My Lords, Schedule 1 allows the Government to bring forward a scheme or schemes transferring the Audit Commission’s property rights and liabilities. It is the Government’s intention to set out details of the arrangements to transfer management of these audit contracts and we are working with partner organisations and others on this matter.
Amendment 3 would require the transfer scheme or schemes to ensure the Audit Commission’s local government retained earnings existing immediately prior to its abolition. As the noble Lord said, Amendment 4 requires any retained earnings from health bodies to accrue to and therefore benefit the health sector.
Under the existing framework, the Audit Commission is funded through a top slice on audit fees. This is effectively the difference between income from audited bodies in the form of fees and the amount paid to firms to undertake the work. I understand this to be the source of the retained earnings to which the noble Lord refers. This has been steadily reducing since 2009-10, and we have stated in the impact assessment that was published alongside the Bill—I know the noble Lord has a copy—that such retained earnings at the point of abolition may be needed to cover transitional costs, including those associated with the continuing management of the existing audit contracts.
The effect of these amendments would be to divert the benefit of such retained earnings to the local government and health sectors and, while I am not unsympathetic with that in principle, it is probably not necessary to explicitly prescribe these arrangements within the transfer scheme. If we did so, those retained earnings would be unavailable for transitional costs, even if it were agreed by everyone that they should be used in that way.
One possible use of any surplus might be to benefit the local government and health sectors in the form of reduced fees. However, I agree that this is an issue the Government need to consider further and we will do so. If the noble Lord wishes to come back we might discuss it again at a later stage but, at the moment, I am happy to give him any further information as it arises, if it does, during the course of the Bill. I hope he will be willing to withdraw his amendments in the light of that response.