a duty not to disclose them for purposes other than the pur-

363
poses of litigation; and that is obviously right, because it protects the confidentiality of the documents until such time as they are needed in court. If and when the cases come to court, the documents, if they are relevant and admissible—and the judge, of course, has control of that—may be read out and questions may be asked about them, and the parties may examine witnesses about their contents. The public and the press representatives in court hear their contents read out. In the High Court, what is said and read out is mechanically recorded and transcripts are available on payment.
The court has, of course, substantial powers to prevent documents and evidence from being disclosed or made public if it thinks the public interest and other relevant considerations make that course necessary. This power of the court can be exercised by the judge at any stage in the course of proceedings; for example, on application for discovery of documents or for their production at the trial itself. That power was in fact invoked unsuccessfully by the Home Office in the Harman case, in the proceedings brought against the Home Office; the learned judge ordered production of the documents.
When the court thinks that confidentiality is of overriding importance, it can give effect to that view. The judge can order that a document should merely be read silently in court and not aloud, and can apply other safeguards with which the press and everyone else must comply. This amendment will not alter that position or remove that protection. But if documents are read out aloud in open court, I submit that they then become public property and public knowledge. To use the language of the noble and learned Lords, Lord Scarman and Lord Simon of Glaisdale, in the Harman case, "privacy is then stripped from them".
My Lords, the common law of this country has long recognised the principle of open justice. To ensure that the public administration of justice in open court will be subject to public scrutiny, the press should be free to report what has become public knowledge and to report and comment upon what is said in courts of law. As the noble and learned Lords whose names I have just mentioned indicated, trials often expose matters of public interest worthy of public discussion, and serve a purpose additional to the judicial task of doing justice between the parties in the particular case. The openness and ability to report what is said in court is a valuable means of informing the public and promoting informed discussions upon matters of public interest.
The outcome of the Harman case—and this debate is in no sense a rehearing of that case—turned, as the noble and learned Lord, Lord Diplock, said, on its own particular facts, which he described as "very special". However, in the event its outcome has produced a good deal of general uncertainty and concern as to where, in particular, the press now stands. That concern has been expressed by the Press Council, which has indicated its support of the amendment. The Guild of British Newspaper Editors has stated that it believes the amendment is necessary:
"to preserve free speech and, in particular, to protect the ability of journalists to report, discuss, criticise and comment on what has been said in open court".
364
The National Union of Journalists has also expressed its concern, and supports the amendment.
I submit—and I take the matter briefly because we have covered the ground before—that the amendment accords with principle, is in the public interest and will be of value in maintaining the freedom of speech and of comment. I beg to move.
Lord Campbell of Alloway: My Lords, may I apologise for not having been able to attend at the Committee stage. This amendment raises the question whether the majority decision in the Harman case should continue to represent the state of judge-made law, and in this context your Lordships may think two matters may be of relevance. One is that it was by an accident of composition of your Lordships' Appellate Committee that the decision went as it did, because so easily could it have gone the other way. The other matter that your Lordships may consider to be of relevance is that as long ago as 1966 the doctrine of stare decisis was abolished, and that, in a matter of great public importance such as this, if it came back before a differently constituted Appellate Committee the decision again might go the other way.
Apart from reflecting the judicial distaste of the conduct of Miss Harman, who was using documents obtained in discovery for an ulterior purpose, not connected with the litigation—and do not let us pretend that it was otherwise—the reasoning of the majority, in submission, is open to serious objection for three reasons; that is, serious objection as affording a safe precedent, that it should remain as part of our judge-made law. The first is that it is an impracticable situation. I borrow, if I may, with your Lordships' permission, gratefully, what was said by the noble Lord, Lord Hutchinson, at the Committee stage. The fact that he was more concerned with the aspect of criminal law than civil law does not, as I am sure your Lordships will agree, detract from the force of his observations on this issue. Also, that affects those who practise in the courts and—perhaps how much more important—the press. Here the speech of the noble Lord, Lord Jacobson, again in this regard, I adopt and also, with the utmost respect, everything that was said by the noble and learned Lord, Lord Elwyn-Jones, just now. The second reason is that it is unduly restrictive of fair and accurate reporting within the public domain; and, thirdly, it conflicts with the principle that what has been said in open court and done in open court is within the public domain.
This being regarded as a constructive discussion, may one put aside criticism? May one put aside criticism of Miss Harman? It is accepted that she believed that she had the right to do what she did and that in that sense she acted in good faith. On the question of professional misconduct, a handsome withdrawal and apology has been made. There is no question of professional misconduct. It is important if one is to have a constructive discussion to clear away prejudice which can obstruct a fair approach. Let us in that spirit put aside all criticism of Her Majesty's judges who were faced with a conflict of principle, the conflict between the principle of confidentiality and the principle of freedom within the public domain. The majority decided—and perhaps we should be

365
grateful to them in one sense—in favour of the principle of private confidentiality but at the expense of the public domain. The question is really this. In the long run, is this right or wrong? In my submission, it was wrong for the reasons that I have given.
I have so little more to detain your Lordships with, but those who support this amendment will vote for a more practicable, more workmanlike approach. They will also vote for a wider concept of freedom. They will also do something more as a bonus. They will do something to ease or remove the tensions which some of your Lordships may have seen evolve over recent years between the press and the judiciary. That is a bonus. But it is not one, in my submission, to be cast aside or just ignored.
Among the lawyers there are two views. There is nothing wholly unusual in that. But perhaps it is fortunate that this problem does not lie to be resolved by the somewhat jerky antics of opposing teams of mummers round some home-made, parchment maypole in the execution of a Morris dance. It falls to be resolved by your Lordships. In that regard, I acknowledge that my noble and learned friend the Lord Chancellor said at the Committee stage that this was a complex and difficult problem and I hope that he will forgive me for having spoken in the manner in which I have.
7.15 p.m.
Lord Wigoder: My Lords, I shall suggest to my noble friends when they return from the dining-room that we should support this amendment, although I do so with perhaps slightly more reservation than has been expressed by the noble and learned Lord, Lord Elwyn-Jones. My reservations are twofold. First, that there will be inevitably a temptation for publicity-conscious and politically-motivated members of the legal profession to reveal in court the contents of documents, not because that helps their legal case but because that helps their political cause. That is a temptation which I think one must rely upon the integrity of the legal profession to resist.
Secondly, I do not think it has been realised perhaps in the debates on this amendment that as a matter of practice certainly 99 per cent., if not 99½ per cent., of the documents that are read in open court are not read in full. There are almost invariably extracts and there are irrelevant passages that are missed out. There is a danger that a document will be read partly or mostly in court and handed over to the press so that there may be publication of parts of it that are confidential. I accept that if the wording of this amendment is strictly complied with, that danger will not arise; but I suspect that it may do so nevertheless.
Having made those observations, I remain of the view that the fundamental argument put forward by the noble and learned Lord, Lord Elwyn-Jones, is quite irrefutable in logic. My noble friends and I will go through the Contents Lobby. In doing so we are not to be taken as expressing our most enthusiastic approbation of the conduct which gave rise to this litigation.
Lord Renton: My Lords, I must confess that I have
366
throughout found this a very difficult issue. It is the first time I have spoken on it, but I have read a great deal about it I find myself, for the first time since we had the advantage of his appointment to your Lordships' House, in disagreement with my noble friend. I come down on the side of confidentiality and I do so for a particular reason. Of course, there are other reasons which I need not express.
It is the fact that in civil actions, in order to save time, frequently the attention of the court is drawn to documents, sometimes quite lengthy documents or a number of documents, without one actually reading them out. On many occasions the judge or the members of the Court of Appeal will have read the correspondence in advance of the case, and all that one has to do in appearing before the court is to invite the court's attention to documents which have been disclosed, which are known by counsel and solicitors on both sides, and their contents are known; and it saves a great deal of time if you do not have to read the document aloud—and I use the words in the amendment. If this amendment were passed, there would, I fear, often be an ulterior motive in that documents would be read out which it might not have been normally the practice to read out. That is the principal reason why I come down on the side of confidentiality.
But there is another reason, if I may say so, why I feel that it would be unwise for your Lordships to pass this amendment. My noble and learned friend the Lord Chancellor has made it clear that at this stage of the Session he will be fortunate to get his Bill on to the statute book. To the extent that controversial issues are introduced into the Bill before it leaves this House, there is the risk—and I do not know how great it is, for I am not in charge of Government business—that because of increasing controversy the Bill might not be passed in this Session. That would be extremely regrettable. If it comes to a Division, I shall be voting against this amendment.
7.20 p.m.
The Lord Chancellor (Lord Hailsham of Saint Marylebone): My Lords, the noble and learned Lord, Lord Elwyn-Jones, in his admirably concise speech in proposing this amendment, said that we have been round this course before. Indeed we have. I must begin by reminding the House—and I would say in particular my noble friend Lord Campbell of Alloway, who was not I think a Member of it at the time—that we went round the course first of all on the Contempt of Court Bill, when a similar amendment was moved by the noble Lord, Lord Gifford. On that occasion I gave an express undertaking, which I repeated at the Committee stage of this Bill, that once the litigation in the Harman case was out of the way I would see that the matter was properly discussed not only with my colleagues but with the profession and other interested parties, which of course includes the press.
The effect of trying to bulldoze this amendment through now—if the noble and learned Lord will forgive such an indelicate expression—is to prevent me from carrying out that undertaking which stands. I hope to persuade the House that there is more to this issue than the noble and learned Lord thought.

367
It is a basic principle of law reform—especially lawyer's law reform, if I may be forgiven for using a common phrase—that one should have the fullest consultation before effecting controversial changes in the law. That this is controversial there can be no doubt at all, if only from this short debate that we have held. The noble Lord, Lord Wigoder, had his reservations—very wise ones, if I may so say. The noble Lord, Lord Renton, had his, which he expressed very well a moment or two ago.
I simply want to say some of the things which make this to my mind a very highly controversial proposition. It is important to remember that the only person before the court in the Harman case was Miss Harman. I see the noble Lord, Lord Gifford, in his place, and I do not want to say anything at all derogatory about Miss Harman. I think that the noble and learned Lord, Lord Elwyn-Jones, and my noble friend Lord Campbell of Alloway, in saying that the House of Lords Appellate Committee was divided three-two were altogether over-simplifying the state of affairs at the end of the Harman case. Seven judges out of nine, —from Mr. Justice Park, the Court of Appeal, to the House of Lords—decided that she was guilty of a contempt of court. That was one side. Two judges of the utmost eminence, universally respected and admired, my noble and learned friends Lord Simon of Glaisdale and Lord Scarman, took the opposite point of view.
To say in those circumstances that the matter is simple and should be dealt with as if it were not controversial is to underestimate the difficulty of the problem. To show how controversial it is, the noble and learned Lord who proposed this amendment this time should have borne in mind what the issue was as seen by the majority in the House of Lords and by the four judges who decided the matter below the House of Lords.
The opening words of Lord Diplock's judgment in the case were:
"My Lords, in a case which has attracted a good deal of publicity, it may assist in clearing up misconceptions if I start by saying what this case is not about. It is not about freedom of speech, freedom of the press, openness of justice or documents coming into the public domain'.".
Nothing could be more flatly in contradiction with every word which the noble and learned Lord said about it than that.
The noble Lord, Lord Gifford, in rather a frolic of his own—if he will forgive me saying so—said at the Committee stage that the law was an ass. But the noble and learned Lord, Lord Diplock, is not an ass; he is one of the best judges of English law in this century. The noble and learned Lord, Lord Keith of Kinkel, who arrived at this same conclusion by another route, because he is a Scots lawyer and therefore may be presumed not to have started with any particular preconception in favour of our curious esoteric habits of English law, said this:
"The fact that a certain inevitable degree of publicity has been brought about does not, in my opinion, warrant the conclusion that the door should therefore be opened to widespread dissemination of the material by the other party or his legal advisers, for any ulterior purpose whatsoever, whether altruistic or aimed at for financial gain".
368
The noble Lord, Lord Wigoder, spoke about ulterior motives for altruistic or political reasons. But of course information can be sold, if this amendment is passed, for financial gain. The noble and learned Lord, Lord Roskill, made similar observations of an equally serious kind about the consequences. He said this:
"…it was common ground that there was no previous decision of any court which might guide your Lordships' House to a correct answer. I do not find that this is in any way surprising, for although the obligations to which the undertaking gives rise are well known and of long standing, no one until the present case has suggested that that undertaking is susceptible of termination or qualification in the manner now urged on behalf of the appellant".
These are very weighty considerations. When one considers what is really proposed, one must consider the issues of public policy which are involved on the side opposed to those who are supporting the amendment. First of all, there is the relationship between solicitor and own client. It is fundamental of course that a solicitor or barrister should not be able to show his client's documents to others, even if he believes such disclosure to be in the public interest, without the consent of his client. If this amendment is passed, once the document has been read out in open court, forever afterwards that will no longer be binding on the legal adviser of the client.
There is the interest of the opposing party. There is nothing improper about an agreement freely made between parties not to disclose their documents to others even after a hearing, and there seems no reason why promises given in such circumstances should not be kept. Yet if this amendment is passed forever and forever, ad infinitum, such an agreement will be unenforceable between parties.
Let us consider one or two cases in which this issue might have arisen. Let us consider for instance the case of Church of Scientology v. Department of Health and Social Security. In that case, as in the Harman case, disclosure was ordered against the DHSS which included hospital case notes and confidential medical reports
I do not want to say things which are derogatory of the Church of Scientology, although I have heard other people say remarkably critical things of that body. If this amendment had been passed, they could have used that document against the people whose medical reports were shown at any time in the future without any recourse against anybody. This is on the assumption that the documents were read out in court, of course. This is an assumption that I must make for this purpose to make the case comparable.
Let us take the case of Campbell v. Tameside Metropolitan Borough Council. In the case, a middle-aged schoolteacher was violently attacked by a pupil, suffered severe injuries and had to retire early. Her solicitors wanted access to the pupil's school records to ascertain whether they supported the allegation that the child had a history of repeated violence, and so they sought discovery. That preliminary matter went to the Court of Appeal which, balancing the public interest in keeping such records confidential and the interests of justice in having them produced, required disclosure of the school records for use only in the conduct of the instant case and for no other purpose. But if this amendment had been passed, that would have

