Local Audit and Accountability Bill [HL] Debate
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Baroness Hanham
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Local Audit and Accountability Bill [HL]
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Lord Palmer of Childs Hill
My Lords, in Committee, my noble friend said that the Government would commit to amend the legislation to create a framework to support a voluntary national procurement exercise. When she replies, I would appreciate it if she could put some meat on that earlier commitment.
Dealing with the point made by the noble Lord, Lord McKenzie, if one was always looking in terms of cost savings, which seemed to be the main thrust of his speech, we would have almost the demise of all local authorities. It would be a case of, “Let us have it all done nationally and then we would save some money”. We as a Government are committed to localisation. The idea that local authorities should be to a degree able to choose their auditor is part of that localisation. There was a feeling of despair in the noble Lord’s comment about how local authorities would be less hard negotiators than the Audit Commission. I doubt whether that will be the case. Many local authorities would be very hard negotiators on their own behalf in fixing the audit fees, the level of audit taking place and how it will dovetail with the internal audit systems of the local authority. A local authority that has a good local internal audit system can probably negotiate much harder with the external auditors, because of its knowledge of its internal audit system, than the Audit Commission has in the past.
I believe that the amendments are unnecessary, and I would welcome and wait for my noble friend’s comments on how the Government will keep the commitment that she made at an earlier stage of the Bill.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, I thank the noble Lord, Lord McKenzie, for introducing the amendments so succinctly and clearly and my noble friend Lord Palmer for reminding me—although I am not sure that I made a total commitment—that I said that we would return to the matter.
Both noble Lords have laid out the situation very clearly. The proposal in the Bill is that local authorities should be able to purchase or contract for their own auditor. They can do that individually, in conjunction with another authority or in a group. That is about as wide as the Bill takes it. The noble Lord and the Local Government Association have made strong recommendations that we should consider further the current situation, which is that the Audit Commission has purchased the contract for all local authorities. We have made it clear that there must be optional arrangements about this. Local authorities must be able to get their local auditors in the way that they wish. However we accept—and did accept—that there was potential for wider procurement, with a procurement body such as the Audit Commission, which did not require local authorities to purchase from it, but could be used by local authorities if they wished. So we accept that there is potential for such arrangements.
I have asked departmental officials to work with the Local Government Association to clarify what arrangements it envisages might need to be made and to get the detail right for any amendments that we would propose elsewhere. The Government intend to make an amendment to the Bill in the Commons, which will allow arrangements for optional centralised procurement to be made in regulations. I am happy to keep noble Lords who are interested in this informed.
Lord McKenzie of Luton
My Lords, I thank the Minister for her reply and the noble Lord, Lord Palmer, for his contribution to this short debate. I say to the noble Lord that I do not advance the proposition that all local authorities will not be hard negotiators. My point was that there could be a differentiation between the smaller authorities and the larger authorities. I am sure that the larger authorities will be well capable of looking after themselves—they prove that on a daily basis.
Localism and audit appointments within a regulatory framework are more complex issues than localism generally in the context of provision of services. Cost savings is one feature, but it seems to me, particularly in the current climate, that it is a very important feature of what we should be helping local authorities to achieve.
The Minister has in a sense reiterated what she said before. I do not honestly believe that that takes us any further forward. We have accepted that there should be a permissive, not a mandatory, regime. If that is where the Government are, I am not sure what is in this that cannot be accepted because it provides a route to set up exactly that sort of regime.
The Minister said that there was an intention to bring forward an amendment in the Commons. With respect, however, in the next breath—as I understood it—she said that that was not certain. I do not know whether the noble Baroness might be able to clarify that point for me before I conclude—it is fairly critical.
Baroness Hanham
My Lords, I want to make it clear that it is the Government’s intention to see that the proposed arrangement is fulfilled, so that there might be wider procurement than there is at present. In order to do that, I am unable to say today that it will follow exactly these provisions because discussions need to take place. The Local Government Association in its briefing, as I am sure the noble Lord will have seen, is happy that that should be the situation. It is content to have those discussions and to see that an appropriate amendment is put forward in the Commons.
As a politician, one should never hedge. What I am told is that there will be an amendment. I should never have put any doubt in the noble Lord’s mind about that. I hope that will help to clarify the situation and prevent the noble Lord feeling that he has to press this amendment, when I suggest that it is completely unnecessary.
