PARLIAMENTARY DEBATES HOUSE OF COMMONS OFFICIAL REPORT GENERAL COMMITTEES

Public Bill Committee

LOCAL AUDIT AND ACCOUNTABILITY BILL [LORDS]

Third Sitting Thursday 7 November 2013 (Morning)

CONTENTS Written evidence reported to the House. Clause 7 agreed to, with an amendment. Schedule 3 agreed to, with an amendment. Clauses 8 under consideration when the Committee adjourned till this day at Two o’clock.

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© Parliamentary Copyright House of Commons 2013 This publication may be reproduced under the terms of the Open Parliament licence, which is published at www.parliament.uk/site-information/copyright/. 83 Public Bill Committee7 NOVEMBER 2013 Local Audit and Accountability 84 Bill [Lords]

The Committee consisted of the following Members:

Chairs: †SIR EDWARD LEIGH,MR MIKE WEIR

† Bingham, Andrew (High Peak) (Con) † Pawsey, Mark (Rugby) (Con) † Blackman-Woods, Roberta (City of Durham) (Lab) † Perry, Claire (Devizes) (Con) † Blomfield, Paul (Sheffield Central) (Lab) † Sawford, Andy (Corby) (Lab/Co-op) † Carmichael, Neil (Stroud) (Con) Simpson, David (Upper Bann) (DUP) † Glen, John (Salisbury) (Con) Stevenson, John (Carlisle) (Con) † Glindon, Mrs Mary (North Tyneside) (Lab) † Stunell, Sir Andrew (Hazel Grove) (LD) † Griffiths, Andrew (Burton) (Con) † Vickers, Martin (Cleethorpes) (Con) † Hames, Duncan (Chippenham) (LD) † Whitehead, Dr Alan (Southampton, Test) (Lab) (Derby North) † Jones, Susan Elan (Clwyd South) (Lab) † Williamson, Chris (Lab) Lewell-Buck, Mrs Emma (South Shields) (Lab) Georgina Holmes-Skelton, Fergus Reid, Committee † Lewis, Brandon (Parliamentary Under-Secretary of Clerks State for Communities and Local Government) † Morris, James (Halesowen and Rowley Regis) (Con) † attended the Committee 85 Public Bill CommitteeHOUSE OF COMMONS Local Audit and Accountability 86 Bill [Lords] (c) make provision about the administration of those Public Bill Committee arrangements, including for the making of payments in specified circumstances by the relevant authorities to which they apply to a fund of a specified kind for Thursday 7 November 2013 the purposes of meeting auditors’ costs of a specified kind.’. Government amendments 62 and 63. (Morning) Government new clause 1—Appointment of auditor by specified person. [SIR EDWARD LEIGH in the Chair] Clause stand part.

Local Audit and Accountability Andy Sawford: It is a pleasure to be here under your Bill [Lords] chairmanship again, Sir Edward. I start by thanking the Minister for the helpful letter he sent me further to Written evidence to be reported Tuesday’s sittings. I assure him that we will look at that consultation—indeed, my hon. Friend the Member for to the House City of Durham will return to such health service issues LAA 04 Transparency International UK at a later stage. As the Minister and hon. Members will be aware, the Clause 7 amendment follows a debate in the Lords. It was led by my noble Friend Lord Beecham, who proposed an APPOINTMENT OF LOCAL AUDITOR amendment to limit the appointment of auditors to a single five-year term. His argument was twofold. First, 11.30 am he questioned whether the audit market was healthy Amendment made: 14, in clause 7, page 5, line 29, and competitive. Secondly, he made a crucial point leave out: about the independent nature of audit and whether that ‘an auditor (a “local auditor”)’ could be assisted by a refresh of auditors every five and insert ‘a local auditor’.—(Brandon Lewis.) years, so that a fresh pair of eyes would be on the local authorities’ books. Andy Sawford (Corby) (Lab/Co-op): I beg to move My noble Friend received substantial reassurances amendment 92, in clause 7, page 5, line 39, after ‘auditor’, from Baroness Hanham, who was replying for the insert: Government in the Lords, although she did note the ‘except where the auditor has been appointed for two terms Competition Commission report on the need for mandatory served consecutively.’. auditor rotation. Although my noble Friend was not entirely satisfied, he withdrew the amendment with a The Chair: With this it will be convenient to discuss view to further discussions today. the following: We have decided to table an amendment that would Amendment 93, in clause 7, page 6, line 19, at end limit the terms of appointment to no more than two add— consecutive terms. We reflected on the reasonable assurances ‘(9) The Secretary of State may by regulations— given by the Minister in the House of Lords, but we are (a) provide for the appointment, by a person specified by still concerned about the relationship with the auditor the Secretary of State, of an auditor in relation to the and the operation of the market. audit of the accounts of a relevant authority; The auditor should be independent. Independent (b) make provision about the procedure for specifying a audit of local government and other local bodies responsible person and for a person’s specification to come to an for public funds has existed in England for more than end in specified circumstances; 150 years. The District Auditors’ Society emerged in (c) make provision about the consequences of a person’s 1846, followed by the District Auditors Act 1879. Over specification coming to an end, including for the those 150 years, the principles of public audit and the exercise of functions by the Secretary of State and ways in which that differs from private sector audit have the transfer of the person’s rights and liabilities arising by virtue of the regulations to the Secretary of been established, including by the Public Audit Forum State or another specified person; in 1998 and Lord Sharman’s 2001 report. (d) confer functions on a specified person, including The first and most important principle of public power to specify a scale or scales of fees to be payable audit is that auditors are independent of the audited by relevant authorities to which arrangements within body.We will discuss later the way in which the Government paragraph (a) apply; seek to safeguard that independence. Views are mixed, (e) require a specified person to consult relevant but the Government have considered that range of authorities, relevant authorities of a specified views and have, for example, set out arrangements for description or representatives of relevant authorities independent audit panels as one way to safeguard before specifying a scale or scales of fees. independence. Later, we will debate how effectively they (10) Regulations under subsection (9) may, in particular— will be able to do that, but one issue on independence is (a) make provision about the relevant authorities to which the relationship between the firm providing the audit arrangements within subsection (9)(a) apply, including provision for them to apply to an authority and the local authority. that has opted into them or has not opted out of That relationship is partly safeguarded by exempting them; individuals who may have a conflict of interest from (b) make provision about the procedure by which an being involved in appointing the auditor. However, in authority may opt into or out of those arrangements; practice, once the auditor is appointed, those working 87 Public Bill Committee7 NOVEMBER 2013 Local Audit and Accountability 88 Bill [Lords] relationships need to be formed. In fact, for effective other relevant authority provides real value for money. audit, it is a good thing for there to be a working We all want to make sure that auditors can effectively relationship between the local authority’s audit committee, carry out their role in ensuring value for money. the finance officer and his or her team, the chief executive, I shall briefly speak about the other issue that concerned the cabinet member with the finance portfolio and the my noble Friend Lord Beecham, to which my hon. auditors themselves. That is why we consider that after Friend the Member for Derby North referred in Tuesday’s a 10-year period, if consecutive appointment had taken sessions. It involves the competitiveness or otherwise of place at the end of the first term, it would be time— the audit market and the role of the private sector, and how that might develop. The number of firms successfully James Morris (Halesowen and Rowley Regis) (Con): competing in the public sector audit market is very I am not an expert in auditing or accounting, but what small: 70% of the local government market has historically is the difference between what the hon. Gentleman is been with the Audit Commission and only five other describing and what is described in the impact assessment? firms have been involved in the remaining 30%. In the It says in relation to appointing auditors on a five-yearly example of foundation trusts, only six companies provide basis: audit services. “While the same firm may be re-appointed following competition, There is limited choice and competition. We know the existing ethical standards that from evidence—to the draft Local Audit Bill ad will continue to apply, including Ethical Standard 3: long hoc Committee, for example—including factual evidence association with audit engagement”. in both the private sector market, where there is the What is the difference between what the hon. Gentleman domination of the big four, and in relation to foundation is proposing and the existing ethical standards? trusts, a market in which only six companies act.