369
been a power they would have been totally unable to enforce, because, if the amendment were passed, the obligation of confidentiality would have been terminated by the reading in court, if it took place.
There are serious questions of public policy to be discussed here. The noble and learned Lord who proposed the amendment spoke of the necessity for discovery. I do not myself disregard the difference, as he appeared to do, between civil and criminal proceedings as the noble Lord, Lord Hutchinson of Lullington, remembers that I said in Committee. One of the greatest difficulties in civil litigation is for solicitors and counsel to persuade their own clients about the absolute duty under which they lie of disclosing these particular documents. They may be secret memoranda—they are not confined to Government departments—and they could be secret memoranda in relation to private litigation, but one is able to say that, if they disclose the documents, they cannot be used for any ulterior purpose whatsoever. It would not be only the press who would be able to use them if this amendment is passed. It would be anybody—anybody in the world—without limit of time. Once they had been disclosed in discovery and read out in court they could be used to harass innocent individuals and persecute them. It so happens that Miss Harman, being, as she is, the solicitor to the National Council for Civil Liberties, is very much preoccupied with civil liberties. She is persuaded—I have no doubt sincerely—that in the particular case in which she was engaged as a party as well as a solictor civil liberties stood on her side and not on the other. But I wonder what she would have said if those medical reports or school reports had been used against an individual, and I wonder what her counsel would have said.
These are very serious questions of public policy: that is all I am saying. They are obviously controversial. They are controversial as between members of the profession. They must be—if ever this amendment came to be the law, which it could well do—controversial as between members of the public. It is not the press: they are not directly involved at all. The press were not accused of contempt of court: they were not before the court. Miss Harman was before the court and found guilty of contempt of court unanimously up to the House of Lords and by a majority in the House of Lords. There was a suggestion, which has not been repeated today, I am glad to say, that the House of Lords judgment depended on a real or imaginary distinction between reporters and feature writers. But it depended on nothing of the kind. The question was whether breach of an undertaking not to disclose which Miss Harman was found to have given, not merely implied, but as an express undertaking, was a contempt of court when she did disclose. That was the finding. It could have been a reporter 20 years afterwards or it could have been a feature writer at the time. But the fact is that this does involve serious questions of public policy. I am sorry that the House is rather a thin one, but I hope I have established that at least to those in the Chamber at the present time.
All I ask—I ask no more—is that I should be allowed to keep the undertaking which I gave on the Contempt of Court Bill. I shall be prevented from keeping it if
370
this amendment is bulldozed through on this occasion. I shall be prevented from consulting the profession, the press, members of the public or interested bodies. I am asking only that what is admittedly controversial should be omitted from a non-controversial Bill and that the ordinary procedures regarding law reform which involve reference and consultation should be pursued, instead of an attempt to pre-empt all the ordinary procedures of this kind.
For these reasons, I hope that even at this late hour the noble and learned Lord who has heard my appeal will yield to it. I think he will make this concession to me at all events. I entered into a bargain both with my colleagues and with the Opposition that this Bill should not contain any controversial matter. I have kept that bargain and I think I could defy anyone who has heard the proceedings in this Bill to say that I have not kept this bargain through thick and thin. I have kept it against the Opposition but I have also kept it very severely, perhaps more severely, against my noble friends when they have sought to write into the Bill some provisions which I believed, rightly or wrongly, to be controversial and which I thought would be rightly considered to be controversial by those to whom I gave my undertaking. Having said that, I do ask the House, without prejudice to any future decision which Parliament may wish to make, to yield to my appeal on this occasion not to pursue the matter any further. That is the only answer I can give to the noble and learned Lord.
Lord Campbell of Alloway: My Lords, before the noble and learned Lord sits down, might I say I was wholly unaware of the undertaking he had given that the due process of consultation would be put at jeopardy and that, although my views remain my views, I wholly accept that this is not the appropriate vehicle in which they should be conveyed.
Lord Elwyn-Jones: My Lords, this is clearly a very important amendment and a very important occasion. Let me clear some of the ground first, if I can. We on the Opposition side, and noble Lords on the Liberal Benches and those behind me have co-operated fully in seeking to eliminate from this Bill matters not directly pertaining to the administration of justice. But contempt of court is a very important aspect of the administration of justice and it is very important that the public and the press should know where they stand in relation to it. The judgment of your Lordships' House on this issue was given on 11th February of this year. The issue has been canvassed widely in the press and in learned journals since that time. I readily concede that opinion is not unanimous in support of the point of view I have expressed, but I would venture to express the judgment that it has been pretty overwhelmingly in favour of the amendment.
So far as the amendment is concerned, the suggestion that I am bulldozing the Lord Chancellor comes very strangely, as if he would be capable of being bulldozed. It is a lesson I have learnt in long, long association with him that that is not "on", and I am not trying to put it "on". Whether we were opposed in court or wherever else it may have been, it does no good, and

371
I am not trying it. But I think it is necessary to test the opinion of this House in a few moments of time.
It is, indeed, a pity that the House is so thin and that the attractions of a square meal take importance over the consideration of improvement in the administration of justice. I have always found it so in another place and here. I never introduced an important measure of law reform with a House of more than four or five people. We are doing pretty well tonight! So the judgments have to be exercised in absentia by those who have no doubt given the matter careful thought beforehand, with those who are present possessing the advantage of having heard the arguments.
There is a certain conflict of interest here. I maintain the principle of the common law of this country that justice should be open, that the public administration of justice should be in open court and that the public should have the right to know what is going on and to be informed by the press about what is going on. The reality of the position at the moment is this. What is said in the High Court is all recorded mechanically. Anybody can buy the record of what has been said in open court. I imagine that it will be open and available even in the 20-year interval which that great advocate, the noble and learned Lord the Lord Chancellor, called in aid. So it is no longer confidential. Once it has been read out aloud in open court, the confidentiality has gone out through the window. It has become public knowledge uttered in the public domain, and the right and duty of the press is to report exactly what goes on in the public domain.
As I ventured to say in my observations, the litigant is not defenceless. If this amendment is carried, hereafter the judges will still have the power, where they think that matters of delicacy are involved, certainly where they think that matters of public security are involved, either to require the document not to be read aloud at all—and one has had many instances of that, such as in medical cases and when considering probation reports; I do not want to go into the criminal field, but there are many circumstances where that is and has been done—or to adjourn to chambers and have the matter dealt with there, where the press are not present at all. That also is done.
So your Lordships must not think that we are leaving the litigant defenceless if this amendment goes through. On the contrary, the court still has considerable powers at all stages, as I said in my observations, to protect the position of the litigant. So it is not the case that we are leaving him at the mercy of ruthless lawyers—I do not know who they are—who are, apparently, willing to exploit the position for the benefit of this, that or the other purpose.
What is happy about the Harman case is the common ground that the conduct of the lawyers in that case is in no way impugned. Your Lordships were not here, but you may well have read of the full retraction and apology which the noble and learned Lord, Lord Rawlinson, made, because it was thought that some of his early observations might have given an indication that the lawyers, especially counsel, were the target on that occasion. That allegation was generously and fully withdrawn the moment when the noble and
372
learned Lord, Lord Rawlinson, learned what the true facts were.
So coming back to the issue with which we are now faced, I submit that the primary consideration is to maintain the principle of open justice, and when we have the arrangements that already exist—first, the matter having been read aloud the confidentiality has ceased anyway; and, secondly, the powers remaining in the trial judge to control the proceedings, so that that which ought not to go to the public domain need not go to the public domain, where confidentiality should be a primary consideration—the judge can deal with the matter in that way and protect the litigant. I am sorry to be in disagreement with my noble and learned predecessor about this. In my respectful submission, we have trodden this ground both in the House and outside it, and I think it is proper that the view of the House should now be taken.
7.45 p.m.
On Question, Whether the said amendment (No. 26) shall be agreed to?
Their Lordships divided: Contents, 56; Not-Contents, 75.

DIVISION NO. 4

CONTENTS

Ardwick, L.

Kennet, L.

Aylestone, L.

Kilmarnock, L.

Bernstein, L.

Kirkhill, L.

Beswick, L.

Llewelyn-Davies of Hastoe, B.—[Teller.]

Birk, B.

Bishopston, L.

Longford, E.

Blease, L.

Mishcon, L.

Boston of Faversham, L.

Monson, L.

Brockway, L.

Peart, L.

Bruce of Donington, L.

Pitt of Hampstead, L.

Cledwyn of Penrhos, L.

Ponsonby of Shulbrede, L.

Collison, L.

Rhodes, L.

David, B.—[Teller.]

Ross of Marnock, L.

Donaldson of Kingsbridge, L.

Seear, B.

Elwyn-Jones, L.

Segal, L.

Elystan-Morgan, L.

Stedman, B.

Evans of Claughton, L.

Stewart of Alvechurch, B.

Fisher of Rednal, B.

Stewart of Fulham, L.

Gardiner, L.

Strabolgi, L.

Gilford, L.

Strauss, L.

Gosford, E.

Tordoff, L.

Hampton, L.

Tweeddale, M.

Houghton of Sowerby, L.

Underhill, L.

Hutchinson of Lullington, L.

Wedderburn of Charlton, L.

Jacobson, L.

Wells-Pestell, L.

Jacques, L.

Whaddon, L.

Jeger, B.

Wigoder, L.

Jenkins of Putney, L.

Winstanley, L.

John-Mackie, L.

Wootton of Abinger, B.

Kaldor, L.

NOT-CONTENTS

Abercorn, D.

Cork and Orrery, E.

Airey of Abingdon, B.

Crathorne, L.

Ampthill, L.

Cullen of Ashbourne, L.

Armstrong, L.

Davidson, V.

Auckland, L.

De La Warr, E.

Avon, E.

Denham, L.—[Teller.]

Belhaven and Stenton, L.

Digby, L.

Bellwin, L.

Drumalbyn, L.

Beloff, L.

Eccles, V.

Brougham and Vaux, L.

Ellenborough, L.

Coleraine, L.

Elliot of Harwood, B.

Colville of Culross, V.

Elton, L.

373

Enniskillen, E.

Morris, L.

Fortescue, E.

Mottistone, L.

Fraser of Kilmorack, L.

Murton of Lindisfarne, L.

Gainford, L.

Northchurch, B.

Gainsborough, E.

Orkney, E.

George-Brown, L.

Orr-Ewing, L.

Gridley, L.

Pender, L.

Hailsham of Saint Marylebone, L.

Piatt of Writtle, B.

Rankeillour, L.

Henley, L.

Renton, L.

Hunt of Fawley, L.

Ridley, V.

Hylton-Foster, B.

St. Aldwyn, E.

Kemsley, V.

St. Just, L.

Kinnaird, L.

Sandys, L.—[Teller.]

Kinnoull, E.

Sharples, B.

Lane-Fox, B.

Skelmersdale, L.

Lindsey and Abingdon, E.

Spens, L.

Long, V.

Stradbroke, E.

Loudoun, C.

Swansea, L.

Lyell, L.

Trefgarne, L.

McFadzean, L.

Trenchard, V.

Macleod of Borve, B.

Trumpington, B.

Margadale, L.

Vaux of Harrowden, L.

Marley, L.

Vivian, L.

Mersey, V.

Ward of Witley, V.

Montgomery of Alamein, V.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
Lord Denham: My Lords, I beg to move that further consideration on Report be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.
Lord Denham: My Lords, I beg to move that the House do now adjourn during pleasure until eight o'clock.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.54 to 8 p.m.]

Local Government Finance (No. 2) Bill
House again in Committee.
[Amendment No. 51 not moved.]
Clause 6 agreed to.
Lord Bruce of Donington:
I beg leave to move Amendment No. 51A standing in my name on the Marshalled List, to insert the following new clause:
After Clause 6, insert the following new clause:
("Responsibility for preparation of accounts etc.
. It shall be the responsibility of the local authority or other body to whom this Part of the Act applies to take all necessary steps to ensure—

(a) that the accounts are prepared in accordance with the accounts regulations and comply with all other applicable statutory requirements;

(b) that proper practices have been observed in their compilation.").

