My Lords, I, too, declare an interest as leader of a London borough council and a member of the Leader’s Committee of London Councils. I thank my noble friend for the way in which she introduced this legislation, and apologise to her for not being able to attend her briefing yesterday as I was present at a committee of your Lordships’ House at the same time.
I hope I do not surprise my noble friend too much by saying that this Bill is welcome in many ways. I join other noble Lords in saluting the abolition of the giant bureaucratic industry of performance assessment and so on that grew up under the Audit Commission after 1997. I do not for a moment take away from what the noble Lord, Lord Christopher, whose work I respect immensely, has said. He is right to point to the many good things that were done by the Audit Commission in the past, but that regime became overblown and it is an enormous relief to local authorities that the Government have acted to restrain it. Therefore, I very much welcome that part of the Bill.
On the other hand, as others have said, there are in the Bill some new fiddlesome interventions from the centre. I also note, with others, that the powers given by Clause 34 to the National Audit Office, if understandable in principle, have alarmed some local authority organisations. They fear that the clause leaves on the statute book mechanisms by which a central body could begin to recreate the performance assessment industry.
Having read the Bill, it seems to me that subsections (5), (6) and (9) of Clause 34 offer safeguards against that happening. No doubt, we will explore that in Committee. I also have some reservations about the absolute abolition of the provision to allow for national procurement of potential auditors. We have just heard a very powerful speech on matters of audit, and I will not follow that specific line. However, some arrangements in the Bill look very cumbersome, and I agree with the comments that have been made about how the independent panels will work. As we have just heard, there are merits in many of the existing Audit Commission arrangements. Perhaps it would have been better to enable various local regimes with due safeguards, but to leave the power to conduct national procurement in place.
On local audit and accountability, this Bill goes wider than just local authorities, as it refers to other local bodies, including some NHS bodies but not others. I shall spend a little time on that. The Bill misses an opportunity for local authorities to play a more constructive role in securing effective audit and accountability of public bodies operating in their local authority area. I will dwell specifically on the local accountability of the NHS for its use of resources. This omission from the Bill—the NHS weaves in and
out of it at different stages—is a little disappointing, at a time when the Government are rightly promoting health and social services integration, a process in which my own authority has been actively engaged for some time. The Government have also acted—again, it is greatly welcomed by many authorities—to give local councils a greater role in health. I do not believe that as local authorities, health trusts and commissioning groups grow together, audit arrangements can stay apart and be handled through separate strands of legislation. There is a growing perception that parts of the NHS regard themselves as beyond reach in questions of local accountability.
I cite the example of Croydon Primary Care Trust, where, in 2011, a new management team uncovered serious financial problems. An investigation by Ernst & Young followed, which confirmed a discrepancy in the accounts of some £28 million, roughly equivalent to the cost of a new secondary school or more than a fifth of my local authority’s annual discretionary budget. Even then, when faced with such findings, the NHS represented Ernst & Young’s report in its own way to gloss over some of the realities of what had occurred. Had that taken place in a local authority, I would have been forced to consider my position. Instead, the board member within the trust who first raised concerns was eased out as a disruptive influence, and a massive black hole in the accounts was apparently covered by the stroke of a pen and the insertion of balancing items by what proved to be an unqualified person. In the private sector this would have counted as false accounting, and would have had the direst consequences for those involved. In a local authority it would unquestionably have cost the jobs, not only of the person involved but of top management, who had failed to exercise due supervisory control and had put an unqualified person in such a position.
Yet what happened in this local NHS body in response to the auditor’s report? No one initially lost their post, except the man who had wanted something done about the matter. The people involved were quietly transferred to other jobs elsewhere in the NHS. Other health trusts were told they would have to fill the gap in finance by transfers of money held centrally on their behalf, to the detriment of health resources in properly managed and more efficient areas. The six local authorities that were affected, including my own, which have the duty to safeguard the interests of local people, were understandably scandalised by such procedures.