Duncan Hames (Chippenham) (LD): We would also Andy Sawford: I thank the hon. Gentleman, who see that domination in the previous arrangements in the makes an insightful and helpful contribution. He is large amount of work that was notionally done by the right to point out that those reassurances are offered in Audit Commission but that was outsourced, in fact, to the impact assessment. However, as with many of our the very same firms, in the way that the hon. Gentleman amendments, where there is broad agreement in principle describes. we seek to make clear the intent behind the Bill. We completely endorse the principle, and that is why we think it right to set out a 10-year term. This is not Andy Sawford: I thank the hon. Gentleman for that the hard position adopted in the House of Lords: that a helpful intervention. We can, of course, look back at fixed five-year term should be it. A 10-year term might the record, whether in the context of the Audit Commission, allow the firm to bid again, and it might make a very private sector auditing or foundation trusts, and find competitive bid; we would not want to exclude it. As ample evidence that we should be concerned that the Baroness Hanham said, there could be a downside to market is dominated by too few providers. excluding a firm from bidding again, although we think We have discussed whether we would go about things that to continue the relationship to 15 years would be as the Government are, and whether it is premature to too long an association. The hon. Gentleman makes an abolish the Audit Commission, but at this stage we all important and helpful point. I hope that he will consider want the Government’s model to work effectively to supporting our amendment to limit the relationship to provide good-value independent auditing. We should 10 years, so that we can be absolutely sure that an all be concerned about securing a lively audit market. association will not develop in a way that is, frankly, One reason for our amendment about the 10-year unhealthy. period is concern that the lack of competition in the When my noble Friend Lord Beecham spoke to his market could mean that, by default, after a period of different amendment in the House of Lords, he referred 10 years an auditor might be the only—or the only to such a relationship being “too cosy”. While we would viable—provider at a reasonable although not particularly not want to impugn the genuine motives of either the competitive price available to be appointed by a relevant auditors or the local authority in seeking to develop a authority. good working relationship, we can all see that a situation In some ways, although our 10-year time frame is might develop where, over 10 years, those relationships principally about the independence of the auditor, we become a little too close in some cases. hope it will also be a driver to create greater competition There might be turnover in the personnel of an audit in the market, not least because other providers will firm and the relationships could be refreshed in that know that the contract will become available, and will way. There might be an effective audit committee and not simply go to the current provider, as so often an independent audit panel at the time of the reappointment happens in the private sector. It happened in the case after five years that takes real care to safeguard pointed out by the hon. Member for Chippenham—the independence. However, we cannot know for certain, monopoly of the Audit Commission making the under the Bill as it stands, that the relationship will not arrangements. have become too close in years 11, 12, 13, 14 or 15. Our approach would create a pressure in the system There is another point about the fresh pair of eyes. for greater competition. We will debate later other The world of public audit is changing so rapidly; that is amendments about, for example, the backstop with the my experience, having worked with local councils. Having Secretary of State, to make sure that an auditor can be a fresh pair of eyes after a decade of audit seems a good appointed. We are asking the Government to accept idea. It will bring probity and fresh approaches to audit that that should be within 10% of the average cost for and be useful in finding out whether the council or all auditors. 89 Public Bill CommitteeHOUSE OF COMMONS Local Audit and Accountability 90 Bill [Lords] [Andy Sawford] costs when they appoint their own auditors, and it estimates those costs at £3.73 million. Given that cost to We hope that in those ways we can drive competition local authorities, there could be substantial leeway as in the market and make it more viable and attractive for regards resources that might be available to support the new entrants and other bidders, who may not be so setting up of a national body. active in a region or among a group of relevant authorities, We all want to make good progress in Committee, so to consider bidding for a contract. They would know in the interests of expediency, I will say to the Minister that a 10-year term was coming to an end. that I understand from my dialogue with the Local Those are the two driving forces behind the amendment. Government Association, and from his assurances to I hope that, given the impact assessment points about me in private, that the LGA has considered new clause 1 long association, the Government will support it. We and is content with it, so I do not intend to go into every have thought about reasonable compromise and balance, detail of how the new clause will operate, although I and have reflected on the House of Lords debate and hope that he will explain to the Committee how he the possibility that five years would be too short a term. envisages it operating. We have tried to set out a good way forward, with principles of independence and good competition that I Will the Minister also give us certain assurances on am sure all hon. Members would support. this issue? For example, the first Opposition amendment we discussed in Committee, amendment 72, asked for Amendment 93 relates to the scheme for councils to this matter to be set out in regulations by the time that opt into national procurement arrangements, and would the Audit Commission is abolished in 2015; the Government provide for those arrangements, but I note that Government argued that that was unnecessary, but said that instead new clause 1 sets out such arrangements more extensively. a dialogue would proceed. Part of the Minister’s argument We have had the advice of the brilliant Public Bill Office against the amendment was that it is not yet clear who in Parliament, but the Government will have had the will provide the framework for the national procurement benefit of advice from draftsmen in the Department body, so will he tell us who he envisages providing that? and others concerned with the rest of the Bill. Does he think it will be the Local Government Association? We therefore broadly welcome the new clause. We I intend no mischief at this time, although I may welcome the principle of an opt-in arrangement for make some at another time, given that Councillor Harry local authorities for joint national procurement. While Phibbs’s latest list of ways to save money includes—besides the Bill was being considered in the House of Lords, my not mowing the grass and getting sheep to do it instead—the noble Friends and organisations outside this place idea that councils should leave the Local Government concerned with the Bill, such as the Local Government Association. I encourage councils to play their part in Association, called for amendments to allow councils to the LGA, because as a localist, I think it is important continue to procure external audit nationally and thus that the local government sector has a strong national avoid the need to establish independent appointment voice. The Government looked to the LGA to play an panels. Those might for some councils prove too costly important role in developing the proposals in the Bill and bureaucratic, and it might be impractical for them and in many other aspects of their programme for local to ensure that people were available to be members of government over recent years, including the Localism the panel. Act 2011. We can all see that a council such as Kent county Will the Minister assure us that he will work closely council, with its large budget, or Birmingham city council, with the LGA, that he will view it as the appropriate might find competitive the model by which they could and leading body in helping to shape the framework for appoint directly through an independent panel. There the new national procurement arrangements, and that might be many bidders, not least because there will be those conversations with the LGA will proceed at pace? organisations based in the area or which have a track That will enable councils and other relevant authorities record of operating there, and the size of the contract to make an informed decision about whether they will may well make it worth companies’ while to put together need to establish an independent audit panel prior to competitive bids. the need for renewal of audit in 2017. If a council needs to set up an independent audit panel, it will need to know that some years beforehand, to start to make 11.45 am arrangements. We can foresee a different situation, however, for It is a shame that the Minister would not commit to smaller authorities. For example, I represent a two-tier having this point made clear by 2015, as by then councils area, and two of the three councils are small borough will want to know whether the national procurement and district councils; it may not be cost-efficient or model will be viable, whether it will work for them, and practical for them to bring together an independent whether they want to engage with it or set up an audit panel. Under the Bill as it previously stood, those independent audit panel. From his conversations, or his authorities could have considered joint arrangements. officials’ conversations, with the LGA and directly with We support new clause 1 because we hope that it is the local government, does he know what proportion of Government’s intention to go further than that by councils have indicated an interest in participating in creating a national panel. the national procurement scheme? Anecdotally, I know Modelling suggests that central procurement and that there are many, and that members of the LGA, appointment would save the public purse more than which includes most local authorities, want the option £200 million over a five-year period, compared with to participate in the scheme. I hope that the Minister local appointment. The Government’s impact assessment will take the scheme forward enthusiastically, rather recognises that councils will incur additional compliance than reluctantly. 