My Lords, both amendments aim to improve transparency in the new arrangements for local government. Amendment 18 is very similar to one I that I tabled in Committee, and Amendment 23, with which it is grouped, is identical to the one that I moved then. Both were resisted by the Government, and I am bringing them forward again to give Ministers the opportunity to think again about whether it is really in the best interests of the Government, let alone in the public interest, to restrict transparency in the way that continuing to resist the amendments would.
I set out the case for the amendments in Committee, so I will not repeat those arguments in detail now. However, since then, both Ministers and their officials have met me to discuss the amendments, and I should like to place on record my gratitude to them all for all the time and trouble that they took in doing that. The noble Baroness, Lady Hanham, then followed up with a letter, which, I understand, has been copied to all interested Peers, setting out in some detail the grounds of the Government’s resistance to the amendments. Again, I am very grateful to the Minister for the careful and thorough way in which she and her officials have approached these issues, and I think they are now owed the courtesy of a response to their arguments.
Their first argument is that the amendments represent an increase in transparency and would bring auditors under the Freedom of Information Act in a way that they were not under the previous regime. I regard this as an argument for the amendments, not against them.
The recent Grant Thornton report for the Care Quality Commission showed just how important transparency can be in the work of those scrutinising the delivery of public services. What the Secretary of State for Justice last week rather politely referred to as,
“a significant anomaly in the billing practices under the current contracts”,—[Official Report, Commons, 11/7/13; col. 573.]
for electronic tagging has shown how important transparency is for scrutinising the work done by private sector companies for the public sector. In the light of what has been revealed recently about such work and about what has happened in the NHS, I am baffled as to why Ministers should still be resisting increasing transparency.
However, these amendments are not only about increasing transparency, they also set out to tackle a decrease in transparency brought about by the new arrangements. The Audit Commission, which is being replaced by the provisions of the Bill, was covered by the Freedom of Information Act. My understanding is that, in addition to information that it held for its own purposes—which was of course covered by the Freedom of Information Act—some information held by auditors would also have been regarded as being held by the commission in certain circumstances; for example, when it was investigating a complaint against a specified auditor, when it was conducting a quality control of their work, or when it had required an auditor to provide information for the discharge of wider Audit Commission functions, such as making judgments on local authorities’ use of resources. In such circumstances, the information would have been deemed to have been held by the Audit Commission and so subject to the Freedom of Information Act.
These are important categories of information that cover significant areas of public interest and concern. Yet, as far as I can see, no public authority, as defined in the Freedom of Information Act, has inherited those responsibilities from the Audit Commission, so under the new regime such information will no longer be covered by the Freedom of Information Act. I think it should be. This restriction of transparency damages the public interest. These amendments seek to prevent that happening.
Next, the Government appear to believe that there are already sufficient provisions for transparency for these amendments not to be necessary. However, as I set out in Committee, the fact that local authorities themselves are covered by the Freedom of Information Act does not always provide the necessary transparency for private sector bodies carrying out public sector work. Nor does the right of electors to inspect accounts and audit documents always provide the necessary transparency, important though that right is and has been for all the years that it has existed.
The Minister will be well aware of all the information that would not be available for scrutiny by the public under this regime. Why should the citizen have to resort to the cost and trouble of going to court under the Government’s regime—as the Minister suggested in her letter—to secure rights to transparency, when such rights could be made available to them under the more accessible regime of the Freedom of Information Act?
The Government then argue that exemptions under the Freedom of Information Act, particularly regarding commercial sensitivity and audit activity, mean that little extra information would be made available under these amendments. The Minister, however, will be aware that these exemptions are subject to a public interest test. That is a relatively high hurdle to overcome, so it may mean relatively little information will become available through the means of these amendments. However, when the hurdle is overcome it means that the information that does become available is—by definition—in the public interest. I believe such information should be made available to the public. I am surprised that Ministers want to deny it to them.
Finally, we come to the nub of the Government’s arguments, which is that transparency increases cost and so increases audit fees and, ultimately, the cost to taxpayers—and that it may also restrict competition as some auditors will be deterred by the requirements of transparency from bidding for such work.
These arguments crumble as soon as they are examined in any detail. Quite apart from the fact that the Government admitted, in answering a Parliamentary Question from me on 3 July, that they have made no estimate of the cost of bringing local auditors under the Freedom of Information Act; quite apart from the fact that greater transparency can often save money by revealing fraud, corruption, incompetence and inefficiency; quite apart from the question of why anyone should want an auditor carrying out crucial scrutiny of public services who would be deterred from such work by making what they do subject to scrutiny by the public they serve; quite apart from all that, the Government's own figures suggest, as far as I have understood them, just how flimsy this argument is.
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The Government have estimated that the cost of the external audit service 2017-18 would be £74.05 million. That is a meaty income stream for auditors. In my experience, it would take a quite a lot to deter accountants from such an income stream, especially as the costs of complying with a freedom of information regime would be relatively small. The Government, for example, estimate that the total compliance costs for local bodies will be £4.43 million. The cost of freedom of information compliance will be considerably less than that, especially since, as the Minister has pointed out, auditors will have to set up some form of statutory and regulatory compliance regime anyway. In addition, there will a relatively small number of firms doing this work and they will be able to amortise the central costs of compliance over a relatively large number of contracts. In these circumstances, I would guess that the costs of Freedom of Information compliance will be significantly south of £1 million, but if Ministers have a better guess I would be very happy to accept it.
Subject to that, it therefore looks as if the compliance costs will be significantly less than 1% of the revenue available. Are Ministers seriously suggesting that large accountancy firms, operating with the margins that they do, would regard such costs as precluding them from taking on such lucrative and recurring public sector work? If they are, I simply disagree with them.
In conclusion, all these arguments were available to Ministers when they published their consultation document for this Bill. If they did not know the arguments then, they should have done. Also, when they published that document, Ministers stated in paragraph 4.55:
“We propose that auditors should also be brought within the remit of the Freedom of Information Act to the extent that they are carrying out their functions as public office holders”.
What could have changed the Government’s minds about that when all the evidence that has emerged about the merits of transparency in the mean time should have confirmed to them the merits of their original position?
I am afraid I am unpersuaded by the Government’s arguments against these amendments in the light of all the arguments for greater transparency; the democratic argument that taxpayers should have the right to know about the work they pay for and that citizens should have the right to know about the work carried out on their behalf; and the argument that, on the grounds of good government, transparency is a weapon against corruption, fraud, incompetence and inefficiency. We have seen how important that can be from the revelations made by Secretary of State for Justice last week about the work carried out by G4S and Serco for the Ministry of Justice.
The scandals of the past few weeks are regrettably unlikely to be the last such abuses in the public sector and in its relationship with the private sector. These are things that I hope Ministers will consider. In future, taxpayers and voters will wonder why, when Ministers had the opportunity to improve the transparency of these relationships they refused to do so. Therefore,
I urge Ministers to reconsider their position and get on the side of transparency. I fear they will come to regret it if they do not.