Lord McKenzie of Luton
My Lords, again, I thank the Minister for that. Indeed, I was tempted to press this amendment but I take her assurance that an amendment will be brought forward in the Commons that will enable central procurement, but not on a mandatory basis. If that is the proposition we can take from this discussion, that is as far as I can take this amendment today and accordingly I beg leave to withdraw.
Lord Palmer of Childs Hill
My Lords, the purpose of Amendments 2 and 6 is clearly to try to improve the transitional arrangements. It seems to be felt that we need a certain overprotection for transitional arrangements, but when private corporate bodies change their auditors and way of management, some transitional arrangement always has to take place. It works in a natural way, without the Secretary of State being involved in every item.
Amendment 2 inserts three paragraphs. The first deals with,
“the management of existing audit contracts entered into with the Audit Commission”.
One of the main purposes of the Bill is to make the audits of the various local authorities much more the responsibility of the local authority. Its appointment of the auditor and dealings with the auditor, and the auditor’s dealings with the authority, will become a more localised matter. However, because there are a limited number of audit firms, there will be a consistency in the types of audit operated.
The main point that the noble Lord spoke about was,
“the maintenance and updating of Value for Money profiles”.
Value for money in the external audits of local authorities has been a very important and costly factor in terms of the time that the Audit Commission and private firms of auditors have spent on those activities and how much they have charged for them. Two or three years ago, the value-for-money audits carried out by external auditors were more limited. There was no large-scale review of the use of reserves, assets and finance. Under the current arrangements, external auditors do not have to carry out a prescribed list of value-for-money exercises.
Currently, before the Bill, that situation is very much localised. There is a virtue in that localisation. Different firms of auditors will possibly take a different view on what is needed within that particular local authority, and that view will have an effect on the fees charged to that authority and on how much work needs to be done. As the years progress, it will be interesting to see how different local authorities have their value-for-money details published. We hope that all local authorities will publish these, and there may need to be some national gathering of that information for comparison purposes. However, that does not necessarily need to be in the Bill. Although I understand where the noble Lord is coming from on this, I think that it amounts to a little too much control which is not needed.
Baroness Hanham
My Lords, I thank my noble friend Lord Palmer for bringing some rationality into this particular aspect. I support him very much in reminding the House that this is an intention to bring to a local level the management of an extremely important part of local government’s responsibilities, which is to have proper audited accounts, but to do it in a slightly different way from what has been done in the past, without the overall management of the Audit Commission but having to take into account the fact that these have to be properly done, whether they are done on the optional basis that we are talking about—having the wider procurement—or because they have taken account of having these on their own requirements.
Lord Christopher
My Lords, before the noble Baroness sits down, will she kindly explain a point on which I am very unclear? Some time before 2017, someone will have to decide whether the existing contracts are to be extended or not. My view is that they should be extended because they are cost-effective. Who will handle that, and who will deal with the situation that would arise if perhaps a small number of local authorities covered by a particular contract do not wish to renew while the remainder do?
Baroness Hanham
My Lords, the current contracts are due to last until 2017, and there will then be an interim arrangement between 2015 and 2017, as I have described. After 2017, unless for some reason it is decided universally to extend the contracts again en bloc—which is completely outside what we are talking about today, and it is probably unlikely—it is for the local authorities to make their own decisions about the contracts: where they want them to be, and with whom. Following 2017, within that interim period between 2015 and 2017, local authorities will have to decide what they will do and how to manage it.
Lord McKenzie of Luton
Again, I am grateful to the Minister for her response and to the noble Lord, Lord Palmer, for his challenges. I will start with the noble Lord. I sought to focus on the contracts that are in existence, not the subsequent regime, in which local authorities may or may not appoint their own auditors. However, there is a bundle of contracts, to which my noble friend Lord Christopher referred, which are ongoing at the moment but which will need management. That management is more than just a passive affair, so it needs to be put in place.
I thought that the arrangement about extension was that it would ultimately be a decision for the DCLG about its 10 bundles of different contracts—you do not necessarily have to make the same decision in respect of each of them. I say to the noble Lord, Lord Palmer, that I did not say that there should be some standardised approach to value-for-money issues. I sought to ensure that there was security of the value-for-money profiles that the Audit Commission currently produces—data that are available to all authorities and others as well—so that authorities are able to make their own judgments and undertake their own exercises, whatever they may be. After the Minister’s response, this is the area I feel less confident about. We do not know from the reply whether they will be maintained, even broadly, in their current form, or whether they will be available as a valuable tool for local authorities and health bodies in the future.