91 Public Bill Committee7 NOVEMBER 2013 Local Audit and Accountability 92 Bill [Lords] We broadly support new clause 1, although I hope less likely. I believe that the circumstances that led to that the Minister will give us some assurances on the that exposure were made possible by the existence of issue. We are putting trust in his conversations with the overarching Audit Commission. local government; we are not privy to those, and have no guarantees on them. I hope that, in a reciprocal spirit, he will see the common-sense approach that we Andy Sawford: As ever, Government Members’ insight have taken in amendment 92 and commit to supporting is helpful to us in making our point, which is that it was the limit of 10 years, so that there is not too long an important that the private sector auditors in the homes- association between auditors and local authorities. for-votes scandal did not have too cosy a relationship with the local authority, and felt able to provide effective independent scrutiny of it. That speaks to the very Chris Williamson (Derby North) (Lab): I support the point that my hon. Friend is making. erudite observations of my hon. Friend, who makes a good deal of sense. I hope that the Minister will take on board his comments about reciprocally agreeing to support Chris Williamson: My hon. Friend makes a decisive our sensible amendment on appointing auditors for no intervention. I hope that we will reach agreement across more than two terms. That seems entirely reasonable, the Committee on the amendment that he has spoken to not least because of the potential for a cosy relationship. so eloquently. The hon. Member for Burton spoke My hon. Friend the Member for Corby referred to our about the scandal relating to Westminster council; I am noble Friend Lord Beecham using the phrase “too cosy sure that no Government Members would wish to make a relationship” when debating the clause in the other it more difficult to expose such abuses in the future. place. The Minister and Government Members have talked It is appropriate to quote from a document produced about alleged savings that will be made as a consequence by Transparency International, which has looked in of their proposal. Those are debatable, but I shall not detail at the Bill and has highlighted a number of rehearse the arguments that we advanced on that point. concerns. Hopefully, those will be taken on board by I will, however, refer again to the document produced the Minister, particularly in his response to our amendment. by Transparency International, which says that any The document says: savings that may be made as a consequence of the “The critical role of the Audit Commission in detecting and Government’s proposition should be investigating corruption in local authorities, by appointing and “weighed against how much money might be lost through increased supporting independent external auditors, was eloquently described fraud and corruption if the new system proves inadequate.” by Lord Scott of Foscote in a December 2001 speech following That speaks precisely to the point that my hon. Friend the Homes for Votes scandal”— the Member for Corby made. Clearly, we must make I think I referred to that in an earlier contribution on certain that any measures introduced to replace the the Bill. Lord Scott said: existing system ensure that appalling situations such “When detected and exposed it must be expected, or at least it as that in Westminster are rooted out or, preferably, must be hoped, that political corruption will receive its just prevented. deserts at the polls. Detection and exposure is, however, often difficult and, where it happens, is usually attributable to determined On the professed savings that may or may not be efforts by political opponents or by investigative journalists or by made, the Chancellor, in his speech on the spending both in tandem. But, where local government is concerned, there review earlier this year, set out a number of principles, is an additional very important bulwark guarding against misconduct. one of which was reform The Local Government Finance Act 1982…required the annual “to get more from every pound we spend”. accounts of a local authority to be audited by an independent auditor appointed by the Audit Commission”. Based on that principle that the Chancellor set out, I Lord Scott said that the am pleased to see—I hope that the Minister will give us an assurance on this point—that Government new clause “statutory provisions…provided an institutional means whereby political corruption consisting of the use of municipal powers for 1 will ensure that local authorities that want to opt into party political advantage might be detected and cauterized by a national scheme are empowered to do that because of public exposure.” the savings that they believe they can secure in such an arrangement, rather than having to rely on individual arrangements, which seemed to be the Government’s Andrew Griffiths (Burton) (Con): The hon. Gentleman preferred way forward at first. refers to the Westminster homes for votes scandal, which is something that we all have great concerns The Chancellor also said in his statement that about. However, does he not agree that the scandal was “Local government will have to make further savings”, not exposed by the Audit Commission, but by a private and that the Secretary of State for Communities and audit company, Touche Ross? Local Government was “a model of lean government”.—[Official Report, 26 June 2013; Chris Williamson: I hear the hon. Gentleman’s point, Vol. 565, c. 303-305.] but I believe that the oversight and back-stop of the If the Communities Secretary is indeed a model of lean Audit Commission gave the independent auditor the government, it would be appropriate to ensure that the comfort blanket that it needed to get involved and limited resources available to local authorities were expose that appalling scandal back in the 1980s. Our spent in the wisest way possible, and that measures were concern, and the reason why we believe that the not put in place that led to additional, unnecessary, appointment of the auditors under the new arrangements burdensome costs being put on local authorities when should be for no more than two terms, is to avoid, as my they are desperate to find the resources to maintain noble Friend Lord Beecham said, too cosy a relationship essential front-line services for the people whom they building up, which might make that kind of exposure serve. 93 Public Bill CommitteeHOUSE OF COMMONS Local Audit and Accountability 94 Bill [Lords] Paul Blomfield (Sheffield Central) (Lab): My hon. Chris Williamson: I am drawing to a conclusion, but I Friend makes a particularly important and pertinent want to repeat to the Minister some of the comments point. Does he not find it ironic that a Government who made by my hon. Friend the Member for Corby. There are appealing so strongly for local authorities to achieve has been a good deal of resistance to the notion of financial savings by sharing services and pooling activities facilitating a national scheme, but it seems that the at authority level seem so intent on discouraging a Government have listened, which is very welcome. We sharing and pooling approach on the procurement of hope that they will listen more, so that we have a degree audits? of consensus in our developing discussions today, and in subsequent sittings. 