My Lords, in moving the amendment, I will speak to the other amendments in this group as well. As noble Lords will doubtless recognise, Amendment 1 is a paving amendment and the substance is in Amendments 6 and 9. Amendment 9 is consequential on Amendment 6.
The proposition is straightforward, and we had understood there was consensus. Notwithstanding this, we have not seen a government amendment to give it effect. The amendments provide a route to securing a central procurement of auditors in the future. As we discussed on the first day in Committee, by the time the key provisions of this Bill come into force, it is expected that all the audit contracts with principal
local bodies will be undertaken by private sector firms, under arrangements entered into with the Audit Commission. This will comprise some 800 principal authorities, including local authorities, NHS and police bodies, and so on.
The contracts—I think that there are 10 of them—run to March 2017, but can be extended for three years. When these contracts have run their course, the authorities will make their separate appointments, although there is flexibility for authorities to jointly procure, together with other bodies. It is generally accepted that the central procurement exercise undertaken by the Audit Commission has generated substantial savings for local bodies—some 40% reduction in fees—and had some, albeit limited, impact on broadening the diversification of provision in the audit market.
The Government’s own impact assessment has recognised that individual audit procurement is unlikely to match central procurement in generating reduced fee levels. Research shows that market concentration in audit services leads to higher audit fees, and while there is a credible argument that individual procurement will act against market concentration, major providers in the market are large, economically powerful entities with resources to invest in tackling the new opportunities.
One risk is that the larger authorities will fare well in this, because they will be more attractive clients to the big firms. In practice, smaller authorities will end up with less choice, being the junior partners in joint appointments and perhaps missing out on the services of the larger firms or being unable to afford them. The Government will doubtless remind us that authorities can group together. They can, but there is no clear framework to support this. Indeed, there is no explanation, for example, of what happens if there is joint provision when a conflict develops between one of the authorities and the firm involved.
The amendments, particularly Amendment 9, which is at the core of it, adopts the approach already included in the Bill for potential central procurement for smaller authorities. It enables regulations to specify a person to appoint auditors with relevant powers relating to fees, et cetera. It especially encompasses the prospect of authorities being able to opt either in or out of the arrangements, which we know is a key requirement of the Minister. The Minister has expressed an appetite for facilitating ongoing central procurement, provided that it is not mandatory, and a hope to be able to return on Report with some ideas. Perhaps we can now hear what they are. We know that the Minister and officials have been having discussions with the LGA, but we do not necessarily think that arrangements run by it are the only, or, indeed, the best approach. If we are to preserve central procurement, we need the legislative basis to do that. That is what the amendments provide. I beg to move.