To ensure effective audit and a proper response to the comments of the auditor Ernst & Young, we set up a joint scrutiny committee to look into what had happened, suggest appropriate remedies to improve local public accountability, and get a proper response to audit from this local public body. Again, what happened? There was a wall of silence and a climate of non-co-operation and cover-up. Most of the key witnesses who were invited to assist the scrutiny committee simply declined to appear. Calls came from the centre, asking the authorities involved not to rock the boat. I have to say that I was myself approached at one point by a senior NHS manager, who urged me to let the matter drop.
A devastating report finally emerged from this Joint Scrutiny Committee, exposing in detail what had happened and taking up the original auditor’s report. It set out a range of concrete recommendations for action to prevent any recurrence, to safeguard use of public money and ensure proper public scrutiny of audit reports on local bodies within the NHS. Inevitably, lawyers acting on behalf of some of those who had previously declined to co-operate glided into the offices of those who had tried to get to the bottom of their actions to gag, or seek to gag, aspects of the report, frankly.
If the local audit and accountability of NHS and other local bodies that affect local communities is to have any meaning, there must be a place for public scrutiny. Local authorities have an obvious role in this. I shall return to this matter in Committee, and I will have to consider whether, under protection, I need to detail a little more of what I consider to be the shocking background to this case, and the careless attitude to the use of NHS resources that was involved.
I hope that my noble friend may be prepared to consider amendments to strengthen the audit and the scrutiny of the response to audit role beyond the measures already in the Bill. I believe there is a role for local authorities in this. At the very least, we should find ways to ensure adoption of the joint scrutiny committee’s recommendations, in order to protect local people and local authorities from what is frankly the incompetence and derogation from any sense of public responsibility that was displayed by some people in this case. NHS bodies are key local bodies, and we have the opportunity to use this Bill to strengthen their accountability to local people.
I will be brief on other matters. On publicity, I am a slight dissenter. I share the views of others that the system we have now operates relatively well, and no doubt we will review the evidence base for the proposals. However, when I took office in 2010, I abolished my own authority’s glossy newspaper. I would do the same again, as it did not in my view add much to the sum of human knowledge, so fast is the world of communications evolving. However, local authorities must communicate with local people and, increasingly, hear back from them. Increasingly, this will be done by online and web-based methods. Despite the limits on penetration, online communication is growing fast. It is a necessary instrument of dynamic, localist initiatives in which often differentiated approaches and priorities are enabled within local authority areas. Already in our own localism initiatives, for example, we so far have six separate web-based newsletters that allow two-way communication between the public and the local authority. This is a vital emerging instrument for effective and responsive governance. I will want to be assured that regulations under the Bill will not affect such communication, as it enables localist public involvement in decision-making and in no way competes with local newspapers.
Finally, on council tax referendums, here, too, I am a slight dissenter. The day after 100,000 people voted no to Heathrow expansion by a margin of three to one in a local referendum conducted by my authority and the borough of Hillingdon, you probably would not
expect me to stand up to oppose the concept of local referendums— indeed, I was rather disappointed that some of the referendum proposals were dropped from the Localism Bill, as my noble friend knows. I am not all out against council tax referendums, although I perhaps rather impishly hope that my noble friend may suggest to her colleagues that they consider legislating to give central government the same duty to have regard to the results of local referendums as it imposes on us to have regard to its dictates.
I shall not today follow others—we have heard some very significant contributions—into the complex field of how to increase democratic control on precepting or levying authorities and what the Government now propose in Clause 39. However, the matter is definitely complex—I use the word advisedly—and will need close examination in Committee if local authorities that seek to behave properly are not to be penalised for the profligate actions of levying or precepting bodies, because that is effectively what often happens now. If in a referendum an overall quantum is rejected, a levying body can simply say, “Go away. We have the power to impose the levy”, and the council must not then be left having to reduce its services because of the profligacy of others.
With these riders, I add my voice to those who have welcomed the basic core of the Bill. I support the abolition of the Audit Commission and the bureaucracy that went with it, hearing the reservations that have been expressed by some, and thank my noble friend for bringing the Bill forward.
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