12 noon Will the Minister provide illumination on how many Chris Williamson: My hon. Friend is absolutely right councils want to participate in a national scheme? I about this curious state of affairs. We touched on that made this point on Second Reading: the anecdotal in our debate on another part of the Bill on Tuesday. evidence and representations I have received suggest My real fear, which I hope that the Minister can allay, is that smaller local authorities are desperate for the that the Government are applying double standards: it opportunity to participate in the national scheme that seems to me that one standard applies to the public my hon. Friend the Member for Corby referred to. I am sector, but a lower one applies when the private sector is curious as to why the Minister was initially resistant to involved. Here we might have another case, as my hon. a national scheme but now appears to have listed to Friend said, to add to the one I mentioned on Tuesday, sense. namely the privatisation of the utility companies leading It would be instructive for hon. Members if we could to consumers being ripped off left, right and centre. As be told how many local authorities are interested in I pointed out then, we do not want the Government, participating. Many Government Members represent whether by design or by mistake, again to create a the rural communities where most of the smaller local system in which a lower standard applies, so effectively authorities are located—the very ones that are under a establishing a money-making cartel for vested interests good deal of pressure to maintain their front-line public in the private sector. That cannot be right. Irrespective services and would benefit from a national scheme. It is of our political differences, surely no Committee member key that they have adequate audit arrangements in would say that it was right to create a lower standard to place, but it is also important that they do not have to facilitate the establishment of a cartel by those with pay unnecessarily for audit arrangements, which could vested interests. take money away from their front-line services and undermine the marketplace in the audit world. I hope that the Minister will clarify that point. Neil Carmichael (Stroud) (Con): Does the hon. Gentleman agree that localised, more efficient auditing might drive higher standards and better value, which is The Parliamentary Under-Secretary of State for one way that local government can save more money? Communities and Local Government (Brandon Lewis): The Government’s amendments are closely related to Chris Williamson: To be honest, with the greatest the amendment of the hon. Member for Corby, as he respect, the hon. Gentleman is starting from a false outlined. They will achieve our shared objectives, as he premise. The problem, as my hon. Friend the Member said, with respect to sector-led collective procurement for Corby said, is that the audit market is very limited. of audit. It would be different if companies were falling over In response to comments from across the Committee, themselves for the work, as the hon. Member for Stroud but particularly those from the hon. Members for Corby suggests would be the ideal. We might be in unison, but and for Derby North, there is an issue about understanding the problem is that the market is very limited. Consequently, where the Government have come from. As I said on there is a danger that we might drive out competition Tuesday, our view is that local authorities should be and create a money-making cartel for vested interests in allowed to procure directly. We do not feel it is for us to the private sector, which I am sure the hon. Gentleman create another body, because that risks becoming Audit does not want. Commission light or Audit Commission version two and we are determined that that will not happen. We listened to the local government sector, which made a Andrew Griffiths: The hon. Gentleman is of course case, particularly through the Local Government right to question how the Government intend to make Association, as the hon. Member for Corby outlined, efficiency savings and save money—my mother always for the ability to set up a sector-led body through the said that the proof of the pudding was in the eating—but sector and we think that new clause 1 deals with that. in doing so, should he not congratulate the Minister for the Cabinet Office and Paymaster General, who today The purpose of the amendments and new clause is to announced £5.4 billion of savings, up 73% on last year, allow the local public body sector to establish large-scale, which indicates that the Government’s approach to collective procurement arrangements. They will give the delivering value for money for taxpayers is right? Government the power to set out a framework for such arrangements and regulations, which will fulfil a commitment made in the other place in response to Chris Williamson: If I may say so, we must be careful calls from the local government sector to allow for not to throw the baby out with the bathwater. sector-led collective procurement. Since making that commitment, the Government have The Chair: Order. We have had enough bad puns had further discussions with the Local Government about mothers and bathwater. Let us get on with it. Association on potential arrangements and the amendments 95 Public Bill Committee7 NOVEMBER 2013 Local Audit and Accountability 96 Bill [Lords] are built on those. The new clause inserts provisions to for them. We are not setting up and will not set up a allow the sector to establish collective procurement central body to do it. Indeed, recent evidence from arrangements. Under the new clause, the Government contracting out shows that the local government sector may, by regulation, make provision for certain authorities is already saving about 40%, which completely contradicts to have their auditor appointed by an appointing person his point about costs. specified by the Secretary of State. That will allow the Secretary of State to designate a sector-led body as an Neil Carmichael: Far from replicating the National appointing person and give them the necessary powers Audit Office or any similar body, the measures whose and duties to act as a collective procurement body. implementation we are discussing will create a competitive Going forward, it may be easiest if I refer to the market, because smaller contracts will attract more and appointing person simply as the sector-led body. more small firms to engage with local authorities. Regulations will set out the process by which authorities can choose to participate in the sector-led arrangements, Brandon Lewis: My hon. Friend makes a reasonable the process for specifying the sector-led body and the point. The market for auditing companies to enter and key powers, functions and duties of such a body. That to offer their services to local authorities does not yet will include, for example, a power to levy fees on opted-in exist as we envisage it, but I hope that it will develop in a authorities and a corresponding duty on the body to way that brings in more competition, which is absolutely consult before setting those fees. our aspiration. However, if the local government sector Amendment 62 provides that the regulations made so wishes, the new clause will give authorities the ability under the new clause will be subject to the affirmative to come together in a manner of their choosing, which procedure. The Government also intend to consult publicly we will be happy to facilitate. on draft regulations before they are made. As we have previously said, any collective procurement arrangements Sir Andrew Stunell (Hazel Grove) (LD): Does my established under those regulations will be voluntary. hon. Friend agree that this is absolutely the right way to Local authorities will be able to choose to participate or go, in stark contrast to the very centralist approach of to make their own appointment locally. It is right that the hon. Member for Derby North, who appears to be bodies choose what arrangements suit them locally, but just as unreconstructed this morning as he was on I must be clear that the Government will not impose Tuesday morning? centralised appointment and effectively recreate the Audit Commission. Brandon Lewis: I thank my right hon. Friend for that helpful intervention, although it is not for me to comment Mark Pawsey (Rugby) (Con): Does the Minister agree on the construction or otherwise of the hon. Member that this is localism in practice? We are giving local for Derby North. My right hon. Friend makes the good authorities the right to choose what is best for their point that the crux of the Government’s position is not community: either to go it alone with its own contract to have a centrally-led, top-down approach. It is for the or to join other authorities to get the best of whatever is local government sector to design what it wants. more suitable in their area. Andrew Griffiths: We charge local authorities with Brandon Lewis: My hon. Friend is spot on. That is spending billions of pounds of taxpayers’ money to why, to touch on the point made by the hon. Member deliver complex care needs, complicated infrastructure for Derby North, it is not for the Government to collect structure projects, help for vulnerable families, and growth data on which authorities want to join others; it is for and employment opportunities. We trust them with all the sector to do so, if it thinks necessary. Both authorities that, yet the Opposition will not trust them with choosing that gave evidence during the pre-legislative scrutiny— their own auditors. Why do the Opposition just not Oxfordshire and Birmingham, as the hon. Member for trust local government? Corby mentioned—stated that they were happy to make their own appointments, but we are aware that others Brandon Lewis: My hon. Friend makes a point that may want to go that way. The whole point is that that is has occurred to us on several occasions during this a matter for them. Parliament. I sat on the Localism Public Bill Committee, during which the consistent approach of the Labour Chris Williamson: I am curious about that. In making party was not to trust local government with devolved fundamental changes, it is incumbent on the Minister powers. We trust local government with them, and we and the Government to understand the impact and intend to continue to do so. implication of what they are doing. The Minister says that they do not collect those data, but surely he must Chris Williamson: Will the Minister give way? have some idea, because his initial