This is a probing amendment, in the sense that it is not one that I intend pressing to a Division. Its purpose is to give the noble Lord, Lord Bellwin, an opportunity to speak, in view of the provisions of Clause 9 of the Bill (in which your Lordships will observe that certain responsibilities are laid upon the auditors to satisfy themselves about certain matters).
374
It seems, in view at any rate of the Consultative Committee of Accountancy Bodies—to which view, incidentally, I subscribe—that if one is going to impose the responsibility on the auditors of certifying certain matters, there should be laid on the authority itself the responsibility to perform those things to enable them to certify them.
It may be said—I would defer to the noble Lord on this; we are seeking a constructive solution and are not seeking to make any political point—that there is a common law responsibility for the local authority to do exactly what I have put in this particular amendment. I am told that that is so, but I may be wrong because I am not a lawyer. If it is so, I shall be quite happy, but, if it is so, the noble Lord himself should be capable, in responding to this amendment, of demonstrating precisely where this is so and of quoting the appropriate common law case law in support of the proposition that there is a responsibility on the local authority to do all those necessary things which are required in order that the auditor himself may perform his function. I beg to move.
The Deputy Chairman of Committees (Lord Drumalbyn): Amendment proposed, to insert the new clause printed on the Marshalled List, less paragraph (c).
8.4 p.m.
Lord Bellwin: I hope that I can help the noble Lord, Lord Bruce of Donington, on this latter point because, to put it briefly, we do feel that this is covered. We would say that it is implicit in common law, and in particular I will quote the case known as Roberts v. Hopwood in 1925. The point is that the amendment would appear to be capable of meaning that any failure to maximise value for money would actually be unlawful if it was attributable to shortcomings in the local authority's arrangements. There are difficulties to this. The auditor might have to seek a declaration that expenditure was unlawful if he thought there was a defect in the authority's arrangements. If he did not do so, objectors might appeal against him. But, under the Bill as drafted, his duty is more to assist by drawing the local authority's attention to shortcomings. The auditor's penal powers only come into operation on a value for money issue, if an authority has incurred expenditure which, although for a lawful purpose, is so excessive as to be unlawful.
The Deputy Chairman of Committees (Lord Drumalbyn): I do not know whether the noble Lord heard me saying, when I read out the amendment, that it was less paragraph (c). The amendment as moved only contains paragraphs (a) and (b).
Lord Bellwin: Yes, I did. I have tried to deal with this rather briefly, but I am anxious to give the noble Lord the assurance which he very fairly requires on a matter of this kind. The fact is, if I can take the provisions in order, that the first provision would require local authorities to comply with the accounts regulations and all other statutory requirements. The Committee does not need me to dwell on the point that statutory requirements must be observed and do not need other statutory requirements to say so. I would suggest that there is here an element of tautology

375
Secondly, the authority is required to ensure that proper practices have been observed in the compilation of the accounts. I would suggest that, in a technical and a legal sense, this is not necessary, in that any body which is required to keep accounts must be expected to keep them properly. I would have thought there was no need to have a special statutory provision on this point. I hope that the noble Lord, Lord Bruce of Donington, will feel that without my going into more detail—which I can if he wishes—he can consider what I have said (for he did say that it was a probing amendment) and either we can just leave it at that or we could talk about it again later. I really feel that this is not a necessary amendment but perhaps the noble Lord will tell us what he thinks about this.
Lord Bruce of Donington: I am grateful to the noble Lord and I entirely accept his suggestion that we may give this consideration between now and the Report stage. But may I draw the noble Lord's particular attention to Clause 9(1)(b)—and I must refer him there even though we shall be discussing the details at a later stage. Clause 9(1)(b) says that the auditor shall satisfy himself,
"that proper practices have been observed in the compilation of the accounts".
I trust that I shall not expose my ignorance of the matter, but I do not understand what is meant by "proper practices". Clause 9(1)(a) states,
"that the accounts are prepared in accordance with regulations made under Section 17",
and so on. If the accounts are properly prepared, what is the relevance of "proper practices…observed in the compilation"? If the accounts are all right and they comply in every material particular with all the statutory requirements, of what relevance are the methods by means of which this particular result is accomplished?
Perhaps I may draw the noble Lord's attention to an analogy. When a firm of professional accountants does an audit of a firm's accounts, it applies all the criteria which are set out in the statements of standard accounting practice which are put forward by the CCAB or by the respective institutes and bodies belonging to it. The form of its audit working papers may differ, they may be in a different sequence, and they may use different methods. The practice, in terms of how the ultimate correct audit position is arrived at, is, so long as the criteria are correct, entirely immaterial. There will be many different and varying practices between firm and firm according to their tradition, their history, their concept internally as to how the job can be done most economically. The important thing is that they arrive at the correct result.
I understand in some ways the noble Lord's position, because of course there is no statutory form in which the accounts of a local authority have to be presented. I must say this surprises me in view of the very detailed terms of the Bill and the explicit directives it gives. I would have expected that along with this Bill there would have been presented a form of accounts which a local authority and other similar bodies have to apply. I am not making any criticism of the Government about this; it applies to the previous Government of
376
my own political persuasion. I am not seeking to apportion any particular blame.
But if I may take the noble Lord's mind back to the history of what has happened in connection with commercial and industrial accounting, it is of course a fact that the profession itself over the years has developed a form of accounts which are presented for commercial and industrial enterprises. Indeed, my own institute, which celebrated its centenary a couple of years back, has played a leading part in the whole standardisation, if I may use the term, of the presentation of accounts for commercial, industrial and ordinary private purposes. The state has in due course acknowledged the wisdom of my profession in ultimately adopting the form of accounts, which, after the recent EEC directive, was formally put into the Companies Act 1981.
I am wondering why the same should not have been done here because I am troubled by the vagueness of Clause 9(1)(b), and it is for that reason that in moving this amendment I seek to lay on the local authority the responsibility for doing something which the auditors thereafter have to satisfy themselves upon. I realise that this may be unfairly addressed to local authorities. What I am really saying is that, before putting into Clause 9(1)(c) phrases about the auditor satisfying himself that proper practices have been observed in the compilation of the accounts, the noble Lord should address himself to telling the local authorities, or enshrining in the legislation, precisely what the proper practice is.
If he knows the proper practices now, then it would assist your Lordships if the noble Lord would tell the House what they are, because, speaking as a professional accountant for the moment, I am left completely in the dark. I do not ask the noble Lord to go into any very great detail now. The only reason why I have spoken at this length is that we on this side wish to be as constructive as we can be in developing this matter, and I thought that if I gave my preliminary thoughts on the subject now it would give the noble Lord an opportunity to consider them in some detail before we return to the matter on Report. The amendment is moved only in that sense.
Lord Bellwin: I entirely understand the way the noble Lord is bringing this forward and I will want to read what he has said. Perhaps I can help a little at the moment by saying that Clause 8 mentions that the Audit Commission will be drawing up a code of practice, and that may be one move in that direction. I think, also, that Clause 17 gives the Secretary of State the power to make provision with regard to the form of the accounts. That is another area which we will want to look at before I come back to the noble Lord on it.
On his query regarding definition of proper practice in Clause 9(1)(b), this, as I understand it, means proper accounting practices; that is, practices which are appropriate and meet the requirements of approved standards of practice. The noble Lord will know better than I do that statements of standard accounting practices are being reviewed as to their applicability to local authorities. As I said, I would want to look carefully at what the noble Lord has said and perhaps be in communication with him before the next stage.

377
Certainly from my own knowledge it is true that authorities have tended to produce their accounts in different ways. I think this may well be one of the good things that will come out of the commission.
Lord Bruce of Donington: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 7 [Appointment of auditors]:
[Amendment No. 52 not moved.]
Baroness Birk Baroness Birk moved Amendment No. 53:
Page 6, line 34, at end insert ("and, if that body objects to the auditor or auditors the Commission proposes to appoint, no such appointment shall be made until the Secretary of State has considered any representations or objections the body wishes to make to him").
The noble Baroness said: If the right for authorities to choose their auditors from a list had not been lost there would not have been any need for this amendment. This amendment is in a very much lower key but on somewhat the same point. It is to ensure that a local authority do obtain some safeguards against the imposition of auditors on them when they might not be very happy about the particular auditors. The increasing involvement of auditors, including district auditors, with policy matters shows how sensitive an area this has become. The system needs some checks and balances, and what this amendment does is to provide a modest minimum safeguard, the right of appeal by the local authority against the commission to the Secretary of State. It is just a small check on the Audit Commission's powers. It is not as good as we would have preferred—the opportunity to choose their own auditors. I beg to move.
Lord Bellwin: This is an interesting amendment and I am obliged to the noble Baroness for highlighting the relevant issue carefully. I feel I am not persuaded by the arguments, which run contrary to the Government's policy, and also it seems to me in some ways contrary to some of the views that were expressed earlier on today from the Opposition Benches.
I would like to put forward three reasons for the Government's resistance to this amendment. The first is the importance of audits being independent and being seen to be independent, as we were saying just before the adjournment. I sought also to explain in our Second Reading debate that we attach particular importance to the independence of audit in government —and, I say again, central Government as well as local government—because independence is especially important for the actual appointment of auditors. I cannot feel apologetic about the proposal in the Bill that this should rest with the commission acting independently with no power for the Secretary of State to intervene. Moreover, intervention by the Secretary of State would undermine the commission's authority.
Secondly, I would remind noble Lords that there are other checks and balances built into the commission's decision-taking arrangements. The Bill deliberately and explicitly requires the commission to consult each of the bodies concerned before appointing their auditor. My colleagues and I in your Lordships'
378
House and in another place have sought to make it clear that local government itself will be represented on the commission, so a substantial role will be played by local government in each appointment decision.
My third argument is perhaps an extension of my first. I regret I have to say that the amendment is defective because it provides no power for the Secretary of State to overrule the commission's decision if he were to be persuaded by the representations made to him. Of course, one always hesitates to make debating points about technical drafting matters. They could always be put right at a later stage if that was the only problem. But the point here is much more than a technical one. The flaw in the amendment could only be satisfactorily remedied, as I see it, if the Secretary of State were given a power to direct the commission about which auditors they should appoint. This would be quite contrary to the Government's policy. I thought it was also contrary to the views earlier expressed by noble Lords opposite. I thought they were very concerned about the extent of the Secretary of State's powers in relation to the commission, and wanted to see them reduced. But in this case the logic of the amendment, if it is to have any purpose at all, is that the Secretary of State should be given an extra power.
The Government see such a power as especially undesirable because it would inevitably apply to individual local authorities. The Secretary of State's power of direction in paragraph 3 of Schedule 1 is deliberately restricted, so that he cannot give a direction in respect of a particular body. We see this as a most important restriction, and we would not want to weaken it.
I hope I have explained why it is that we feel unable to accept these amendments. Perhaps the noble Baroness may even have felt that some of the arguments struck an answering chord in the views which she herself expressed earlier in the day. If so, I am sure that she will be content to withdraw the amendment.
Baroness Birk: I thank the Minister for that careful and full reply. The trouble is that one is caught between the devil and the deep over this matter. One is trying to find some flexibility and one is left only with one long stop which is the Secretary of State, and so one goes back to him. I am trying to find some way of getting some sort of movement. I can see that this amendment will not progress. I accept that there are some points against the amendment. But I wonder whether, between now and the next stage, we can try to find a different way round this very difficult and important problem. I do not think that this is the way—in any case it is quite clear that the Minister will not accept this amendment. Therefore, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees: I understand that Amendments Nos. 54, 55, 56 and 57 have already been spoken to with another amendment. Does the noble Baroness wish to move those amemdments?
Baroness Birk: No, they are not moved.
[Amendments Nos. 54, 55, 56, 57 and 58 not moved.]
Clause 7 agreed to.
Clause 8 [Code of audit practice]:
8.22 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 58A:
Page 8, line 3, after ("Parliament") insert ("for approval by each House of Praliament").
The noble Lord said: I beg to move Amendment No. 58A. This is a very minor amendment. It will be recalled that Clause 8 deals with the commission's preparation of a code of audit practice. Subsection (3) says:
"The code shall not come into force until approved by a resolution of each House of Parliament, and its continuation in force shall be subject to its being so approved at intervals of not more than five years".
Then subsection (5) says:
"The Commission shall send copies of the code and of any alterations made to the code to the Secretary of State who shall lay them before Parliament".
All my amendment does is to ensure that the same treatment is given to the alterations as was given to the original code, so that the alterations are subject to the approval of both Houses of Parliament. I do not think that the noble Lord could have any objection to that and I invite him to support it with his usual spirit of benevolence so that we can pass on to higher and better things. I beg to move.
Lord Bellwin: I confess that I found this amendment a little confusing on reading it. Perhaps I should very briefly begin by describing what the relevant parts of Clause 8 are designed to achieve. Clause 8 of the Bill deals with the code of audit practice. In response to representations in another place, and in view of the importance of the code to the audit process, the Government agreed that it would be right for the code to be subject to parliamentary approval, both initially and thereafter at intervals. Clause 8(3) makes the necessary provision.
However, it would be undesirable to require Parliament to approve every single amendment many of which will very likely be of an extremely minor nature; that would take up a lot of parliamentary time, and make the code very inflexible. Accordingly it was agreed in another place that the code could be altered between parliamentary approvals, though the alterations would of course be subject to approval when the time for parliamentary consideration next came. Clause 8(4) makes the necessary provision.
Finally, it was felt desirable that Parliament should at least be told of changes in the code as and when they were made, and so Clause 8(5) requires the Secretary of State to lay the alterations before Parliament. It is at this point that the amendment would insert the words:
"for approval by each House of Parliament".
Strictly speaking, this amendment might mean that each House had to approve the alterations as and when they were made. If so, as I think the noble Lord, Lord Bruce, would agree, it would tend to conflict with the policy provided for in Clause 8(4); the changes in the code might admittedly be very small ones, and it really would be, I think, an unnecessary taking-up of Parliament's time for each and every amendment to be subject to approval in that way. It would also
380
make the code unduly inflexible. And technically it would make the legislation very mysterious to read, with an apparent conflict between Clauses 8(4) and 8(5).
I must say that it did occur to me on reading the amendment that the intention was merely to make it clear that alterations must in due course be subject to parliamentary approval. In that case I am sure that Clauses 8(3) and 8(4) combined already have the desired effect. Equally, I am sure that it is right to provide, as Clause 8(5) presently does, for Parliament to see the changes as and when they are made. Even if each change is not to be approved there and then, Parliament has an interest and should know what is going on.
I wonder whether the noble Lord felt that this, too, was a probing amendment to get some clarity or whether he is satisfied with the explanation that I have given on this somewhat technical point.
Lord Bruce of Donington: I am grateful to the noble Lord, but he has given me, if I may say so and without offence to those distinguished people who advise him, the typical Civil Service answer to a question of this kind—namely, that it would mean that every time there was a small amendment, a new resolution would have to be presented to each House, and so on. Things do not work out quite like that, but that is a very useful weapon for anybody who wants to resist greater accountability, which I am quite sure the noble Lord does not wish to resist; after all, he is one of its leading protagonists.
The code of audit, which we shall be talking about presently in rather greater detail, is an important document. That is why initially the other place agreed—and it is in the Bill—that the code itself should be laid before both Houses of Parliament for approval. "Code of audit" sounds very dry and as though it has very little relevance to modern living, but it is an extremely important document. It is extremely important to those of us in the professions who have to carry it out. It is not something to which the professions should be subjected arbitrarily or by dribs and drabs. Certainly if the Audit Commission, after having determined the initial code of practice, proceeded to have a paragraph amendment every three weeks or a small word amendment every three weeks, I would not have judged them up to the competence which one naturally would have expected from an august body of that kind.
I am really concerned about some fundamental alteration that might conceivably be made in the code of practice which, although of a purely technical nature so far as those in my profession are concerned, might be of significance to Members of this House and another place who, I assume, would keep a critical eye on the whole business. On the whole, I should have thought it would have been far better for the Audit Commission (after having established its initial code and on the assumption that it receives the affirmative resolution in both Houses) if it finds in the light of experience that alterations are quite properly required, first, to consult with the Consultative Committee of Accountancy Bodies and possibly also with the local authorities; perhaps it could have circulated a memorandum and have collected views;