It was not my intent to get the Secretary of State involved in all things. The purpose of the amendment is to require the Secretary of State to be assured that these matters are in place—not that the Secretary of State is operating them—by the time the Audit Commission closes. Once the Audit Commission goes, that will be a very clear break with the current situation. So far as the role of the FRC and supervisory bodies is concerned, I understand their role in that, but the key issue is on how transparent the result of their work will be. We do not yet have clarity on what will be the consequences of their auditing of audit work and what will happen to that. That was part of what I was inquiring about.
Perhaps the noble Baroness can first deal with that point about transparency of the FRC’s supervisory activities or the supervisory bodies: what is likely to be in the public domain as a consequence of their work? It would be helpful if we could have an answer on that. I should also like some clarity on the value-for-money profiles. Is it intended that the data will still be collected, maintained and available to relevant bodies—whether in precisely the same form as now, or not? Is it intended that these profiles be available in the future, once the Audit Commission has closed? This is an important issue, so could the Minister give some further clarity on it?
Baroness Hanham
My Lords, I may need to write to the noble Lord on the detail of this. However, our understanding is that clarity and transparency will remain as they are at present, so that the Financial Reporting Council will have much the same monitoring role. Anything that it does in relation to councils and local audit will have to be as transparent as is necessary. I would prefer to write to the noble Lord, particularly on this issue, and to make sure that the information is put into the Library of the House.
Lord McKenzie of Luton
I am grateful to the Minister for that but perhaps it is time we stretched our legs. I beg leave to test the opinion of the House.
Lord Palmer of Childs Hill
My Lords, from these Benches we also look forward to the Minister giving that information. Although there is worth in the amendment, I wonder whether it needs to be in the Bill rather than being done by regulation at some stage in the future.
Baroness Hanham
My Lords, as the noble Lord said, I was sympathetic about his amendment in Committee. It would ensure that if the Government were to bring forward what might amount to a hybrid instrument under the powers in Clause 2, the bodies affected would be consulted before regulations were laid. This, indeed, would need to be through regulations. We do not expect that the need to bring forward regulations would be anything less than rare.
As I said in Committee, we recognise that in these cases there would be especially compelling reasons for the Government to consult. In our previous discussion I referred the noble Lord to our forthcoming response to the DPRRC’s report. We have accepted the committee’s point and informed it that we would announce our commitment, which I am doing, and consult affected bodies at Report. We confirmed that this will not entail the need for any amendment to the Bill. I am happy to give that commitment today, and to consult relevant persons on a draft of any statutory instrument containing regulations or an order falling under Clause 40(7) of the Bill. Any such regulation would be subject to the affirmative process, so Parliament would have the opportunity to scrutinise it. In the light of that commitment, I hope that the noble Lord will feel that we have satisfied his requirements.
Lord McKenzie of Luton
I am grateful to the Minister for that commitment which is very clear. I would still prefer to see it in the Bill, but I will not press that point. The answer is clear and I beg leave to withdraw the amendment.
Lord Palmer of Childs Hill
My Lords, I would also welcome the Minister clarifying some issues, particularly if there is, indeed, a problem of a practical nature. At present, most local authorities are audited by a professional firm. A fairly small proportion is audited by the commission. Those audited by professional firms will be audited under the continuing contracts until 2017. The local authority will then have the ability to appoint a new auditor. This is what happens in the commercial world. One has an auditor, the auditor audits for a period—generally for the year, in this case for slightly longer—and then there is a new appointment. This is quite the natural way of things. I am not sure—and I hope that the Minister and the noble Lord, Lord McKenzie, will clarify this—why we need to have this because, in a practical sense of the word, auditors are there for a period, they finish their term of office and then they, or another auditor, are appointed. That is the natural way of things whatever we decide or do not decide in your Lordships’ House.
Baroness Hanham
My Lords, first, I confirm that it is possible to introduce different parts of the Bill at different stages, and the order in the Bill can be switched around. I think the noble Lord asked whether Clause 4(2) could be introduced before Clause 4(1) and the answer is that it could—it is a case of whatever is convenient. The Bill introduces powers to commence different parts of the Bill at different times and to make savings on provisions relating to the Audit Commission Act 1998. Therefore, we would expect to commence this reference in line with the introduction of the local appointment, which I think we were discussing when the noble Lord, Lord Christopher, was here.