proposal might have cost considerably more for many local authorities, which Brandon Lewis: I will make more progress before I are often those represented by Government Members. take other interventions, because I do not want to test your patience too far, Sir Edward. Brandon Lewis: The hon. Gentleman made that point I should make it clear that a framework will be set out in his speech, but it comes from a false premise or in regulations to allow authorities to opt into collective misunderstanding about where the Government stand. procurement arrangements established by the sector. To repeat what I said on Tuesday and what I have just The regulations will set out a process for the Government said, our position is that it is for local authorities to to approve an organisation to act as a sector-led body, procure. If they decide to come together, that is a matter but they will not establish the body or arrangements for 97 Public Bill CommitteeHOUSE OF COMMONS Local Audit and Accountability 98 Bill [Lords] [Brandon Lewis] Brandon Lewis: The hon. Gentleman must be psychic; I was just about to come to that very point. The Bill national collective procurement. It will be for the sector requires local bodies to make a new appointment at to decide whether it wishes to establish an appointment least every five years. In the vast majority of cases, that body and to take forward any proposals. If those in the will require them to go through a full EU-compliant sector come together to develop such proposals, the appointment process, taking advice from their independent Government will work constructively to support them. auditor panel. That will ensure that authorities regularly We intend to work closely with the sector and any review the quality of the audit service and that auditors prospective sector-led body in developing the detail of are appointed through a fair and compliant process. If the regulations, the process for which I have already the incumbent firm is found to be the best candidate outlined. through such an open and competitive process, we do Regulations under the new clause will also be able to not think it right that Government should prevent its modify other parts of the Bill as they apply to authorities reappointment. that have opted in to the collective procurement In addition, the Financial Reporting Council’s ethical arrangements. We intend to use that power to ensure standards already require that key audit staff such as that, where necessary, other provisions reflect the different the lead partner are rotated on a regular basis. The appointment process for those authorities: for example, Government believe that, along with the other provisions authorities that opt in and do not make their own about auditor appointment and removal, the requirements appointment will not need to establish an independent for a new appointment every five years and for the auditor panel. rotation of key audit staff provide sufficient safeguards to ensure the independence of the auditor. 12.15 pm Amendment 63 makes a minor related change to Andy Sawford: I understand the Minister’s point but I update the definition of a local auditor in clause 41. It fear it is a repetition of the inadequate assurances that ensures that the definition covers either an auditor were given in the other place. Will he point me to where appointed by the local authority or one appointed to it there is a requirement for a tendering exercise in the by a sector-led body. Bill? It may be that he plans it to be in regulations but Amendment 93 would, it appears, achieve a similar we would prefer it in the Bill. We want to know whether objective to the Government amendments. It would local bodies will go out to the market. He has said that also establish the powers necessary for the Government it is likely that a tendering exercise according to European to enable the sector to put in place collective procurement procurement rules will take place, but I cannot see a arrangements for local audit. I have already outlined trigger or indeed a requirement for that in the Bill. the Government amendments that will achieve that, and I hope in the light of those amendments that the Brandon Lewis: I say to the hon. Gentleman that, hon. Member for Corby will not press amendment 93. based on what we know about current audit fees and Amendment 92, however, addresses a slightly different assuming that most bodies will enter into five-year issue, as the hon. Gentleman outlined. The amendment contracts—that of course is a separate issue—the vast would prevent an authority from reappointing the same majority of contracts will be subject to EU procurement auditor where that auditor has already served two five-year rules. In making an appointment, bodies will also have terms; in effect, it would require authorities to change to take advice from their auditor panel, and we can their auditor every 10 years. I understand and am reasonably expect that that would include scrutiny of sympathetic to the concern behind the amendment, any decision to reappoint auditors without putting the which is clearly designed to prevent an auditor and an contract out to tender. audited body from developing too cosy a relationship. I should also point out that, as the hon. Gentleman However, I do not think mandatory rotation of auditors outlined earlier and as Baroness Hanham mentioned in is a necessary or proportionate step; in addition, the the other place, a recent report by the Competition amendment would in effect reduce competition by taking Commission rejected proposals for mandatory auditor at least one bidder out of the market. I should make it rotation for companies’ auditors in favour of what it clear that auditors will still be required to consider called “less onerous” measures, such as requiring the whether they need to make a public interest report; audit to be put to tender every 10 years. The report nothing will change in that respect. The code of audit noted that mandatory rotation would actually impose practice and guidance provided by the National Audit costs on companies, for example, by limiting their choice Office will support auditors in making those decisions. of auditor. I also understand that the evidence that In addition, there are robust protections about appointment mandatory rotation improves auditor independence and and removal of auditors in the Bill, and auditors are audit quality is inconclusive at best. With those assurances, subject to ethical standards. I hope the hon. Member for Corby will withdraw the amendment. Andy Sawford: My hon. Friends and I are considering whether we wish to press amendment 92 to a vote. One Several hon. Members rose— of our concerns is that there is not a requirement in the Bill—this was debated in the Lords, and I cannot see it The Chair: The Minister is not giving way. in the Bill—for local authorities to have a full tendering exercise after five years, organised through the independent Andy Sawford: I think that my hon. Friends wanted audit panel. That is why we are concerned that to probe further into where the requirement for the reappointment by default could lead to too cosy a independent audit panel to go out to a tendering exercise relationship. Will the Minister comment on that? is in the Bill. 99 Public Bill Committee7 NOVEMBER 2013 Local Audit and Accountability 100 Bill [Lords] The Minister is trying to assure us that in all likelihood There may be all sorts of other reasons why authorities local authorities will tender, but there is no clear evidence wish to change their auditors. It may be triggered by a that the Bill will make that happen. On the contrary, it change of personnel in the independent audit panel or will be costly, and we all know how hard pressed local in the authority itself, and members may suggest that a authorities are. We will discuss later how the auditor full tendering exercise needs to take place to refresh the panel will work, its remuneration, the process it will auditors. have to follow and its cost. In all likelihood, many authorities that choose independent appointment rather Chris Williamson: I am now even more alarmed by than a national procurement panel will not tender unless the Minister’s intervention. Earlier in the debate, we they are made to by European procurement rules. We heard reassurances that Government Members are as therefore remain concerned about that issue. concerned as we are about the appalling scandal that I understand the Minister’s point about the Financial occurred in Westminster, but it seems to me that his Reporting Council and the rotation of the lead auditor. intervention means that that is much more likely to Rotation is important because it brings in a fresh pair of happen again, because the cosy relationship mentioned eyes. However, we remain concerned that, after 10 years, by my hon. Friend is likely to come to the fore. Powerful the relationship could become too cosy. We are not council leaders would not be subject to the necessary concerned about the 10-year period itself, but it could level of scrutiny by the auditors because of the cosy become too cosy after 11, 12 or 13 years. Local authorities relationship that would develop under such an arrangement, receive a huge amount of public money to run public and because of the auditors’ fear of losing the contract— services and play an important leadership role in our they would want to please their masters, because he communities. Therefore, the quality and independence who pays the piper calls the tune—so I am even more of the audit is important. concerned following the Minister’s intervention.