381
then finally, perhaps after about six months, to have collected the whole together and said: "These are the following substantive amendments we require to make. While we are about it, we will cross the odd 't' and dot the odd 'i' that may have emerged in the meantime".
This is how it would work, or ought to work, in practice, as distinct from the technical argument which has been so ably presented to the noble Lord by his advisers in order to reply to me. On the assumption that it works that way in practice, it is only right that both Houses of Parliament, having approved the original code, should be made aware, not every five years, but when the substantive alterations happen, that those alterations are happening.
The noble Lord will immediately reply—as, indeed, he has already indicated—that they will be laid before the House. I know from personal experiece exactly what that means. I have been in the other place and have had the privilege of serving in your Lordships' House. It is very difficult under pressure of business. Most of us in your Lordships' House have to pursue an occupation additional to the one which we are privileged to perform in this House, and the other place is largely occupied and its Members are very hardworking people. It is not always possible for them to know or to appreciate when something is laid; in fact, I have had difficulties in connection with another Bill, when I was told that an order had been laid but it had not been laid at all; I searched in both Libraries for it and it was not there. There are these complications.
If there are significant alterations to the code of practice, this proposal would be of no real inconvenience to the Minister, although it might be to his civil servants. If they are sufficiently important, the way of directing Parliament's attention to them—both in this House and in another place—is to have the affirmative resolution. Then Members would know, because they would appear on the Order Paper and they would begin to trace their papers and everything else, and the whole matter would be given proper attention. I think that it is most ulikely to happen, save at rare intervals. I do not envisage the little dribble-drabble that has been fed in for the purpose of providing the noble Lord with a reply. I think that it will happen at odd intervals; but those intervals are important, and I think the House should have them and that they should be made available in that way.
I do not propose to press this amendment to a Division or to create any further argument about the matter here. However, I am hopeful, and I do not ask the noble Lord to commit himself; that would be unfair. I ask him to think about this again. I know that he will take what I say into account (we have a mutual respect for one another on these matters) and I hope that it may not be necessary for me to raise the matter on Report. I hope that he may—and I do not ask him for an undertaking—be able to consider making the amendment himself. It would be much more in accordance with the practicalities of the situation and, indeed, the upholding of parliamentary values. We must never allow it to be thought outside Westminster that Parliament is of no consequence and that Parliament is not concerned with these important matters, even though they may appear small, technical and have little impact on the life of ordinary individuals.
382
I think that the noble Lord will agree that they are of importance and that he will pay careful attention, as I know he will, to what I have said. In view of the noncontroversial nature of his responses to me, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
8.36 p.m.
Baroness Stedman Baroness Stedman moved Amendment No. 58B:
Leave out Clause 8 and insert the following new clause:
("Code of audit practice.
8. The Commission may, after consultation with the bodies referred to in section 7(6)(a) to (e), prepare or adopt a code embodying what appears to the Commission to be the best professional practice with respect to the standards, procedures and techniques to be adopted by auditors carrying out their functions under this part of this Act.").
The noble Baroness said: For some reason, which has so far escaped me, I have been asked by the Chartered Institute of Accountants for Scotland to table some probing amendments on their behalf. This is the first of them. They are concerned that the accountancy bodies, who are very well placed to prepare a code of audit practice, feel that there should also be some safeguard, that the commission should be given a reserve power to prepare a code if the accountancy bodies fail to do so. Therefore, in the amendment before us, Amendment No. 58B, I have used the word "may" rather than the word "shall", and also the words "prepare or adopt".
The Scottish accountants feel that it is not possible to prescribe auditing procedures and techniques. They tell me that in the auditing standards and guidelines that are issued to date by the accountancy bodies, the auditing standards prescribe the basic principles, but the procedures and the techniques to put those basic principles into effect are covered by guidelines which are not prescriptive. So professional judgment has to be employed in the selection of the appropriate procedure and techniques for the particular circumstances of a particular audit.
As the proposed code is supposed to cover detailed matters, such as the procedures and techniques, my friends in Scotland believe that it should not be prescriptive, but that it should be highly persuasive of best practice. They tell me that that means that it would be ignored by auditors at their peril. This is only a probing amendment in order to find the views of the Government. I beg to move.
Lord Bellwin: As the noble Baroness has said, this amendment deals with the code of audit practice. This is an important issue, and I am obliged to the noble Baroness for this amendment, which allows me to say a few words about the code, which I hope will be helpful to her and her friends to whom she referred.
The Government see the code as being important to the audit process. The purpose of the code is to ensure that a consistent approach is adopted by auditors—who will come from the commission's own staff and from a number of different private firms—across the range of local authorities.
I would hope that local government would welcome the objective of a consistent approach. And I venture to think that the accountancy profession will come to value the help the code gives in what is, after all, the

383
relatively specialised field of local government audit. Of course, the Bill as drafted requires that both the local authority associations and the profession be consulted on the preparation of the code.
I recognise that there is some concern that the code might in some way cut across the auditor's professional judgment. Let me stress that that is not the intention. We see the code as providing a consistent framework; but within that framework it will be for the auditor to exercise his own judgment within the circumstances of each case.
Perhaps I might now turn to the amendment tabled by the noble Baroness. It may not come as too much of a surprise to her if I say that I could not accept it. But, of course, I want to explain why. There are two main reasons. The first is that the noble Baroness's wording only says that the commission "may" draw up a code. I have explained, I hope, that we regard the code as very important; that is why we felt it right, indeed essential, to make it a duty of the commission to prepare the code. I fear that "may" is, in the Government's view, too insubstantial a word for a matter so central to the audit process.
My second main reservation about the amendment is that it does not provide for any parliamentary approval of the code. Noble Lords will probably know that Clause 8(3), which makes such a provision in the Bill, was added by the Government in another place, after representations in Committee. I feel that the need for parliamentary approval duly reflects the status and significance of the code, and I could not recommend your Lordships to delete the provision at this stage.
There are some other drawbacks to the amendment. Perhaps I should mention them. It does not, for example, provide for the local authority associations to be consulted on the preparation of the code. This was another amendment made in another place which I think we should retain. Nor does it provide for the code to be published, which I think would be a regrettable omission. I suggest to your Lordships that it is right that a document such as this should be available for all to see.
The amendment speaks of the commission "preparing or adopting" the code. The word "adopt" implies the commission taking over something that has been drawn up by another body. The commission may well want to draw on work done elsewhere, for example by the Chartered Institute of Public Finance and Accountancy. But the full responsibility must rest with the commission, and the code must, in the last analysis, be its own; so I see "prepare" as being the clearer word.
There are some other technical points on which I shall not dwell. I always find, if I may say so, that it is worth paying close attention to anything that the noble Baroness suggests, and I sometimes do that in self-defence, but on this occasion I fear I must conclude that Clause 8 is best left as it stands in the Bill. I hope that that is helpful to the noble Baroness. If she—or her friends—feels otherwise and gets in touch with me, I shall be delighted to try to expand on that and to give any other information that she may require.
Lord Bruce of Donington: The noble Baroness,
384
Lady Stedman, made it clear that hers was a probing amendment, but I am grateful to her that she raised this point because it is one of some importance. When we are talking of a code of practice we are talking about something in the future which, so far as local authorities are concerned, will approximate to the statements on standard accounting practice which all professional accountants are now required to comply with in their auditing of the affairs of limited companies, whether public or private, in the United Kingdom.
As I understand it—and I hope that the noble Lord will be able to confirm this—according to some guidance notes which have been issued by the Accounting Standards Committee:
"Arrangements are being made whereby, as future statements of standard accounting practice are developed, a panel of specialists in local authority accounting will advise the Accounting Standards Committee on how the particular characteristics of local authorities should be catered for".
At a later stage in the Bill there is some mention of the powers of the Secretary of State in connection with instructing the commission as to its functions. I trust I may take it from the noble Lord that one of those instructions will be, if indeed instructions are necessary, that there will be this initial and effective liaison between the new audit commission and the Accounting Standards Committee, because it is vital that early contact should be established there so that a common language can be used.
In the meantime, according to the guidance notes issued to professional accountants, which were issued last month, it is said that the requirements of these SSAPs—that is, the ones under which we are now operating as a profession—are not generally appropriate to local authorities as the various activities of local authorities are not usually organised through separate legal entities. Therefore, quite clearly there will be need for some considerable amplification, variation and reconciliation of the new code with the existing statement of standard accountancy practice. I should be grateful for the assurance from the noble Lord that there will be quick and effective liaison between the new body and the Accounting Standards Committee.
Lord Bellwin: I am grateful to the noble Lord, Lord Bruce, for what he has said. Certainly I shall want to discuss it with colleagues, and we shall read it carefully. I assure him on that point.
Baroness Stedman: I am grateful to the noble Lord for his lucid explanation. I understand it a bit better myself now I have heard him, and I am pleased to ask the leave of the Committee to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 agreed to.
Clause 9 [General duties of auditors]:
8.45 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendments Nos. 58C and 58D:
Page 8, line 17, leave out from beginning to ("; and") in line 18.
Page 8, line 18, leave out from ("accounts;") to end of line 20.
The noble Lord said: I beg leave to move Amendments Nos. 58C and 58D, which seek to amend the provisions of Clause 9 of the Bill. Clause 9 lays out the responsibility of the auditors who are appointed. Subsection (1) says:
"In auditing any accounts required to be audited in accordance with this Part of this Act, an auditor shall by examination of the accounts and otherwise satisfy himself—

(a) that the accounts are prepared in accordance with regulations made under section 17 below and comply with the requirements of all other statutory provisions applicable to the accounts;

(b) that proper practices have been observed in the compilation of the accounts; and

(c) that the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources".

The two amendments which I am putting forward seek to eliminate the last two paragraphs.
It is quite clear that the audit that is envisaged by Clause 9 as it now stands is totally different from the type of audit which professional firms of accountants carry out as a matter of routine, and have carried out for a number of years. In the accountancy profession in commerce and industry, the auditor is required to audit and to certify that in his opinion the accounts present a true and fair view of the affairs of the undertaking which he is auditing. True and fair. He is not required to explain why the company has made a loss, if indeed it has made a loss. He is not expected to praise a profit, if it makes a profit.
All he is required to do—I say all; it is often a matter of some complexity and some very hard work indeed in complying with all the statutes—is to certify that the picture presented by the accounts is a true and fair one. However bad the results may be, it is not his responsibility to make any comment on that. If he is doubtful at any point whether the accounts as presented by the directors, and insisted upon by them, show a true and fair view, either because certain information is incorrect or because certain information is omitted, which, if it had been there, would have changed the picture, then of course he must qualify his report. But the basic essence is the certification of a true and fair view.
The position under the local authority situation with which we are confronted is that it is now sought to involve the auditor in value judgments. There is no reason why that should not be so. My profession is well accustomed, though not part of its formal auditing capacity, to making valuations and investigations into the affairs of companies (conducted in accordance with the various mandates presented to them) to find out where they are working inefficiently or can be improved, and so on. That is frequently done.
I do not know whether the position has improved since, but about 10 years ago one could normally go into a firm which was engaging one's services as a consultant (accountants are frequently engaged for that purpose) and, if it was a manufacturing enterprise, it was usually possible to be able to tell the managing director that one could recover one's fee by the saving of movement within the works, by the internal transportation system. It is undoubtedly true that an accountant can be uniquely equipped to carry out that sort of investigation and advise his clients. But that is not part of his audit job and is a most difficult job to certify.
I hope the Committee will permit me to elaborate on that a little further. I am sorry if noble Lords think I am being somewhat pedantic, but I assure the Committee that it is a matter of some importance. The magic words are that an auditor must" satisfy himself" and that imposes a considerable responsibility on auditors generally. It is one which we are willing to accept, but the responsibility is onerous. And when we come to subsection (1)(c)—
"that the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources"—
that becomes a very onerous duty indeed, and I shall explain exactly why." Resources" means exactly what it says—all resources. The position at present for local authorities in particular is that they are not required to account for their assets at all. Indeed, the point was made by the Layfield Report, which referred to the position of local authorities in regard to accounting for capital assets and said in paragraph 49, at page 129:
"Local authorities do not practice capital asset accounting. As elected bodies with powers of taxation, their basic approach is to account for the money they raise. Unlike private sector enterprises, the regular assessment of the total value of assets is not of vital concern".
Then, in paragraph 50:
"However, we consider that there are arguments in favour of identifying the value of the use of assets owned by local authorities. We believe that local authorities have a duty to ensure they are putting their assets to the best possible use".
It went on, in paragraph 53:
"Accounting for assets is being studied as part of the development within the accountancy professions, stimulated particularly by the Sandilands Report".
It concluded on that:
"However, there is a need for a different form of capital accounting to provide information on the cost of using the assets of local authorities and deciding on their use".
Layfield made the point:
"The assets owned by local authorities belong to the community. It is just as important for local authorities to be accountable for the use of those assets as it is for them to be accountable for the money they raise from the community in the form of taxes. Local authorities are amongst the biggest landowners in the country. Even during periods favourable to the growth of services, it will be increasingly important in future to ensure that the best use is made of the resources available within each area".
It went on to give two examples, the under-utilisation of schools and the sterilisation of valuable building sites.
I return to subsection (1)(c) and reiterate that the accounts produced by local authorities do not require them to show their capital assets; they have no balance sheet in the conventional sense of the term. And even if they did, we would not be required in this instance to express whether they showed a true and fair view. The provision with which we are dealing is designed to ensure that proper arrangements have been made,
"for securing economy, efficiency and effectiveness in the use of resources".
How is the accountant to know, in the absence of accounts which show the assets of the local authority, what the resources are, what their value is and what their extent is, let alone the use to which they are put? One can see that that is imposing a very difficult responsibility. I repeat, the wording is:

