Local Democracy, Economic Development and Construction Bill [HL]

As the noble Baroness, Lady Hamwee, rightly said, this chapter of the Bill enables the recommendations of the noble Lord, Lord Sharman, as set out in his independent report of 2001 on local government audit, to be implemented. This is to provide a public sector-style audit for local authority-controlled entities in the way that there is already a public sector-style audit for central government-controlled entities. Parliament long ago approved an independent external audit for local authorities; that is why there is scope for external audit in the private sector in order to reflect the special accountabilities attached to public funds. Entities controlled by local authorities effectively carry out public functions and spend public money. The Bill will ensure that in future qualifying entities will continue to have a Companies Act audit but, where the auditor considers it necessary, the auditor will also have the power to conduct a broader audit of the entity’s activities, based on the principles of public audit as recommended by the noble Lord, Lord Sharman, and report in the public interest. Amendments 158A and 158B concern whether the audit authority, before appointing an auditor or a replacement auditor to an entity connected with a local authority, should consult not only the entity but also the local authority. These amendments seem unnecessary because where the entity is connected to a local authority, the authority can be expected to be represented on the board of the entity. A duty to consult would impose a burden on auditors and would involve cost. We need to be sure that there would be sufficient benefit. Having two separate consultations could be confusing. I agree that the views of the local authority should be known, and I am confident that they can be obtained through consultation with the entity. Amendment 159ZA arises from concerns about the nature of the continuing offence where the provision is creating a prospective conviction. I can see the logic of the noble Baroness’s argument, but I think her proposed system would not work. At the point of the initial conviction, no one will know how long the offence will continue for or whether there will be any reasonable excuse for any obstruction. Under the Bill’s provisions, there would be no prospective conviction as it would be for the court to decide whether the person had continued to obstruct and what the appropriate level of fine should be, up to a maximum of £20 a day. There are identical wording and equivalent provisions in the Audit Commission Act 1998 and the Public Audit (Wales) Act 2004. I hope that reassures the noble Baroness. Amendment 159ZB addresses the issue of who in the entity considers the public interest report and takes the decision on whether the report requires the entity to act. The effect of the amendment would be that the decision would be made by the directors after the meeting exercising their general powers of management. The amendment would also have the unfortunate effect of delaying the entity’s decision in relation to the report. Our view is that the decision should be made by the shareholders, not the board, not least because the report might be critical of the board itself. Shareholders should be an integral part of the process for deciding how the entity responds to the public interest report, just as they are in signing off the entity’s statutory audit report. The provisions provide for this. Amendments 159ZC and 159ZD exclude the requirements for the regulations to be ““desirable or necessary”” before making regulations prescribing a scale of fees. The noble Baroness makes a valid point in that regulations should be made only if they are desirable or necessary. However, the expectation is that the relevant audit authority will set the scale of fees. The drafting of the provisions sets out the expectation that the Secretary of State or Welsh Ministers will act if necessary or desirable; that is, if there is an exceptional reason to act. Again, if it reassures the Committee, the drafting also provides consistency with existing provisions in the Audit Commission Act 1998 and the Public Audit (Wales) Act 2004. Amendment 159ZE inserts the requirement that before making regulations defining qualifying entities the Secretary of State and Welsh Ministers must consult relevant entities connected with the local authority in England and Wales respectively. I can assure the Committee that we have every intention of consulting on the content of proposed regulations. However, having a statutory obligation can lead to technical objections that the consultation is flawed in some way. This could be particularly the case here as we could never be sure that we had consulted all relevant entities before making the regulations. That is something we wish to avoid. The noble Baroness, Lady Warsi, tabled Amendment 159, which places a duty on the auditor to make the public interest report available to the public. I hope I can reassure the noble Baroness in my response. The duty to make the report public lies with the local authority as part of its deliberations at an open meeting of the council. Making information public through for the council meeting arrangements allows the public interest report to be made public alongside the entity’s decisions and any proposed action. A copy of the report also goes to the relevant audit authority. The normal practice of these authorities is to make reports available on their websites and therefore accessible to everyone. In conclusion, we believe that the provision achieves greater transparency and accountability to citizens and communities for how money is spent by local authority entities. It will strengthen public accountability over what are essentially public funds and public liabilities and obligations that may arise for local authorities. It will also place local authority entities within an appropriate public audit regime alongside local government bodies. In the current financial climate, that must be the right approach. I hope that noble Lords will feel able to withdraw their amendments in view of this explanation and my undertaking that we will consult on the proposed regulations.