Chris Williamson: Would my hon. Friend care to Andy Sawford: I agree with my hon. Friend. comment on another quotation from Transparency International on the new arrangement? The Minister expressed his reluctance to impose a two-term restriction. Brandon Lewis: I politely say that I am sure the hon. Transparency International says: Gentleman appreciates, having been through the process “When local authorities are able to appoint their own external of working with auditors—he made the point that he auditors…the independence of auditors may be compromised by has, although the hon. Member for Derby North may concerns about contract renewal and other non-audit services the not have done so—that they are under a fiduciary duty firm supplies the local authority with.” and have to follow a duty of care. I know that the hon. Will my hon. Friend comment on that quote? It concerns Member for Derby North is going back 25 years, and he me; I am surprised that it does not ring alarm bells for is a little in the past with many of his comments, but as Government Members. Does it ring alarm bells in my my hon. Friend the Member for Burton has rightly hon. Friend’s mind? pointed out, independent private sector auditors highlighted the problem in the first place, so to query independent Andy Sawford: I thank my hon. Friend for that point. auditors’ fiduciary duties and how they work is to push Politicians are sometimes accused of not having experience a little into other realms. of the real world that is affected by our legislation, but I ran a small business that was audited and a charity that Andy Sawford: If I have given the Minister or any was subject to stringent rules around the audit process. hon. Member the impression that I in any way doubt During the time that I was chief executive, we had a full auditors’ good intentions and the honourable way in tendering exercise and replaced our auditor, partly because which the overwhelming majority of them carry out the new auditor was more price-competitive—that is their work day to day, or the intentions of local authority the crucial point—but also because it was a healthy officers and members around the country or, indeed, thing to do. The charity sector advised us that mandatory those of the Minister in giving us reassurances, I hope rotation is healthy, and the Competition Commission, he will understand that we are talking about what might their Lordships, my hon. Friend the Member for Derby happen by default in local authorities in which such a North and organisations such as Transparency International relationship emerges. share that view. That is a powerful and important point. Those relationships will not always be because of any bad intent on the part of auditors. For example, having Brandon Lewis: Actually, the Competition Commission worked with a set of auditors over a period, I have rejected proposals for mandatory auditor rotation. I known them go away on maternity leave, come back, agree with the hon. Gentleman because I ran a small share photographs of bringing up their families and tell business myself that was audited. The hon. Gentleman stories of the trials and tribulations of life, as people do is making the same point as the Government: he had when they seek to build a working relationship. Those the choice to make the decision to go out to competitive things are a healthy part of trying to work closely tender. That is what local authorities may wish to do together, ensuring access to documents and having an every five years. open dialogue, and they are a very good thing for a period, but that relationship perhaps becomes too close Andy Sawford: I thank the Minister for that point. over time. The change in the relationship with the auditors in my There is also the pressure of needing to ensure that case was necessary because I inherited a set of auditors, the contract is renewed. In many cases, a local authority I did not have that cosy relationship and I wanted to audit will be so significant that it is the whole of an ensure that there was an independent audit process. auditor’s work load. Their whole job might therefore 101 Public Bill CommitteeHOUSE OF COMMONS Local Audit and Accountability 102 Bill [Lords] [Andy Sawford] funded public bodies, so the hon. Gentleman will agree that the circumstances are different. We are dealing rest on the renewal of their contract by the person with public money. whom they now know and with whom they have worked I sense some enthusiasm from my colleagues to test for a decade. the will of the Committee on this point. On reflection, if the Minister could commit to providing information Mark Pawsey: Is not the hon. Gentleman disregarding before Report on how many authorities will be subject the effect of local democracy and the fact that many to EU rules, which may change over time as the proposals council tax payers take an awful lot of interest in what relate to turnover, that would be helpful in enabling us goes on in a local authority? There are sufficient checks to see whether his assurances, which are honest and and balances to make the Government’s position secure. genuine, are correct. He differs from us in that he believes that the situation will be okay. In the meantime, my hon. Friends and I will give the matter further Andy Sawford: The hon. Gentleman is right that local consideration and will seek to raise the issue on Report democracy plays an important part. The amendments subject to that commitment. Will the Minister commit that we have tabled in relation to transparency will, I to provide that information? hope, enable members of the public to play a vital role. We are giving members of the public, local authorities Brandon Lewis: I am very happy to have a look at the and auditors a framework in which we can safeguard an matter and to come back to him. We may even be able independent relationship. I think that we would all to do that in writing before the next sitting. Whatever agree that that is important, and that those working in the outcome, however, the Government’s position will this area want such an independent relationship. However, not change. from the examples cited by my hon. Friends and evidence presented to the ad hoc Committee and others about securing independence in the Government’s proposed Andy Sawford: The Minister will want to achieve new framework, hon. Members can see the concern some measure of consensus as we go forward and will that, in a tiny minority cases—such cases might involve not want any more than I to divide the Committee billions of pounds of public money—the audit may not unnecessarily. be carried out as independently and effectively as it otherwise might be if there was a refresh of an auditor Brandon Lewis: Inspiration has just come my way, so after a decade. I will point out to the hon. Gentleman that he said on 5 November that “an estimated 93% of such contracts would exceed the threshold Chris Williamson: Checks and balances are vital, of and have to follow the EU procurement rules, which will clearly course, and the ballot box is one such check or balance. add substantial cost.”––[Official Report, Local Audit and Accountability Do there not, however, need to be other checks and Public Bill Committee, 5 November 2013; c. 9.] balances—the ones to which we are referring—to ensure We can obviously check that at our end as well. that the highest levels of probity are observed by elected members when they get into elected office? It is not good enough simply to say, as the hon. Member for Andy Sawford: I thank the Minister for that clarification. Rugby has said, that the electorate can always resort to I recall making the point in relation to the costs of EU the ballot box. They can do, but it is important that procurement exercises and the need for the national high standards of probity are upheld and maintained procurement arrangements, which are the subjects of by having other checks and balances in place through the remainder of this debate and the other amendments. an independent audit system. In deciding whether to bring the matter back on Report, we will consider what that 7% looks like, who it includes and what the risks are. 12.30 pm With that, and noting my hon. Friends’ strong concerns, Andy Sawford: My hon. Friend makes a strong point I will not press amendments 92 and 93 to a Division, and has highlighted our concerns. because I can see that new clause 1 seeks to achieve what we sought in amendment 93. Although I do not feel able to encourage my hon. Friends to support new Andrew Griffiths: Will the hon. Gentleman give way? clause 1—I want to hear a little more from the Local Government Association before Report—we shall certainly Andy Sawford: I will, but I am sure that the hon. not oppose it, because we understand the Government’s Gentleman, like me, the Minister and you, Sir Edward, intention. I beg to ask leave to withdraw the amendment. wants to make progress. Amendment, by leave, withdrawn. Clause 7, as amended, ordered to stand part of the Bill. Andrew Griffiths: I have a simple and straightforward question. Will the hon. Gentleman tell the Committee Schedule 3 when the Labour party last changed it auditors? Amendment made: 15, page 38, line 21 [Schedule 3], at end insert— Andy Sawford: I have no idea, but it would be in the ‘(4) A local auditor appointed to audit the accounts of a interests of any organisation to look at its relationship parish meeting must be appointed by the parish meeting itself with its auditors. I am quite sure that the hon. Gentleman (and not by its chairman on behalf of the parish meeting).’.— could find that out and bring the information back to (Brandon Lewis.) me and the Committee. We are discussing publicly Schedule 3, as amended, agreed to. 103 Public Bill Committee7 NOVEMBER 2013 Local Audit and Accountability 104 Bill [Lords] Clause 8 scrutiny of the organisation’s financial and non-financial performance to the extent that it affects exposure to risk PROCEDURE FOR APPOINTMENT and weakens the control environment, and to oversee the financial reporting process. Andy Sawford: I beg to move amendment 96, in In some ways our amendment follows on from the clause 8, page 6, line 20, at end insert— debate we just had about the assurance that we can have ‘(1A) A relevant authority must have an audit committee, about how systems operate in local authorities. I imagine which may be instructed by the relevant authority to appoint the that my hon. Friends who spoke so strongly would auditor panel to advise on the selection of the local auditor in agree that audit committees are just one part—aside accordance with section (7).’