387
"that the body whose accounts are being audited has made proper arrangements for securing economy, efficiency and effectiveness in the use of resources".
Those are aspects which obviously can be studied outside the normal ambit of audit.
If I wanted to ensure that a local authority was functioning properly—I am speaking personally and off the cuff—one of the first things I would do would be to ask for an organogram of the local authority showing its executive structure of responsibility, and I should need to find out what the responsibilities and duties were of each individual, how much time that occupied, how authority was delegated down the line, whether there were two many chiefs and not enough Indians, or the reverse as the case may be; I should have to make some rudimentary effort at some sort of job evaluation before I felt I could be seized of the situation to see whether the authority really was functioning fully and effectively as it should do and was not, for example, carrying a lot of dead wood. A whole series of matters of that kind come to mind. It might even extend to an age and sickness analysis and an examination of the turnover of executives to see what kind of organisation it was, whether it was happy and cohesive and so on.
It is a formidable task to be able to satisfy oneself in that respect, and it bothers me that it should be in the statute. Or, if it is in the statute, it bothers me that it should be assumed to be part of an audit. An audit should be concerned with facts and the establishment of facts. It should be able to establish whether transactions are valid, their legality, that everything is absolutely correct and that there has been no fraud or anything of that kind; in other words, that everything is straightforward. But once an auditor, acting as an auditor—I repeat, acting as an auditor; he could do it in another capacity, for example as a consultant—is required to get into those fields, he is on uncharted ground.
Moreover, local authorities might find it extremely expensive as well. Clearly—we shall come to this in detail later in the Bill—the way in which auditors, particularly in the private sector, are to be remunerated depends largely on the expenditure levels of the authority, if the code scale is anything like that published in Standing Instruction 116/9 of 1974. If they are anything like that, modified to take account of inflation, it could happen that for an authority with expenditure of, say, £40 million—and therefore involving a very large fee—it could be done very smoothly if everything was absolutely perfect and there was no trouble. In such a case it could be quite economic. Equally there might be an authority with a revenue of nearly £1 million, which was extremely badly run, and which would need a very lengthy time to research, which would therefore involve considerable cost.
What I am suggesting—and I am trying to be as tidy as possible—concerns the so-called "value for money" audit, which is an invented term, which is meaningless. There is no such thing as a value for money audit. There is such a thing as a value for money study, as there is a feasibility study, or a comparative study; but even though they are very valuable, they ought to be excluded from the audit practice.
I have spoken at some length on this matter, and I regret if I have wearied the Committee, but the noble Lord might feel constrained to consider that there is something in what I say and that there is a case for eliminating words from the provision as proposed in the amendments and incorporating them as either comparative studies or something else of that kind, somewhere else in the Bill, unless the wording can be so modified that the auditor is not required to satisfy himself. Perhaps the phrase "report upon" could be used; but "to satisfy himself" is a very wide term, and I fear that there would be very few accountants who could accept such an onerous responsibility imposed by statute, unless they were permitted to conduct an investigation so thorough as to enable them in all cases to satisfy themselves accordingly. I beg to move.
9.3 p.m.
Lord Mottistone: I should like to intervene before my noble friend on the Front Bench replies. The Committee should be indebted to the noble Lord, Lord Bruce of Donington, for raising this subject and exploring it so fully. I question his amendments as such—the principle at which he is aiming—because it seems to me that Amendment No. 58C is really cutting out Clause 9(1)(b), while Amendment No. 58D would leave a truncated situation in the middle of Clause 9(1)(c). So as amendments they are not up to Lord Bruce's standards. But he has done a good job.
First, I should like to take the proposed elimination of Clause 9(1)(b). I would question whether it is right to say that it is not fair to require the accountants to satisfy themselves that proper practices have been observed. I should like to refer to my experience of dealing with accountants handling my audits, and the noble Lord, and indeed the Committee, must accept the fact that my accounting practices have been very elementary and amateur, but I have had to look after people's funds. In my experience the accountants take jolly good care to ensure that my proper practices have been observed, and this seems to me to be very much part of their way of tackling things when it comes to people who are not experienced accountants in major companies; and that is what we are talking about.
We are into a new ball game—and here I think the noble Lord put his finger on it—in that we are introducing what you might call commercial accountancy into a world that does not necessarily want to make both ends meet. I say that very fundamentally, because here we have the problem. When one has the discipline of having to make both ends meet, as a company has to have, one must have an attitude of mind that is different from that of someone who is in a non-profit-making organistion, of which local government is an example, or in many cases an example on a vast scale. There is the terrible problem—which is discussed again and again in your Lordships' Chamber —that there are a large number of bodies, which on the whole noble Lords opposite favour, which do not have the essential discipline of having to make the books balance. This is where we are in difficulties and where I consider the Bill is absolutely right. It is trying to cross-connect the essential disciplines through to the people who need those disciplines.

389
So I think we can discount Amendment No. 58C, since I do not consider it necessary, nor indeed relevant. But Amendment No. 58D is important because I think the noble Lord, Lord Bruce, is absolutely right in saying that the Bill is asking accountants to do not only their own, ordinary job, but a consultant's job as well. He is, I think, saying that this is a bad thing, or if it is a good thing, that the accountants will have to be paid a lot of money for it because it will take time and special expertise; and with that I would agree.
But I do not think that it is a bad thing that they should do it, since I believe that paragraph (c) is extremely important—and there are other examples in the Bill of the same line of thought—because it is trying to introduce commercial disciplines into local authorities and saying to them, "Do you need two people where one might do?" I shall not elaborate on the example; members of the Committee understand what I mean. At the moment—and this is no criticism of them—local authorities do not have a yardstick, they do not have an outside person who is properly equipped, and who is knowledgeable about the competitive world, to ask them essential questions as to whether they need two people where one will do. That is what paragraph (c) is about.
I agree with the noble Lord, Lord Bruce, that when one looks at the Bill what is proposed is apparently just an ordinary audit, but it is not; it is something very special. He is so right to have raised this point, but I think that it is a very essential part of what needs to be done. I also think that it ought to be paid for. If, when we come to consider the question of paying for these services, the payment does not appear to be satisfactory, I shall probably find myself on the side of the noble Lord, Lord Bruce; it will be terribly difficult, but I shall be there.
The Government are absolutely right in introducing this proposal. I hope that I am not overstepping the mark so far as my noble friend is concerned. I hope that he was not going to try to pretend that the proposal is not as radical as this. I think that it is radical, and right, and therefore the amendment is wrong because it seeks to remove the radicalism from the Bill, which I think is very necessary. Let us hope that the Government persist with this, and that in due course the noble Lord withdraws his amendment having explored the situation—and for that I very much applaud him.
Lord Houghton of Sowerby: I am sure that the noble Lord, Lord Mottistone, is right in most of what he said. I think there is a very big difference indeed from the conditions inside a commercial enterprise, an industrial enterprise, which is being tested in its efficiency, in its accounting, in its economy and in the use of its resources by means of factors which do not apply to institutional life. When things go wrong in institutions—and some of our nationalised industries have tended to become institutions—they rely on external help to get them out of their difficulties, and no not apply their minds, as they should, to putting things right inside.
My noble friend Lord Bruce of Donington is raising an important matter. He was speaking about this, in fact, at Second Reading, and I was very restive when he was doing it, because the matter he is really
390
raising is that of the functions of the auditor, and I think he is taking an unnecessarily narrow, pedantic view of the functions of the auditor. If my noble friend agrees that these three matters in Clause 9 should be looked at, that somebody should be satisfied about them, who is going to satisfy himself if it is not the auditor? I think this is what my noble friend has to consider. Who else is going to conduct the efficiency audit?
On the Salmon Commission we went into this very fully indeed. We had the accountancy profession to give evidence on the very issue that these amendments raise: what are the functions of the auditors in local authorities? How far should they go? Should the range of their concern and their right to disclosure go beyond what would normally be, in commercial life, the functions of the auditor? We on the commission felt very strongly that they should, because we did not know who else would do it. I think our report on this particular matter was less clear, or less incisive, than it ought to have been, but that was due to the fact that the accountants themselves appeared to be undecided about the full range of their responsibilities in local government audit.
Let me remind the Committee that we were dealing with Poulson, and the aftermath of Poulson—corruption on a very big scale indeed. There are more aspects of corruption in local government than the kind of thing that Poulson was doing. We have only to read our newspapers from time to time to realise what difficulties those engaged in local government can get into. I will not read them to the Committee—I do not want to take up time unnecessarily—but I would draw the attention of noble Lords to paragraphs 242 and 243 of the Report of the Royal Commission on Standards of Conduct in Public Life.
In my opinion we have never had adequate debates on the contents of the report of that Royal Commission, but in the course of our own work we studied the recommendations of the Redcliffe-Maud Committee, which had been sitting just prior to the setting up of the Royal Commission and had been studying some of the ground that we had to cover. Both reports stressed the importance of the internal audit. This is the issue —the internal audit to supplement the external audit. Where does the internal audit come from? It was to be an efficiency audit. It said:
"The best practice is to extend internal financial audit into a review of efficiency and the observance of procedural requirements, including safeguards against malpractice, and this is being increasingly adopted by public sector bodies".
Who is doing it in the case of local authorities? Is there a Public Accounts Committee there? I think my noble friend said a moment ago that there is no such thing as a value-for-money audit. When I was chairman of the Public Accounts Committee it was the principal job of myself and the Comptroller and Auditor-General to conduct a value-for-money audit. We did not do the accounts; what we dealt with were the discoveries of the Comptroller and Auditor-General on the misuse of resources—on not getting value for money. He did not question policy, but he sometimes questioned how it was applied; and here we are, I think, in a similar area in local government.
If my noble friend thinks that the auditor should be excluded from this responsibility, he has a plain duty to

391
tell us who will do it. It needs to be done; believe me, it needs to be done. Whether we should have an examination of the word "resources" is another matter, but I do not wish to dwell on it. The mere fact that a local authority does not have to include a list of its assets in a balance sheet does not remove some of its assets entirely from observation or examination, to see whether the fullest use is being made of its resources. I stop there. I hope I have made my point. I think that whatever is done we must get the internal audit, and this is what the accountant is asked to assure himself about. It does not say that he must do it himself; he must satisfy himself it is being done.
I think that we should use the opportunity of this Bill to carry out on a mandatory basis the recommendations of the Redcliffe-Maud Committee and the Royal Commission. We shall have failed in our duty if we do not do that. Let us have an internal audit required in a local authority. The only question is: Who is to be satisfied that it is there? If not the auditor, it must be somebody else who has an overriding responsibility for conducting efficiency audits throughout local government. That is not in the Bill. I think the best compromise is to regard the auditor as having enough ability, common sense and judgment of what he is doing. I am sure he has all those things. The accountant that my noble friend described I do not think would be worth his money. We should have this on a more comprehensive basis and that will do the job.
Lord Bellwin: My noble friend Lord Mottistone and the noble Lord, Lord Houghton, made much of the case that I wanted to make. I will say to the noble Lord, Lord Bruce, that as with all the other things he is going to say on these technical matters, I shall want to look at everything he has said. One or two observations on this amendment I must make. First, the amendment would delete the requirement that the auditor should satisfy himself that the proper practice has been observed in the compilation of the accounts. The noble Lord says that they may have no place in Companies Act audits, but they have long had a place in local government audit. I think that it would be a retrograde step to remove it. It seems to me a reasonable requirement, indeed a minimal requirement, representing one of the basic steps in the audit process. I cannot see advantage in its removal from the auditor's duties.
When the noble Lord defines, as he does, with his experience, "satisfy himself" and what it means, I have to listen. He is a professional man and he knows what it says. My lay interpretation of it is something along the lines of what Lord Houghton was saying. When we look at Clause 9(1)(c) I wonder if the noble Lord appreciates that the auditor must satisfy himself that local authorities have made proper arrangements for securing value for money. That does not mean that they have to satisfy themselves that the local authorities have received value for money; they must be satisfied that the correct steps or processes have been set up. That is their duty. The amount of detail into which they go to do this is something that will have to come out in the code of practice. That is one of the things in discussion with the profession and others that will have to come forward.
392
If the noble Lord is saying that "proper practice" is not defined and is too subjective, then I would say that the Bill requires all auditors to be qualified and it is reasonable to expect such people would know what the proper practices are in the compilation of accounts. The code of practice can be expected to give such guidance as is appropriate on any special features of practice in local government. On the point that Lord Bruce made about the amount of work that may be required in a £40 million authority compared with a £1 million authority—and there would not be a lot of £1 million ones—I know the point he makes. Maybe he is right. I am sure he is. Under Clause 15(4) the commission is enabled to increase or decrease the audit fee for the amount of work that would be involved.
I think that the point the noble Lord, Lord Houghton, made touched not only on this amendment. There are a number of things which we seek in this Bill; but one of the strong features of what we are seeking is the very thing that he was saying. We want the maximum amount of openness, the maximum amount of accountability. It should not only be there but be seen to be there to restore confidence where it is not there and confirm confidence where it is. The auditor must become involved in the procedures. This is all we are saying but it is a very big "all". It could be a significant advance.
When debating with my noble friend Lord Ridley, I said that I see the commission as a real step forward, not as an imposition upon local authorities. The people who work in them in the main are people who genuinely want the reputation of local government to be at the highest possible level. Through what we are proposing in this audit commission, with its code of practice and its involvement in a new area of accountancy work, there is a great chance to advance all that local government does.
Perhaps I have digressed slightly but I am glad of the opportunity to say why I, with my local government background, am not only unhappy about local government but am anxious to see here a real opportunity for it. That is why I welcome it. On the technical matters, we will look at them carefully and I have tried to respond as best I can.
Lord Bruce of Donington: I am very grateful for the response to the matters that I have raised. Part of the difference between us has been due to semantics. As an auditor, I know exactly what an audit is. An audit in the strict sense of the term—and the noble Lord must accept this—does not comprise the matters to which he has been referring. That does not mean that they should not be considered or that they should be excluded from the Bill. I entirely agree that they should be in the Bill. I am not suggesting for one moment that an auditor or firm of accountants employed by a local authority should not be responsible for doing precisely the things that the noble Lord has set out. Let there be no doubt about that. My noble friend seemed to be under the illusion that I wanted the outside supervisory or auditing interest confuted merely to legality. I accept the purposes that the noble Lord has in mind.
I do not think that they should be in this particular Part of the Bill, however. I still maintain that the word "satisfy" to an auditor has a much greater

