Local Government Finance (No. 2) Bill

HL Deb 13 May 1982 vol 430 cc320-62

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 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 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 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 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 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 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 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". (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 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 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 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, 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.

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.

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 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- 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- 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 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 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 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 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 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 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 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 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 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 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 —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 Lord, Lord Mottistone, I shall not cavil in the slightest. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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 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, 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, 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 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- 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.

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 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 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 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 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. 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, 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- 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 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 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.

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.