. from our amendment on limiting terms of appointment—of the assurance that there could be about independence in The Chair: With this it will be convenient to discuss a local authority, and suitable checks, balances and the following: controls. Amendment 97, in clause 8, page 6, line 26, at end I will list the core functions of audit committees insert because I hope that the Minister will support the amendment, and that we may be able to agree or work ‘and the term of appointment’. together on a new clause to define, in brief, their core Amendment 98, in clause 8, page 6, line 33, leave out role. I hope that if I set out the core functions he will paragraph (b). understand what we intend in relation to what the Amendment 99, in clause 8, page 6, line 34, leave out committees already do in most local authorities, and subsection (4). what new ones will do in the few that do not currently have them. Andy Sawford: I hope that we can bring some unanimity Audit committees would consider the effectiveness of to the Committee on amendment 96, which would the authority’s risk management arrangements, the control require authorities to have an audit committee. In the environment and associated anti-fraud and anti-corruption past the Government have not wanted to impose on arrangements. My hon. Friend the Member for Derby local authorities a duty to have such a committee. North mentioned those things in relation to the excellent However, they have recognised—I know that the Minister report by Transparency International. would agree, and so would the hon. Member for Burton— An audit committee would seek assurances that action that many local authorities have such committees, which is being taken on risk-related issues identified by auditors play an important role. and inspectors; it would be satisfied that the authority’s Many local authorities have a process of independent assurance statements, including the annual governance audit, which is the Minister’s preferred option, and we statement and audit opinion, properly reflect the risk are now entering a new, post-Audit Commission world. environment and any actions required to improve it; it We have tabled a sensible small amendment, which would approve but not direct—that is a crucial point—the would affect only a small number of authorities. It internal audit strategy; and it would plan and monitor would require them to have an audit committee, which performance. We know from the evidence given to the would fulfil a vital function. inquiries by the Communities and Local Government I understand that 90% of local authorities have audit Committee and the ad hoc Committee that internal committees. Crucially, the overwhelming majority of audit is growing in importance in local authorities those are set up in accordance with, and follow, guidance around the country, and I think we can all see that that from the CIPFA framework. is a positive development. Approval and monitoring of Audit committees play a vital role in good corporate performance would be important functions of an audit governance, because they bring an objective, independent committee. appraisal of how effectively an organisation achieves The audit committee would review summary internal regularity, probity and value for money. Local government audit reports and the main issues that arise from them, councillors and officers have onerous and important and seek assurance that action has been taken where financial and legal responsibilities—the hon. Member necessary. Because they are concerned about the operation for Burton commented on that a moment ago, before he of their local authorities, the Minister and all Committee left the Room. The audit committee provides a key members, along with the independent audit panel, the source of assurance that those responsibilities have auditors themselves, the finance officers or others working been met. in audit and corporate governance, should all take great The increasing prominence of audit committees in comfort from and support the fact that audit committees both public and private sectors reflects the pivotal role would—if I can use a colloquialism—have some of audit for corporate governance. The CIPFA framework clout in authorities to ensure that their reports and that I have mentioned, “Corporate Governance: A recommendations were acted upon. Framework for Public Service Bodies” recommends The committee would receive the annual report of that all public service bodies should establish an audit the head of internal audit. It would consider the reports committee comprising non-executive members with of external audit and inspection agencies. Although in responsibility for the independent review of the systems the arrangements under the Bill, the independent audit of internal control and the external audit process. panel will have a role in appointing the auditor, its role The CIPFA guidelines state that the purpose of an is largely limited to that, and rightly so when we consider audit committee is to provide independent assurance on the level of bureaucracy involved. We must recognise the adequacy of the risk management framework and that the panel has a very limited role. In a local authority, the associated control environment, and independent it is necessary to have day-to-day assurance that money 105 Public Bill CommitteeHOUSE OF COMMONS Local Audit and Accountability 106 Bill [Lords] [Andy Sawford] 12.45 pm Andy Sawford: The role of the audit committee should is being spent well, that there is value for money, and be proportionate, as is the whole process of audit. that there is probity and independence in the use of Proportionality is a core principle. The audit committee money. In the increasingly complex world about which may meet more frequently and include more members—the my hon. Friends have spoken—including my hon. Friend CIPFA guidelines are very broad and membership can the Member for City of Durham, who spoke about range from three to 17. In a small authority, we might local enterprise partnerships on Tuesday—the assurance envisage a committee of three that meets quarterly and that audit committees could give the public is important. concerns itself with expenditure of £10 million of public Audit committees would ensure that there are effective money, and therefore that is not too onerous. As opposed relationships between external and internal audit. They to that, the audit committee in a large authority, spending would also ensure that the working relationship between hundreds of millions of pounds of public money, may private sector auditors and, we hope, new firms at least meet more regularly and have more members to undertake every five years—ideally every 10 years—is working a wider role in the local authority. well and that the value of the audit process is actively We deliberately intend not to be too prescriptive—I promoted. Crucially, audit committees would review understand where the hon. Member for Stroud is coming the financial statements, the external auditor’s opinion from. Instead we are saying that this is good practice, and reports to members, and monitor management recognised by CIPFA and doubtless by most of the action in response to the issues raised by external audit. local authorities represented by Government Members A small number of authorities do not currently have as well as those represented by my hon. Friends. Therefore, a committee. Of course, some have something that at a time when we are reviewing audit arrangements in looks like an audit committee, but is called something local government and across relevant authorities, it is a else and sits as a sub-committee or panel of the authority, sensible amendment to make. It reflects customer practice and they may simply be able to think about how it across the country, but addresses a tiny number of applies the CIPFA rules and re-recognise it as their councils—about 10% —that do not currently have audit audit committee. However, without the Audit Commission, committees. in authorities without the effective functioning of an When I say tiny, we have to reflect on the fact that we audit committee, all the important roles I have just are still talking about hundreds of millions of pounds outlined are essentially left to the full council. They are of public money that is not in any way accounted for left to the general assembly of the council, the agendas through an audit committee. Therefore we should be of which are often packed—I know that from real concerned about what internal controls there are. The world experience as, like many Members, I have been a amendment seeks to ensure that, in those cases, they councillor. catch up with good practice and do something that links well with establishing, for example, an independent James Morris: A quick point of clarification on the audit panel and having a new process of independent wording of the amendment, which says: audit. “A relevant authority must have an audit committee, which Audit committees are good practice in the private may be instructed…to appoint the auditor panel”. sector and most charitable organisations have them. I Why did the hon. Gentleman choose the word “may,” looked at some research on this by the Charity Commission and what are its implications? and it includes very small organisations. Bearing in mind that local authorities with responsibility for more Andy Sawford: There are two reasons for the use of than £6.5 million are required under the Bill have to the word “may.” The first is that I am a localist, as the have the full audit, we would not call any of them small hon. Gentleman knows, and I do not wish to impose on in terms of the amount of public money for which they an audit committee a new role or burden that it does are responsible. not wish to take on or see as its core function. Secondly, If the hon. Member for Stroud and other hon. Members audit committees will of course take various forms. I do are minded to support the amendment, we could debate not intend to be too prescriptive, which is why I recommend how prescriptive to be and what level of prescription is that if we allow for a new measure that sets out some of desirable. The characteristics would be: a strong chair the core roles of an audit committee, it is not overly displaying a depth of skills and interests and, I am sure, prescriptive—for example, it must not require the committee an intolerance of phrases like “chucking the baby out to appoint the independent members of the audit panel. with the bathwater”. However, I also anticipate that the Minister might argue, in the spirit of how he and his officials have The Chair: Absolutely. constructed the new arrangements, that independent appointments must be made by the full council. I can Andy Sawford: They do not always add to debate. understand that argument, but we would seek to give The characteristics would also include: unbiased attitudes, the flexibility for the full council to delegate responsibility again displayed by Sir Edward today; treating auditors, for the detailed work of independent appointment if it the executive and the management equally; the ability considered it appropriate. to challenge the executive when required; and membership of the audit committee that is balanced, objective, Neil Carmichael: Is the hon. Gentleman’s proposal independent of mind and knowledgeable. not just a bit too prescriptive, especially bearing in mind One thing about audit committees that we should the fact that some authorities may simply be too small recognise and cherish in local government is that they to justify a full audit committee? always work most effectively on an apolitical basis. 