393
significance than the noble Lord really imagines. It is not a general feeling that everything is all right. Being satisfied to us—because we like to be thorough in what we do—means being really satisfied. That can be a very time-consuming process. In my view, it could be made rather more the subject of a special study. There are powers in the Bill which would enable the auditor to be engaged upon this inquiry function—because that is all it really is—a study and inquiry function, and a reporting function after that, additional to the legal requirement of audit and those precise terms.
This is the only point that I have to make. I trust that the noble Lord, Lord Mottistone, will acquit me of any desire that the accountancy profession should seek in its association with local authorities to avoid these issues. On the contrary, we welcome them. So far as we are concerned, the more efficient people can become, the more help we can afford to them to become so and the more that we shall like it. Auditing sometimes tends to be a rather boring process and very repetitive. The opportunity for accountants to exercise a more creative function in helping people to do better, to economise and to be more efficient is very agreeable to my profession and we love to do it rather than the formal but thorough and painstaking auditing process. So there is no difference between us there. I will leave the noble Lord with this thought: if he could give consideration as to the real propriety of including these particular items where they are and giving the commission facilities to initiate inquiries and receive reports on them on these lines, I should be happier.
The noble Lord may think I am being unduly pedantic, but in the accountancy profession we have to study law and from time to time give expert evidence to the courts. We have learned from long and bitter experience that words in a statute are very often interpreted differently from the way it is thought they might be when we consider the seductive tones in which they are sometimes introduced into the legislature by politicians of all parties. This makes us cautious, and indeed if we were not cautious, if we were not prudent and if we were not thorough, we would not be of any service to you anyway. I beg leave to withdraw the amendments.
Amendments, by leave, withdrawn.
9.27 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 59:
Page 8, line 24, leave out subsection (3).
The noble Lord said: Clause 9(3) reads as follows:
"The auditor shall consider whether, in the public interest, he should make a report on any matter coming to his notice in the course of the audit in order that it may be considered by the body concerned or brought to the attention of the public, and shall consider whether the public interest requires any such matter to be made the subject of an immediate report rather than of a report to be made at the conclusion of the audit".
In its present form this does not command very much professional support. Auditors do not like to be in a position where they have to define public interest. It is not the function of an auditor to define public interest. There may be many other functions that an auditor has, and I know that perhaps I invite ribald comments by giving anybody the opportunity to make some suggestions on the subject; but it is really not
394
good enough to put the auditor in a position where he has to define public interest. It relates to any matter.
This provision, again, is very wide. If we are going to report immediately on matters of public interest, we would like a little closer definition. In practice —and I will give way to the noble Lord in a moment when I have developed my point—obviously what happens is that if an auditor finds something strange when he is engaged on his inquiries in between the various other duties I shall be enlarging upon in a moment and which do not arise at this particular stage, his immediate reaction is to get in touch straight away with the chief finance officer or whoever it might be. He might even telephone the commission or, in exceptional circumstances, if the chief financial officer himself is involved in the matter, he might go direct to the leader of the council. There are a variety of ways in which he can report extraordinary events without the necessity of making an immediate report, because a report in the accountancy profession does not mean merely a note on a small sheet of paper but a report which sets out the whole context, circumstances and detail.
This is the essence of our profession—to ascertain, marshall and present facts. That is what we are there for, and we just query the reason behind this. It may well be that the noble Lord in his reply can say something that will reassure the profession. At the moment the purpose of it eludes us and we shall be grateful to have it put into more precise terms. I give way now to the noble Lord.
Lord Morris: I hesitate to interrupt the noble Lord, but in the context of this Bill may I just ask him one question? What on earth, other than the public interest, is the auditor representing? That is the only standard. He is representing the public interest, and he has every right to report at a time that he considers best—either at the end of an audit or in the middle of it. If he reports early—this is the great strength of this subsection—he will give further strength to the report, rather than if he allows time to muddy the waters in regard to the interest on which he is reporting.
Lord Bruce of Donington: I entirely agree with the noble Lord. All I am complaining of is that this is a matter in a statute. I know exactly what I would do, as a member of a firm of auditors engaged in a matter of this kind. I am just bothered about the form of the wording here, and as to exactly what the Government have in mind. It may be that what they have in mind is perfectly agreeable. If the noble Lord will forgive me—I am quite prepared to give way to him later—I think that the noble Lord, Lord Bellwin, might shorten the discussion by telling me what he has in mind, and what the purpose is. I am not hostile to the intention and the noble Lord—in case he has not been here throughout the debate—should know that my attitude on this clause of the Bill has been quite constructive; or, at least, I hope that it has. I just want to know, and my profession will be interested in the reply. I beg to move.
Lord Lloyd of Kilgerran: May I say a brief word or two? I am always fascinated by listening to a

395
distinguished auditor, such as the noble Lord, Lord Bruce of Donington, but, in my experience, it is a very unhappy thing to include in a statute the words" public interest", as has been done in this case. If there is a matter of dispute, judges want to know what is the public interest in relation to the statute concerned. So I should have thought that the Government ought to consider whether the words "public interest" should be removed, or whether they should give some guidelines, as the noble Lord, Lord Bruce of Donington, has indicated, to show what they mean in the context of local government.
I have been only a co-opted member in relation to education committees. The public interest has arisen there, and the shades of public interest depend upon the political constitution of that local government. It is inevitable that that should happen. Therefore, I would support any move by the noble Lord, Lord Bruce of Donington, to delete the words "public interest", or the Government should explain in the context of local government what is meant by those words.
Lord Mottistone: I should like to support, in principle, what the noble Lord, Lord Bruce, has said, and indeed what the noble Lord, Lord Lloyd, has said. It seems to me that what is missing from this clause is an understanding of the attitude of mind of the auditor who is doing the job. We have agreed that he should conduct the business which is in Clause 9(1)(c). But if he is going to do that, then to impose upon him the responsibilities of Clause 9(3) is, in my experience, unsuitable for the kind of person that we are talking about.
I agree with the noble Lord, Lord Lloyd, about somehow modifying Clause 9(3). It is necessary for someone to do this, in the same way as it is necessary for someone to do what is in Clause 9(1)(c). It is also necessary that there should be some kind of requirement for the auditor to perform the functions which the noble Lord, Lord Bruce, told us he would perform if he were doing the auditing, such as ringing up the commission, the chief finance officer or whatever. It is necessary to include that in the Bill, but I suspect that the wording of Clause 9(1)(c) is unduly onerous in the way that it is phrased.
Perhaps my noble friend could have another look at Clause 9(1)(c) to see whether or not he can psychologically phrase it so as to get his answer, which is necessary, without frightening auditors into thinking that they have got to be for ever thinking about The Public Interest—in great capital letters—when that is not what they are being asked to look at. They are being asked to look at the interests of the ordinary community.
Baroness Gardner of Parkes: May I support the retention of the clause as it stands? Many people in this Chamber do not appreciate that in some local authorities at the moment there is such a threat to democracy that the auditor is the only person left to guard the public interest. I believe that this clause covers that point. I take the point made by the noble Lord, Lord Bruce of Donington, that it may not be fair to ask accountants to define "the public interest", but I do not think we have ever had quite such a
396
horrifying situation regarding the public interest as we are now seeing in some quarters in regional government. This clause as it stands would protect the public.
Lord Houghton of Sowerby: I am sorry to come in again, but we cannot allow this to become merely an exchange of opinions between the two Front Benches. We are all in this debate and we have a point of view. I feel very strongly about the matters on which I am speaking. This is the first opportunity I have had for a number of years to express my discontent at the neglect of recommendations which were made by a committee and a Royal Commission on issues which are connected with the Bill. My noble friend Lord Bruce of Donington has got a point on the wording of the Bill when he speaks about "any matter".
The auditor might be told that an official of the council is rather too friendly with the wife of a building contractor who has business with the council. He may suspect malpractice somewhere and he may think that somebody should know something about it. Let me remind the Committee that when I was chairman of the Public Accounts Committee the Ferranti scandal came to our notice in the middle of our work. We made a special report to the House of Commons on our discovery. That was not discovered by
a zealous professional accountant. It was discovered by a zealous executive officer. His own diligence and imagination led to that investigation. But in certain circumstances an auditor may discover a relationship between a contractor and the council which ought to be brought to public notice.
One can raise hypothetical considerations: that there may be all sorts of problems which come within the scope of his audit related to contractors and business of the council. Most of the scandals in local government have been about relations between councils and contractors. One wants to be sure that "any matter" is not literally "any matter but any matter within the scope of his audit or within the range of his responsibilities. This is what must be intended. He may wish in certain circumstances to make a report public, but normally he would draw the attention of the leadership of the council to what be had discovered. However that may be, something of this kind should be retained in the Bill.
I agree with the noble Baroness who has just spoken that there are conditions in local government which are extremely dangerous from the point of view not only of the wellbeing of democracy but of the probity of local government. It is these cases which must come within some provision of the statute law and the vigilance and oversight of those who are appointed to watch the public interest. They know what the public interest is when they see it staring them in the face. As the noble Lord said, if they do not know what the public interest is, what are they doing there, anyway? They are not just clerks or accountancy underlings. They are fully fledged, professional men. We are really not here to protect the interests of the accountancy profession. We do have a duty here which goes far beyond even defining the range of their activities or safeguarding their professional interests. We want to look at this broadly and with greater emphasis on what is good for local government, if I may say so with great respect, rather than what is good for the accountancy profession.
Lord Lloyd of Kilgerran: I hesitate to intervene once again, but in view of the speech made by the noble Baroness, Lady Gardner of Parkes, this should serve as a warning to the Government to pay great heed to what was said by the noble Lord, Lord Bruce of Donington, about the undesirability of having words like "in the public interest". The noble Baroness was quite right in the basic themes she put forward, particularly in the context of local government, in which she is so famous for her activities. But her suggestion that the auditor should take upon his shoulders dealing with matters with which the noble Baroness is familiar through her activities in local government, is putting a great load upon the auditor, and it is not the kind of matter that should be included by the Government in a statute of this kind.
9.42 p.m.
Lord Bellwin: The noble Lord, Lord Houghton of Sowerby, said that this should not be a debate between the Front Benches, but this part of the Front Bench has not been able to speak as of yet, but is glad of the opportunity now to do so.
With regard to the observation made by the noble Lord, Lord Lloyd of Kilgerran, that the remarks made by my noble friend Lady Gardner of Parkes should be a warning to the Government, if by "warning" he means it should serve as confirmation that we are on the right lines here, then I would accept that. If he meant a warning in the sense that we are embarking upon some path where some of our proposals are misguided, then he knows I would not accept that. I would want to think that the noble Lord meant the former, but we shall see.
It might be helpful if I were to explain the intention which lies behind Clause 9(3) which the amendment would delete. Clause 9(3) is the main provision dealing with reports by auditors. In some respects it merely repeats Section 157 of the Local Government Act 1972, which I venture to suggest has stood the test of time. Auditors' reports have always been seen as an important part of local government audit procedure. I do not think there is anything controversial in that. Indeed, my noble friend Lady Gardner of Parkes said a moment ago how vital they are; she said that auditors' reports are the only thing now left to protect against some of what is going on. There can he no argument as to that. These reports are the way in which the auditor tells the local authority, and indeed the public, that there is something he thinks they should know about.
In the private sector company auditors tend to use audit reports—qualified opinions, to be more precise in terminology—rather sparingly; and such observations in reports tend to mean that something is wrong with the company's books. But in local government the situation is different. Elected bodies are in a special position. There are issues which go wider than profit and loss and accountability to shareholders, important though these matters are in the private sector. Local authorities should be accountable to their electors; I would use the word "stewardship". Ratepayers cannot just sell their shares, take their money, and go.
Accordingly, the local government auditor will tend
398
to make a report rather more frequently than his private sector counterpart qualifies his opinion on a company's accounts. Reports by a local government auditor do not necessarily imply criticism; they just mean that there is something which he thinks the local authority or the public—and I cannot over-stress the word "public" —should be aware of.
Perhaps I could turn to the details of the subsection. Your Lordships will doubtless have compared it with Section 157 of the 1972 Act and will have noticed two ways in which the reporting provision has been enhanced in the present Bill. First, the Bill now requires the auditor to consider whether he should report immediately rather than wait until the end of the audit. This is only a point of timing, but I think it will prove very helpful to the auditor and also to the local authority and the public. Audits can occasionally take quite a long time to complete; for example, if there are a lot of objections to be heard. This matter of timing I think is an extremely important one.
Secondly, the Bill enables the auditor to report on any matter "coming to his attention in the course of the audit". The form of the words in the 1972 Act was "arising out of or in connection with the accounts". We propose this change so that the auditor can report as soon as he becomes aware of a matter with financial implications, rather than wait until it appears in the accounts. We think this is very valuable. It means, for example, that the auditor can even draw something to the local authority's attention before money is actually spent, something that may be referred to in the minutes of what is proposed.
Of course some words remain the same as in the 1972 Act. One of the most important provisions is that the auditor must consider whether it would be —here I come to the words referred to by the noble Lord, Lord Lloyd—" in the public interest "for him to make a report. This is a phrase that has worked perfectly well for the 1972 Act and I do not see why it should not work well in the future. I think that "in the public interest" will serve as a reassurance to any of your Lordships who might have doubts about the scope of the clause. It is simply not open to the auditor to report on anything that takes his fancy. Any report must be in the public interest, and I think that is a very important test.
In trying to help the noble Lord when he says: "Well, what is in the public interest?", one could say—I am making quite a collection of some Civil Service definitions, and this is one of the easiest—something that has stood a 10-year test is therefore of value; I would say in carrying out the duty under Clause 9(3) the auditor will need to ask himself whether the matter under consideration is something about which the public ought to know. I think that is probably as far as I could go on that. Although it may not be completely satisfactory, I think it explains at least what I think it means, something about which the public ought to know. If they ought to know, it is in their interest. There will be people who will give better definitions, I am sure, hut that is my answer to the noble Lord.
As to the practical workings of the report procedure, I should emphasise that the report will not descend on the local authority out of a clear sky. The auditor will inevitably discuss it with the authority first, not least

