My Lords, I declare my vice-presidency of the Local Government Association.
I have listened very carefully to what the noble Lord, Lord Christopher, has said and I share some of his concerns about risk. These will have to be addressed in the passage of the Bill and afterwards. However, I
am fully behind the broad approach that the Government have taken. It is the right decision to abolish the Audit Commission, and there are a number of reasons why I believe that.
I was a board member of One North East, the RDA, and a member of its audit committee for a number of years. I could never understand why my council was being audited by the Audit Commission ultimately and why the development agency, a government department, was audited by the National Audit Office. I always felt that there was scope for savings to be made in the way that audit was managed.
There is inevitably risk in any change but, if asked the question, “Do I think there is a need for two nationally based auditors auditing the public sector?”, the answer is no, you can do with one. However, there has to be a number of provisions to ensure that the independence of audit and the functions undertaken by the Audit Commission are protected as far as is needed.
When the Audit Commission was set up, I was very positive. I said at Second Reading that it did good work in financial audit and carried out good value-for-money studies. I said that it suffered from mission creep and a target-based, tick-box culture, in which it set both its own programme of work and its own fees base. I could never understand why it was that they were allowed to do this. I am therefore quite attracted by the idea of having an independent local audit committee which is actually charged with overseeing some of these matters.
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As I also said on Second Reading, I have had a concern that the Audit Commission was extremely good at identifying problems but not quite so good at explaining to local authorities what the solutions to those ought to be or what actions they should undertake to deliver solutions. I gave as an example health inequalities, but there could be others.
If the Audit Commission is abolished, how do we ensure that the independence from a public-interest point of view is maintained? I want to address the second part of my contribution on this amendment to the public interest as opposed to the interest directly of councils, of government or of anybody else. What is it that the general public would expect? The first thing is that there has to be a clear role for the National Audit Office. There will be up to six thematic reviews a year. That seems to me to be about right; if others are needed, the rules can undoubtedly be changed. It is important, in the context of local auditing, that value-for-money studies continue, and important that councils learn from each other. However, I am not sure that you need an audit commission to do that. That there should be a clear role for the National Audit Office in overseeing and underpinning the audit function across local authorities seems to me to be well set out in the Bill.
However, there is another risk, which the noble Lord, Lord Christopher, is quite right to have pointed out, and that is the risk that the Audit Commission was perceived to be an independent body which could stand apart from local authorities. That is a vital
principle that needs to be maintained. The public interest needs audit to be an independent activity, and independent in each local authority, from any kind of party-political control. I happily support the Government’s view that there should be a majority of independent members and an independent chair. I am motivated in saying that by the fact that I do not believe that any audit committee should be controlled by the majority party in a council. Single-party control is what we simply must avoid. I want to see a competitive system for the appointment of auditors. Allowing all the business to go to the big four audit companies plus one or two other slightly smaller ones seems unhelpful in terms of competition and in driving down costs in the long term. Therefore, encouraging regionally based and locally based audit companies to tender for work seems the right thing to do.
Underpinning all this—that function of independence —a local audit committee needs to be seen by the general public to be independent of the offices and the councillors of that local authority and most certainly not under party-political control. I also think that you need an audit committee that is independent enough to ensure that there is a regular change of auditor as well and that it is not something that is simply voted through. It should not be that, after five years, you simply repeat the arrangements so that the same auditor carries on with effectively the same people and the same approach that was undertaken in the previous five years. I would want to encourage increasing competition and regular change of auditors.
Overall, however, I believe that the concerns of the noble Lord, Lord Christopher, can be addressed by the National Audit Office and the localisation of the independence of the audit structure. With those two things, I believe that the objectives that have been set can be delivered.