107 Public Bill Committee7 NOVEMBER 2013 Local Audit and Accountability 108 Bill [Lords] They are a little oasis of joint working in local authorities, The amendments deal with the unnecessary prescription where members come together, leave their party cards at in the Bill on public appointment; in particular, for the door and concern themselves with ensuring that setting out notices about public appointment. public money is spent well. We do not think that the Secretary of State should take on the role he seems to want of being the public James Morris: The hon. Gentleman is generous in relations officer-in-chief for all local government and giving way. Linking back to the debate on new clause 1, determine the best way to notify the public how a does he envisage that, in the instance where the authority council operates. The way a local authority determines was considering opting into the collective procurement is best to inform the public of its appointment of an arrangement, the audit committee would have power to auditor is clearly a matter of common sense and local make that decision? Would it be the decision-making circumstance. That is subject to some minimum body for opting into this collective procurement requirements, which are recorded in the clause, and that arrangement, or does he have other arrangements in is why we seek not to delete the clause entirely, but to mind? make sensible amendments to it. We hope to add to transparency through amendment Andy Sawford: The hon. Gentleman makes an important 97, which would provide that the notice must state the and interesting point about the remit of the audit term of appointment. That relates very much to our committee within the authority in relation to the new earlier amendment on the competitive nature of the arrangements. However, this relates to my answer to his market and the need for appointments to be renewed point that a local authority may delegate to its audit periodically. We want to ensure, subject to a European committee the role of appointing the independent panel. procurement rules exercise, that if an authority chose to It may also delegate to its audit committee the role, for appoint independent auditors directly rather than through example, of considering in the first instance whether to the national procurement option, auditors who may use a national procurement option or an independent wish to seek that contract know the year in which the panel, and of considering the relative merits of those appointment needs to be renewed well in advance. We two different arrangements. It could also do so in suggest that the Government should see a requirement greater detail and doubtless with more expertise than if to state the term of appointment as a sensible, small this matter were considered at a local authority’s general amendment. assembly or full council meeting. Amendment 98 would omit those overly prescriptive So while we would not wish to be prescriptive and aspects of the clause. would rather leave the delegation of this role to local authorities, I can well imagine them thinking that it James Morris: I am surprised by the hon. Gentleman’s makes sense to delegate some of these matters to their position on the 28-day notice period. He has expressed audit committee. However, part of the audit committee’s concerns about probity and ensuring accountability, corporate governance function is to see that important but is it not right to have some stipulation of the length delegations, including those that relate to the audit of time an authority should take to publish information process, are carried out effectively with effective reporting that is vital to local accountability and probity, as he back to the full council or general assembly. In the said earlier? spirit of localism that the hon. Member for Halesowen and Rowley Regis and I always embrace, I suggest that we be not too prescriptive but allow local Andy Sawford: Again, the hon. Gentleman is absolutely authorities the opportunity—through the audit right. That is why we have not sought to remove the committee that they would all have if the Minister 28-day requirement and rather seek to strengthen it supported our amendment—to make decisions on the through notifying the public of the term of appointment, best arrangements. but then removing some of the prescription around how the council will communicate with the public. I had more to say on the role of audit committees, Local authorities do not need the Secretary of State to but I sense that we have explored that point well. We are be their PR officer. They know the nature of their absolutely clear that local circumstances must determine communities and how best to communicate with them the most appropriate structure and membership of any and can make such judgments perfectly well for themselves committee. Research shows that the most effective audit committees have chairs with strong leadership qualities. Often, local authorities choose to have an opposition Mrs Mary Glindon (North Tyneside) (Lab): It is a member chair the audit committee, which is usually pleasure to serve under your chairmanship, Sir Edward. good practice in the scrutiny process. However, I want briefly to emphasise the value of audit committees. circumstances vary across the country and local authorities Several years ago, North Tyneside had an audit committee, cannot always neatly determine which opposition member but the elected mayor—North Tyneside has had an might take that role, save to say the chair of the audit elected mayor for many years—and people from the committee and its members will play a vital role in same party served on it. That probably is not the best bringing some independence and assurance to both the way to set up such a committee, but, following the local authority and the auditors. council’s own decision, it evolved to include members of The group contains several other amendments—97, all parties on the council. It has now progressed further 98 and 99—that I wish to deal with briefly. The hon. and has an independent chair and an independent Member for Halesowen and Rowley Regis made the deputy. It does all the things that my hon. Friend the point about not wishing to be too prescriptive only a Member for Corby says. The committee’s minutes are moment ago, as did the hon. Member for Stroud. I published on the council’s website, ensuring transparency. therefore hope that I will have their full support for this. Importantly, North Tyneside and Northumberland now 109 Public Bill CommitteeHOUSE OF COMMONS Local Audit and Accountability 110 Bill [Lords] [Mrs Mary Glindon] annual governance statement, the anti-fraud and anti- corruption policy and strategy, “Fighting Fraud Locally: share an internal audit and risk management service, The Local Government Fraud Strategy” and a range of which is a cost-saver, but both councils still have independent other important topics. I mentioned checks and balances committees. earlier and, as my hon. Friend the Member for Corby suggested, the audit committee provides an additional Mark Pawsey: The hon. Lady and I both sit on the source of checks and balances in each local authority. It Select Committee on Communities and Local Government, would be remiss of us to allow residents who live under but audit committees were investigated by the Committee a local authority that does not have an audit committee before the hon. Lady joined. One of the Select Committee’s to be denied that additional comfort blanket without recommendations was that an audit committee should challenge and without ensuring that an audit committee have a majority of independent members. Does the is put in place. I have quoted at length from Transparency council to which she refers have such a majority? Should International, but it makes an interesting observation there be such a majority? about such committees: “Audit committees should be committees of the main council, reporting directly into full council to ensure maximum scrutiny Mrs Glindon: North Tyneside is evolving and has and accountability of audit findings and recommendations.” reached the stage where there is an independent chair and deputy chair. While transparency has seemed sufficient That is clearly sensible advice. to date, the council wants to increase it and that is a The fact that some local authorities have no audit good step. The committee is evolving and it is important committee at all—let alone as a committee of the main to show that it is relevant and that it has responded to council—is less than satisfactory, so it is therefore changes over the years. It may end up being totally appropriate to support the amendment and I hope that independent, but, for now, the transparency that they the Government will take it on board. It in no way are working towards is always assured. As my hon. impinges upon localism. In fact, it is about enabling Friend the Member for Corby said, we are not prescribing localism and ensuring that local people have that additional how the committee should be formed, but I wanted to assurance available to them through the added scrutiny demonstrate how an audit committee can move with that can be brought to bear by an audit committee. On the times and become a really important part of the that basis, I hope that we can, as my hon. Friend the transparency and accountability of every council. Member for Corby suggested, find some unanimity at least on this issue and move forward in a spirit of Chris Williamson: I concur absolutely with my hon. consensus. Friend on the role and importance of audit committees. When my hon. Friend the shadow Minister was speaking, 1.1 pm I randomly decided to look at the agenda for Derby city council’s audit committee and noted the range of topics The Chair adjourned the Committee without Question that it considers. On 26 June 2013, it was looking at the put (Standing Order No. 88.) council’s covert surveillance policy and procedures, the Adjourned till this day at Two o’clock.