399
to make sure that he himself has understood the matter properly. Any report will be after those discussions, and indeed the discussions may satisfy the auditor that a report is not necessary.
I hope what I have said will give some reassurance to noble Lords about what lies behind Clause 9(3). I think the more we are debating the detail as we go along the more is coming out as to the real importance of what we are proposing in this Audit Commission. It is not just an attempt on anybody's part to interfere and want to take central control or dictation. It is not that at all. It is all about accountablity and clarity and openness and doing things better. I do not see why one should be apologetic or defensive about it. I think the noble Lord, Lord Bruce, with his amendment is being most helpful in that it enables us to bring these things out in a better way than perhaps we were doing earlier when we were debating the principle behind this. I hope the noble Lord will feel that I have commented on what he has had to say, and certainly I look forward very much to reading all these debates on the matter.
Lord Bruce of Donington: I am most grateful to the noble Lord for his response. As he is aware, and as I believe I informed him some time ago, the purpose of these amendments is not antagonistic to the purposes of the Bill. We want to make as good a job of it as we can. We have a reputation in this House that, when a measure has been through your Lordships' House it very often emerges better, and very often the other place accepts the wisdom of what we collectively do here; and these amendments are moved with precisely that in view.
I am sorry to fall foul of my noble friend, Lord Houghton of Sowerby. Certainly the House does not exist and this Bill does not exist for the benefit of accountants. But accountants are very often left with a lot of slovenly work on their plate. The noble Lord will forgive me if I say that if some members of some royal commissions and some legislators phrased what they said with greater precision rather than waffling on principles, it would be of very considerable help not only to the accountancy but to the legal professions.
All that I am asking for, and all that I sought to ask for by raising these amendments, were the replies which have come from the noble Lord and his noble friends. My profession will read them with interest because
400
they will be wanting to know what the reaction is to the various points that I ventured to put forward to your Lordships. I would like to point out one danger to the noble Baroness who, drawing on the basis of her long and extensive experience in this field, was 100 per cent.—in fact, almost 150 per cent.—in support of the clause as it was.
In view of the recent cases of corruption, to which my noble friend has just referred—some of which have been quite sensational as the noble Lord has said—and the other evidence of corruption which fortunately is rare within our life in this country in the Civil Service, whether it be local or national, there is the tendency to be so appalled by these matters and suddenly to become conscious that all is not right in the State of Denmark that one immediately unloads the responsibility for correcting it on to somebody else. There might be a tendency, I put it no higher, for everybody to say—and my profession is quite willing to take up the challenge, I can assure your Lordships— "Well, it is all up to you accountants to sort out". So be it; we have to live like everybody else and we will accept any challenge that is given to us.
But I think that there is a danger, because the roots of all these things lie in ourselves as citizens and we cannot abdicate our responsibilities as citizens, as local councillors, as officials or as legislators by saying, "Well, it is all right, the accountants will pick it all up anyway. They will report on the whole thing. They will sort the whole thing out". I repeat, we shall be quite happy to use our best endeavours, but the art of being a citizen, particularly in a great country like the United Kingdom, is for every citizen to endeavour to behave as much as possible as a citizen, and to bear his or her individual responsibilities, rather than perhaps tending to leave it to the specialised professions to sort out on their behalf.
I am very grateful for the response which I have received. I hope that the noble Lord will have another think about this matter before the Report stage because there may be time for some reaction from the profession before then, although I do not know when the Report stage is coming. However, I would be grateful if the noble Lord would give the matter further consideration. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
9.55 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 60:
Page 8, line 30, at end insert—
("(4) For the purposes of this section all decisions taken in the lawful exercise of discretion and declared to be matters of policy by the body whose accounts are required to be audited, whether such declaration be made at the time of the decision or at any time thereafter, shall be treated as policy decisions and shall not themselves be the subject of any enquiry, examination or report by the auditor under this section.").
The noble Lord said: I beg to move Amendment No. 60. The purpose of this amendment is very simple and once again it will not be pressed to a Division. It is raised in no hostile spirit, but it seeks to depoliticise some of the contents of the Bill. I am afraid, and some of my colleagues are afraid, that we may become involved in the political argument that exists between the parties on any council and which is reflected in the national parties and, indeed, in the national press. Some policies may be carried out by local authorities which, although they appeal to one section of the people and may be covered by an electoral mandate, nevertheless do not appeal to the other section, and this can apply both ways. It would be a little unfortunate if the auditor, in reaching opinions on certain of the matters on which he is required to give an opinion, were to obtrude into the political sphere.
There is a case in point. The noble Lord will recall that the other day he answered a Question which I asked him in the House on the magazine called The Londoner. There was an objection to some particular publication put out by the GLC, and in his remarks the noble Lord made it quite clear that this was a matter for the district auditor. I believe that similar considerations have recently arisen in the Royal Borough of Chelsea, where someone has objected to something that the Chelsea Borough Council has put out.
What I want to ensure, and what I hope to be able to ensure by this amendment, is that the auditor does not become involved in the political argument. There can be a danger of that. Noble Lords may not think that that is so, but there is a fear in this direction, and the amendment seeks to underline that. It reads:
(" (4) For the purposes of this section all decisions taken in the lawful exercise of discretion and declared to be matters of policy by the body whose accounts are required to be audited, whether such declaration be made at the time of the decision or at any time thereafter, shall be treated as policy decisions and shall not themselves be the subject of any enquiry, examination or report by the auditor under this section.").
There may be better words for accomplishing the object. I am not a parliamentary draftsman and have, indeed, even been known to pass uncomplimentary remarks about some of them, particularly in connection with the Companies Bill 1981. So if there are any better words to accomplish the same purpose, I should be greatly obliged.
By and large, the auditing profession is there professionally and does not care to be involved in the political cross-fire that may emerge between parties, and may, indeed, be referred to by individual electors in the exercise of their rights to inspect documents and so on, to which I shall refer at a later stage when we discuss a later section of the Bill. This is the main purpose of the amendment. If the noble Lord thinks
402
that he is in a position to suggest some alternative words that could be inserted in an appropriate part of the Bill to make quite certain that auditors are not called upon to make political judgments on what has been done, as distinct from economic judgments, legal judgments and judgments as to the propriety of what is done, I should be most obliged.
I sincerely hope that the noble Lord will be able to reassure me and, if he cannot, I have no doubt that the noble Lord, Lord Houghton of Sowerby, will be able to help. I beg to move.
Lord Bellwin: As we have heard, this amendment is concerned with a matter of great importance—the auditor and politics. I recognise that the noble Lord is concerned that the auditor might become involved in politics, but I would repeat what I said in our Second Reading debate, that that is neither the intention nor, in the Government's view, the effect of this legislation. I also mentioned in our Second Reading debate the statement which my right honourable friend the Minister made in another place on the role of the Government auditor. The Minister sought to make it clear that the auditor should not be concerned with the merits of local authority decisions on any political basis, and that this would continue under the proposed audit commission. A local government auditor's task is to consider whether items of account are lawful, and whether the accounts are properly prepared.
While it would be quite wrong for an auditor to pursue a matter for purely political reasons, equally it would be quite wrong to prevent an auditor from carrying out his duty to satisfy himself that the local authority has made proper arrangements for securing economy, efficiency and effectiveness in its use of resources, just because it was alleged that the arrangements were based on a political decision. Political merits are a separate issue, and it is not the auditors' duty to consider them.
I confess that when I first read the amendment I was somewhat confused as to precisely what it meant, but now, having had the benefit of listening to the noble Lord, I think I understand it. I would, however, venture to suggest that others who have to put this Bill into effect might also be confused should they come upon these words without the benefit of explanation. And I think we would all agree that confusion in legislation is to be avoided above all. But, even if it were clarified, I fear that this amendment would be open to objection. It seemed to me that it might have two possible meanings. One of them would imply that the provision is positively harmful; the other that it is merely redundant. Let me, as quickly as I can, explain. In either case I should make it clear here and now that the auditor does not audit "decisions" as such; that is not his job. He is only concerned with the expenditure or income which arises from decisions; that is a different point.
As to the possible meaning which seemed to me harmful, it might be assumed that the amendment means that the auditor cannot look at anything that arises from a policy decision. That is to say, if a local authority declares that a particular decision is a matter of policy, then the auditor would be prevented from

403
examining any expenditure that arises from it. On that interpretation—and I say again that it is others, after us, who would have to interpret these words in practice—I suggest that this is undesirable. It would effectively give a local authority carte blanche to exclude the auditor from whole areas of the accounts. Indeed, it might almost prevent the auditor from examining the accounts at all, because almost all local authority spending can be traced back to a policy decision one way or another. Even where the authority is obliged by central Government to provide a service, it is usually a policy matter for the local authority as to how and to what extent to provide it, or what priority to give it alongside its other objectives.
This exclusion from accounts would mean that the auditor would be wholly unable to carry out his essential duties, which are quite separate from matters of policy. It is his role to check that spending has been properly recorded, and that there are proper systems for its control. This "regularity" auditing, as it is called, may not sound dramatic, but it is essential, as the noble Lord, Lord Bruce, knows very well. And of course there is the local authority auditor's duty to satisfy himself that the authority has made proper arrangements for securing value for money. This is something we have been talking about and have touched upon. On this basis, the effect of this amendment could be that the auditor could have virtually nothing to do. And yet, under the cloak of a policy decision, the most scandalous, or at least remarkable, practices might be going on. I leave it to your Lordships' imaginations what the implications might be.
The second possible interpretation would be that the auditor could carry out all his routine duties which I have described, but that he should stop short at criticising or commenting on the policy decision itself, provided that it is legal. On that basis, I do not question the principle of the amendment; I even endorse it. But I do suggest that it is redundant. And I do not think that we should proceed with it if it is not really necessary. I say that the amendment is redundant because, by definition, it is not for the auditor, once he is satisfied that expenditure in pursuance of a decision is lawful, to question the decision itself.
I have more here on this subject in front of me. I have been anxious to explain to the noble Lord, Lord Bruce, not just why we do not want to accept the amendment but in detail because, as he rightly says, there will be others who will want to know precisely what is the Government's line and why are they taking this view. Because this is even more drawn out than I have said now, I would tell the noble Lord, if he would wish to pursue it even further, that I shall be glad to do so afterwards, but I hope I have said at least enough to indicate why we cannot accept the amendment as it is.
Lord Bruce of Donington: I am grateful to the Minister for his response and I shall certainly take advantage of his offer to pursue the matter further and in detail because it is a subject in which my profession is interested. My interpretation of the amendment is not that of the noble Lord's, and I was simply seeking to ensure that the decision itself should not be the subject of audit; I can see that it would be the responsibility
404
of an auditor to go into all items of receipts and expenditure, rather than auditing the decision itself.
Perhaps I might give an illustration of something which might be a matter of controversy. It is well known that many authorities in the United Kingdom maintain swimming baths on a dead loss basis. It might be decided in an area to modernise the local swimming baths so as to bring them up to ordinary health and other standards. That would cost a great deal of money and the income would be very small, so that could be a matter of controversy. On a value for money investigation, it would be said that such a development would make a loss anyway, and therefore, by one concept, it would be a waste of money and it might attract adverse comment.
Difficulty arises because of the social content of many decisions that are made by local authorities. They are bound to run certain sections of their affairs, deliberately and as an act of social policy, at a loss—as a burden, if you like, on the ratepayers—and that cannot be helped; unless it is in the mind of the Government (I cannot search their mind; perhaps the inscrutability of the noble Lord, Lord Cockfield, has had more influence than I suspected) to privatise all swimming pools, but I dismiss that as being completely irrational.
The noble Lord, Lord Bellwin, will have the point I am making; namely, that certain decisions, judged in economic terms, will appear to be a dead loss and therefore something which should not be done, whereas on social grounds they should be done. That is where controversy sometimes arises. While I do not suppose there would be much controversy over the sort of stark instance I have given, it is the sort of case with which the auditor might find himself involved. I am obliged to the Minister for his reply, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
10.9 p.m.
Baroness Stedman Baroness Stedman moved Amendment No. 60A:
Leave out Clause 9 and insert the following new clause:
("Audit: general provisions
9.—(1) Every body whose accounts are required to be audited in accordance with this part of this Act shall make proper arrangements in all its areas of activity for securing economy, efficiency and effectiveness in its use of resources and in the carrying out of its policies.
(2) The auditor shall assess in a number of areas of activity conducted by the body for securing economy, efficiency and effectiveness in accordance with subsection (1) above.
(3) The Commission shall determine which areas of activity carried out by the body are to be the subject of an assessment by the auditor in accordance with subsection (2) above.
(4) The auditor shall report to the Commission the results of the assessment carried out under subsection (2) above and the Commission shall publish the report.").
The noble Baroness said: I shall, with permission, speak at the same time to Amendment No. 60B. It seems that chartered accountants in Scotland share some of the views of the noble Lord, Lord Bruce, because they tell me they believe it is impracticable to report in the terms of subsection (1)(c) as drafted; that the auditor can only assess the arrangements for securing economy, efficiency and effectiveness in a very

