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. PUBLISHED BY AUTHORITY OF THE HOUSE OF COMMONS LONDON – THE STATIONERY OFFICE LIMITED £5·00 PBC (Bill 101) 2013 - 2014 Members who wish to have copies of the Official Report of Proceedings in General Committees sent to them are requested to give notice to that effect at the Vote Office. No proofs can be supplied. Corrigenda slips may be published with Bound Volume editions. Corrigenda that Members suggest should be clearly marked in a copy of the report—not telephoned—and must be received in the Editor’s Room, House of Commons, not later than Monday 11 November 2013 STRICT ADHERENCE TO THIS ARRANGEMENT WILL GREATLY FACILITATE THE PROMPT PUBLICATION OF THE BOUND VOLUMES OF PROCEEDINGS IN GENERAL COMMITTEES © 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.