My Lords, I have a lot of paperwork here and I will try to go through it without more repetition than necessary. Like most of us here, I think, I need to declare an interest, as I did on Second Reading. I spent six years on the Audit Commission. I emphasise that I am not seeking to save my old school or some historic regiment. I am seeking to secure an organisation which has a remarkable record of achievement in saving local government money and improving cost-effective working in local government and elsewhere.
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I was astonished when I read the Bill because much of it seems to have very little relevance to the present situation that the country and indeed local government face. In my view, it is inevitable that over the years the Bill will do more harm than good. There has already been significant pre-emption of the Bill, which to some degree could be argued leaves us with a fait accompli. The Government have underwritten the pension scheme—I do not know whether that has been particularly well reported, nor do I think that there are any great anxieties about it, but it is a fact; were there to be a big change, the risk could be considerable—and the Audit Commission’s staff have been significantly reduced. They have almost gone; only 70 out of 2,000 are left. That has been done at a cost so far of £45.8 million, and that may well increase. The current running costs of the commission are £7.2 million, and that is to manage £86 million of local public audit market.
The Minister spoke as though the decentralisation of audit were an end in itself and that it would produce results that would make everyone happy and local people would be overjoyed. However, providing for audit is not all that the Audit Commission does. There are eight separate tasks, including the appointment of auditors, that the Audit Commission carries out over the course of the year. Those are important tasks whose loss will certainly reduce work on cost-effectiveness. The gaps are considerable, and I do not believe that those tasks will survive. Either they will be done by someone else, and it is not clear who that will be, or they will be lost, and that is a very serious thing to happen at a time of serious economy.
In my judgment, it is not a matter of fees. There is as much risk of higher fees as there is of lower fees, and I will come back to that again in the context of what could conceivably be done by other firms. It is surprising that the number of additional firms coming
in that the Minister was able to quote is so small; it is tiny in relation to the totality of audit work that has to be done. Central appointment is opposed not only by me but by the Local Government Association, and now we have a plea for provision to be made if some local authority prefers to go through such an organisation. It is not clear to me that that could be sensibly carried out by anyone else but the Audit Commission, which has the experience.
As my noble friend Lord McKenzie has indicated, contracts are now out for pretty well every local authority. The first audits that local government will appoint will be for the period 2017-18, after the next election. These can be extended by three years, which takes us to 2020—two general elections ahead. As my noble friend has pointed out, local authorities not only have to negotiate a contract but, in many cases, will be caught by the European requirements for open contracts. At the moment only 168 of the principal bodies, 20%, have annual fees for 2013-14 above the commission’s value, which is a contract for the whole, not per annum. If you are on a five-year contract, it is five years and it adds up. The present threshold is £113,057. If there is a change, probably something like 93%, 769, will be above the threshold.
We are not proposing to transfer a simple task to local authorities. We are not going to just pick up the phone and say, “Hello, Harry, you’re an accountant: will you do our audit?”. It will be an important, time-consuming and not inexpensive task. What incentive is there for any significant number of accountancy firms to incur the costs and trouble of recruiting further auditors and training them when there will not be any work for them until 2020? It does not make any sense. There is no sense whatever in planning for something that will happen that many years ahead and when we have no idea what the economic climate may be. To extend the contracts which exist by three years is essential. I do not see the point in throwing away £130 million in that event when nothing else much will happen for all those years.
Yesterday, there was a letter in the Observer, signed by Sir Merrick Cockell, the chairman of the Local Government Association, his vice-chairmen, who include both a Lib-Dem and a Labour vice-chairman, and 146 others. It primarily was about the prospects of further cuts in local government expenditure. They say that by 2015 they will have incurred 33% cuts and can take any more only by removing particular services. To do something of this nature instead of applying the minds of the Audit Commission to seeing how this can be done in the way of cuts cost-effectively seems to me to be sheer folly.
The Commons Public Accounts Committee—I think it was last month—pointed to dozens of local authorities on the brink of financial collapse. The Bill will not help any of that and we really need to think again. This is in the context of an urgent need for local government to develop its financial management. A very different economic climate lies ahead. The position after 2015 will not mirror the second-half of the 20th century or the first two decades of this century. I sense that in this country there is a feeling that, when we are all clear of our overindebtedness, all will be well again.
I do not think it is possible for that to happen. Therefore, there has to be a major change in many areas of endeavour. That perhaps is for another debate. What should not be in dispute is that local government, as well as central government, are not alone by any means to have to be able to do more with less in the face of the serious continuing growth of inescapable demands.
Financial management will be essential, and not just the financial management of officials, who will have to convince politicians that what they are recommending should happen. We have to look beyond these things for what will last and what will serve the position. That will have to be apart from professional financial management, which should become part of the Audit Commission’s fresh mission; namely, it should ensure that this happens.
I find it difficult to understand why local authorities say that they would have fewer studies. That seems to be perfectly reasonable to suggest. They want a number—I think it is six—but I would not want to see anything like that locked into a Bill. We must not overlook what the Audit Commission has done since 1996. In its value-for-money studies it identified just over £1 billion of fraud and error. Who is going to do that? The Government have not told us who is going to do that. That is big money.
I have looked at three studies. In 2010 it found £1 billion of savings in the police services; £400 million in the buying of equipment and services—this is an important point for governments departments working together under whatever rules exist; and £200 million in the Fire Service without compromising safety. I have notes on two other studies which together could have saved more than £400 million over the course of 2008-12. If we have not got the Audit Commission, I do not know who will find these savings and act with this in the forefront of their minds. I strongly believe that the Bill clearly endangers all this. In no way will locally appointed and locally accountable auditors be able to provide it.
Local auditors will not be able to do it. They will need to have regard to common standards, local variations, triangular evidence and to identify inconsistencies. I could go on. It is nonsense to proceed and toss all this away. I am not clear what it is for. The only thing that jumps out of the Bill is that it wants to give local authorities the freedom to do what they wish. I can find nothing in the Bill which says, “We are going to have better local government and better decisions than we had before”. The greatest service this House can give, in my view, is to tell local authorities that we will add to, not subtract from, the Audit Commission’s capacity to assist in financial management.
I will leave it there. I do not see any benefits whatever for proceeding with this Bill. Clause 1 is at its heart and without it most of the Bill would fall.