405
limited number of areas of local authority activity in any one audit.
I understand that the chartered accountants from Scotland have had some correspondence or conversation with the noble Lord's department, and that officials there indicated to them that this impracticability could be recognised in the code of audit practice. For example, they suggested that the code could be used to amend the Bill in this way, especially if the code is not to be prescriptive. But my advisers feel very strongly that this is not a matter which should be dealt with in any code of practice. Deciding the areas of activity for the auditors' view of arrangements is an important policy decision for the commission; the code ought to be limited to technical matters, and should not extend to questions of policy. Once the policy has been decided, then any code ought to indicate what is considered to be the best professional practice in fulfilling that policy objective.
It could be better for the Bill if it would recognise, as in subsection (2) of the new clause in Amendment No. 60A, that the auditor can only assess the arrangements for securing the effectiveness, efficiency and economy of a limited number of areas of local authority activity in any one audit. So the commission should direct the auditor as to which areas of activity are to be examined, as we detail in subsection (3) in Amendment No. 60A, and then—going on to subsection (4)—the report should be published by the commisson.
If the term "public interest" were deleted from Clause 9(3) of the Bill as it stands, it would have the effect of widening the scope of the clause to cover matters which, although they do not necessarily affect the public interest, should be the subject of an immediate report to the body concerned. So in subsection (2) in Amendment No. 60B the reference to "public interest" has been removed.
My advisers feel that the auditor ought to be given the power to draw the attention of the commission to any matters relevant to the economy, efficiency and effectiveness coming to his attention during the course of the audit, as we detail in subsection (3) of Amendment No. 60B. This also provides an opportunity rather than a responsibility, and thus, in the amendment I have used the word "may" rather than the word "shall". I beg to move.
Lord Bellwin: I must say that I feel uneasy about these amendments. An amendment on similar lines was discussed in another place and my right honourable friend there sought to make it clear that local authorities do indeed already have a duty to seek value for money. The fact that it is not embodied in statute does not make it any less real. It is a common law obligation and there are a number of relevant cases. I referred earlier to Roberts v. Hopwood, in 1925—which was a leading case—and more recently we have had the Bromley v. GLC case. These cases established that local authorities owe a duty to their ratepayers to conduct their affairs in a businesslike manner as if they were trustees of the money contributed by the ratepayers. However, we run a great risk in making an explicit obligation on the face of the Bill.
The effect of the new Clause 9(1) would be to impose on local authorities a statutory duty to make arrange
406
ments for maximising value for money. The question then arises as to what is the consequence of imposing this express statutory duty. Here I must confess that I am in some difficulty. From the drafting of this proposal, I do not know whether its effect would be merely to enable the auditor to report on the body's attainment of value for money, or whether it is effective to enable him to act in pursuance of Clauses 13 or 14 to recover unlawful expenditure incurred in disregard of the duty, or require a loss to be accounted for. If indeed that were the effect of the new clause—as to which, I must repeat, I am not certain from its terms—I see grave difficulties. What is best value for money is often only a subjective view; there are few absolute yardsticks as yet. Under the amendment any failure to maximise value for money would contravene the provision if it were attributable to shortcomings in the arrangements, unless presumably the authority could demonstrate that it has acted reasonably.
The auditor's duty on value for money matters, far from being assisted, could become entrammelled in legal issues. If he found some deficiency in an authority's value for money arrangement, he could very probably be obliged by the legislation actually to declare the matter to be one of apparent illegality, rather than one where he could report and give advice to the local authority. If he failed to take legal steps, then some public objector might be able to appeal successfully to the courts against him.
Such court actions would be especially worrying, because I am advised that the effect of the explicit duty as in the amendment would be to transfer the burden of proof. Under the present situation it is necessary to prove that the local authority has acted unreasonably; but the effect of the amendment could be to shift the onus on to the local authority, requiring them to prove that they had acted wholly reasonably. I suggest that, taken as a whole, this is just the sort of legal nightmare that we are all anxious to avoid. It would be bad for local government and bad for the courts.
Of course, it may be that the noble Baroness has sought to limit the damage (and I am afraid I must use that word) by restricting the role of the auditor in respect of value for money. But I fear I do not feel happy about that either. The amendment would, if I read it right, restrict the scope of the auditor's value for money examination to certain selected areas only; and it would be for the commission to make that selection.
I would first express disquiet that the auditor should restrict himself to certain selected areas only. He, too, already has a common law duty to examine value for money, and I would be very sorry to see that restricted. I know there has been some concern as to how the auditor will fulfil such an apparently wide-ranging duty—indeed, we were talking about this at some length earlier on—but my reply is that this is the sort of issue with which the code of practice could deal. In fact, the code may well advise the auditor to examine certain areas in depth; but it would be a very unhappy piece of legislation, I suggest, that did not enable the auditor always to have value for money in his mind in all parts of the audit.
I made an offer to the noble Lord, Lord Bruce, on the last matter we were discussing, which really is most important—as, indeed, this is, too—and I would make

407
the same offer (if I can put it in that way) to the noble Baroness. If her friends who are so anxious about this would like to pursue the matter further than I have gone—and I have tried to give some indication, at least, as to why we are not happy about this amendment—then I would be very pleased to see that that was followed through to any extent that they would wish.
Lord Houghton of Sowerby: My noble friend Lord Bruce was in such a hurry to withdraw his last amendment that he did not give me a chance to give him the help for which he had asked. I was very disappointed about that, because I could make amends to him for the little assistance I had been able to give, I thought.
I am very glad that the noble Lord the Minister has just mentioned what I was going to ask about, and that is the code of practice. It seems to me that the code of practice should cover some of these rather difficult areas of definition in the statute law; and since the code of practice will come before Parliament, that might give an opportunity to see how well they have defined it for the purpose of guidance to the auditor. I think that should be borne in mind when we are trying to sort out these different slants of application in the case of the same set of principles. That is really what we are doing in this amendment, as we were in the case of the previous one. So I think we ought to take important note of what the noble Lord has just said.
Baroness Stedman: I am very grateful to the noble Lord for his reply, and, it being a rather detailed one, I will certainly read it tomorrow. I am quite sure that my friends in Scotland did not intend it to be taken in the rather rough way that it might perhaps be taken, but rather more as a question of drawing attention to what was happening; and it is quite obvious that there are defects in the drafting of it if we have not made that plain enough. But with the permission of the Committee I will withdraw the amendment and take further advice; and I will take up the noble Lord's offer, if necessary, to come back to him.
Amendment, by leave, withdrawn.
Clause 9 agreed to.
[Amendment No. 60B not moved.]
Clause 10 agreed to.
Lord Bruce of Donington Lord Bruce of Donington moved Amendment No. 60C:
After Clause 10, insert the following new clause:
(" False statements etc. to auditors.
.—(1) An officer of the body who knowingly or recklessly makes a statement to the auditor which—

(a) is misleading, false or deceptive in a material particular, and

(b) is a statement to which this section applies

shall be guilty of an offence.
(2) This section applies to any statement made to the auditors of the body (whether orally or in writing) which conveys, or purports to convey, any information or explanation which they require, or are entitled to require as auditors of the body.
(3) Any person guilty of an offence under this section shall be liable—

(a) on conviction on indictment to imprisonment for a term not exceeding two years, or to a fine, or to both; or

408

(b) on summary conviction, to imprisonment for a term not exceeding six months, or to a tine not exceeding £400, or to both.").

The noble Lord said: The noble Lord will not be surprised that, as a party firmly in favour of law and order, we feel that a clause of this kind is necessary. The responsibilities of the auditors which have been laid down in the Bill so far, in addition to those which will emerge, are very onerous. We willingly accept them; but, as the noble Lord will appreciate, we rely to a very large extent, and must inevitably do so, on the information and explanations given to us verbally. This applies in the realms of commerce and industry where we do an audit and the Companies Act 1976 at Section 19 has laid down penalties for those officers of a company who give misleading or false information to auditors. This is merely an adaptation of Section 19 of the Companies Act 1976 which makes it an offence for those officers on whom auditors rely to give false or misleading information deliberately in the same sense as intended in the Companies Act 1976.
The amendment needs very little more explanation than that, except that I am bound to say, on the basis of such experience as I have had, that it must be extremely rare for any officer to give misleading information to the auditors of the authority. I myself have not heard of a case. There may be some reported cases; I have not read through all the law—I have not had the time. I think it is rather rare, but even if it is rare there is no harm in putting this provision in. I beg to move.
Lord Bellwin: One might say there is no point in not doing so. I recognise that the amendment echoes the provision of the Companies Act 1976. I can see there might at first sight be an argument for applying it to local authorities. I am sure that one can only agree that making false statements to auditors is not to be encouraged but condemned. As the noble Lord said as he sat down, it has not been a problem in the past and I wonder why we should impose it now. I agree with him that we are not saying that standards of truthfulness among local government officers have fallen so low so suddenly. I think that is the position.
May I remind the Committee that the Companies Acts must cover the whole range of companies, including the most disreputable backstreet concerns. I do not say that standards in the company sector are generally low; but I would say that in local government they are generally very high. I think we would all agree with that. I would urge the Committee not to press that we should put on to the statute book another set of criminal penalties for which there is no need now in local government, and for which I am confident there will be no need in the future. As with everything else the noble Lord has said, we will be talking about it later. But that is our first feeling and impression on seeing this amendment.
Lord Bruce of Donington: I am again grateful to the noble Lord for his reply. I must say I find a little odd some of the statements that have been made by some of his noble friends this evening and some of the more blood curdling remarks of my noble friend Lord Houghton (who, I note, is unfortunately no longer with us) which would lead one to suppose that

409
something is very wrong with the whole of local government in the United Kingdom; and that is the precise reason why all these powers of investigation and otherwise are being given to auditors and it is why all this legislation restricting local authorities in what they do has been passed through this House and is now before us. You cannot have it both ways. If the noble Lord is saying that all local government officials are angelic, a proposition from which I would not dissent, then I willingly agree that this clause is not necessary. But his previous arguments used in Second Reading and elsewhere about the unreliability of local government policies and local government actions now all seem to be watered down a little. But I shall not look a gift horse in the mouth. With the assurance that the noble Lord is convinced of the complete probity in every respect of local government—a proposition which I entirely share—I beg leave to withdraw the amendment.
Lord Bellwin: Before the noble Lord sits down, I must get on the record that, of course, I did not say that at all. What I have all along been concerned about is that it is the procedures—this is the point I have tried to stress—about which we have to be careful, not the individuals. If the procedures are properly investigated, properly the province of the auditors, then we will know that matters will be looked at properly. I did not set out—nor did any who have spoken earlier—to speak about individuals as such. It was the opportunities that were there which must be watched carefully because that is the duty and that is the public interest.
Amendment, by leave, withdrawn.
Clause 11 [Public inspection of accounts and rights of challenge]:
10.27 p.m.
Lord Bruce of Donington Lord Bruce of Donington moved Amendments Nos. 60D, 60E and 60F:
Page 9, line 40, leave out ("previously").
Page 9, line 40, after ("received") insert ("at least seven days before it is made").
Page 9, line 45, at end insert—
("(6)Where any person objects under subsection (3) above the auditor shall, if so requested by the body to whose accounts the audit relates or by any officer of the body who may be concerned, afford to that body or officer as the case may be, an opportunity of appearing before and being heard by the auditor with respect to that objection.").
The noble Lord said: This clause deals with the rights of public inspection of accounts and the right of challenge. The clause raises a lot of issues which will arise at a later stage of our debate. These amendments are designed to give the auditor at least seven days' written notice of a proposed objection by a local elector. It also aims at ensuring that where an elector makes any objection then the local authority officer concerned shall always have in effect the right of reply. I have paraphrased it; the noble Lord knows the purport of what I am trying to do.
I shall not expatiate tonight on the difficulties of auditors when they have to supervise the inspection of books, records and documents, answer questions, and all the rest of it. That would take rather too long and it is important that these matters should be dealt with in some detail. On the one simple point about
410
being given adequate notice, I cannot help feeling that I shall have the sympathy of the noble Lord. Also, there ought to be a right of adequate reply. If the noble Lord does not like the wording that I have put in, if he will tell me to put down something on Report then I will withdraw the amendments. The purpose is to make it fair to the auditor and the other persons concerned. I beg to move the amendments.
Lord Bellwin: I think I understand exactly what the noble Lord is trying to do, and he is trying to be helpful in this. Concerning Amendments Nos. 60D and 60E I should like to have another look at them. Mention has been made of tabling amendments at Report stage.
So far as Amendment No. 60F is concerned, I cannot be so helpful. Here we are talking about the Scottish audit legislation; but there has never been any such provision in the audit legislation for England and Wales. The reason for this is not that we believe that local authorities and officers should not be heard by the auditor. Rather, it is a difference in the nature and status of the objection process. In Scotland it is really an administrative process with no particular consequences. In England and Wales, it is a quasi-judicial process which can be a preliminary to proceedings in the courts. I think that the safeguard of natural justice will continue to apply under the provision of the Bill as it now stands. The amendment, I think, would not give greater protection. Rather, it could create doubt about the applicability of the wider common law requirements. Perhaps when the noble Lord considers this again he may want to agree with this, and certainly we would take that line over this amendment.
Lord Bruce of Donington: I am most grateful to the noble Lord. I am in fact an emigré Scot. We left Scotland around the 16th century and have returned only at intermittent intervals ever since. But it does not prevent us from taking the line we have taken here. I thought it might commend itself to the Committee, regardless of what the existing position in Scotland was. I think it should stand on its own merits. I am grateful for the noble Lord's attitude towards this. I will myself give some further thought to it before Report stage. I still feel that a little protection is required for anybody who is unjustly accused. The noble Lord referred to common law rights and natural justice. I am not a lawyer and do not have the noble Lord, Lord Mishcon, with me at the moment. I beg leave to withdraw the amendments.
Amendments, by leave, withdrawn.
Clause 11 agreed to.
[Amendments Nos. 60G, 60H, 60J and 60K not moved.]
Clause 12 agreed to.
Lord Denham: I think this may be a convenient stopping moment. I therefore beg to move that the House do now resume.
Moved accordingly and, on Question, Motion agreed to.
House resumed.

Hampshire Bill [H.L.]
Recommitted to a Select Committee for the consideration of the unopposed provisions of the Bill.