If the noble Lord wants to know our wider intention of how to manage the overall transition to the new audit framework, it may be helpful if I say a bit more about that. Our intent remains, as I said, to close the commission in spring 2015. The existing audit contracts will continue to run until 2017, but management of those will transfer to an interim body. We have discussed these over the three previous amendments. As the contracts will run until 2017, authorities will not need to make their own appointments until that stage, but they will have to have made those appointments so that there is a smooth transition between the contracts currently managed by the Audit Commission and whoever manages them subsequently, into the local authority’s own regime. We therefore expect that much of Part 3 of the Bill, which deals with local appointment, will not be commenced until closer to 2016, which then gives them a year to do that. It will be 2016 when procurement of auditors for 2017 is likely to begin.
The current intention is that the new eligibility and regulatory framework and provisions on the conduct of audit will come into effect immediately following the closure of the commission in 2015. It is our intention to make arrangements to enable us to do this under the powers in the Bill, subject to analysis of the transitional arrangements—again as we have discussed, there have to be transitional arrangements—that may arise.
Lord McKenzie of Luton
I missed the Minister’s first point. Would she mind repeating the beginning of that sentence?
Baroness Hanham
It is our intention to make arrangements to enable us to do this under the powers in the Bill. Our current intention is that the new eligibility and regulatory framework and provisions on the conduct of audit will come into effect immediately following the closure of the commission in 2015. The provisions will then relate to whatever interim arrangements for the body are in place. I hope that that is sufficient clarification for the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
I thank the Minister for her reply and the noble Lord, Lord Palmer, for his contribution. I say to the noble Lord, Lord Palmer, that my point was not about auditors and succession of auditors but on quite a narrow drafting point. One of the requirements in Clause 4 is that the audit must be undertaken,
“in accordance with this Act … by an auditor appointed by that authority”.
Obviously, until 2017, the auditors will have been appointed by the Audit Commission, and the question is how the system works under those circumstances. I accept the broad point that matters can be introduced at different stages but I am still a little mystified as to how the new framework is to operate from 2015, so long as Clause 4(1)(b) is there—unless that is simply excluded from what is introduced in 2015. Perhaps I should read the record and we might have a further discussion on this in due course if necessary.
Baroness Hanham
Baroness Hanham
My Lords, in moving Amendment 7, I will also speak to Amendment 8, which between them make small changes to Clause 7. These amendments enable two or more auditors to be appointed to exercise jointly one or more functions and enable a different auditor to be appointed to act separately to undertake one or more functions. The noble Lord, Lord McKenzie, first raised this issue by tabling two amendments in Grand Committee, which would have enabled auditors appointed jointly to issue advisory notices or to seek judicial review either individually or jointly.
I said that we would consider the drafting of Clause 7 to check that it provides the desired level of flexibility for auditors to work jointly and individually. The two amendments that we are bringing forward are a result of those deliberations and give relevant authorities greater flexibility in the way in which they can appoint more than one auditor. Authorities will of course be able to appoint just one auditor. Alternatively, they will be able to appoint more than one: jointly, to exercise one or more functions; separately, to undertake different functions or different parts of the accounts; or some combination of those. We consider that it will very rarely be the case that authorities wish to appoint more than one auditor to act jointly throughout the whole audit. However, where they choose to do so, the auditors must act jointly. The clause already enabled auditors appointed separately to undertake some functions jointly if those functions overlapped, but it did not allow auditors to be appointed with the purpose of undertaking some functions jointly and others separately. I am grateful to the noble Lord for raising this matter. I hope that the amendment will enable a more flexible approach, and I beg to move.
Baroness Hanham
Baroness Hanham
My Lords, my noble friend and the noble Lord, Lord McKenzie, raised several issues, seeking clarification about the auditor panel. I start by reminding noble Lords how the auditor panels will operate, and how we are moving to keep arrangements streamlined and flexible in terms of whom the auditor panel is made up of. First, I want to confirm what I said in Committee, that we do not expect these auditor panels to be large. We expect them to be quite small, probably three or five people at the most. This does not exclude members of the audit committee being members of the panel, as long as they are independent members. If the audit committee has an independent member, that member can be a member of the audit panel. I do not think that there would be anything to exclude them being chair of the panel, if that is required. It would not actually preclude a member of the opposition being chair of that panel. We can see that that is how they will be made up.
Other than that, they can appoint a completely separate auditor panel outside the audit committee regime. There again, they will have to make sure that the members of that panel are majority-independent. Again, that would not preclude any member of the local authority being part of it, even though they might be considered to have some relationship with what is going on because, by definition, they were a member of the council. None the less, we think that there might be some virtue in having a councillor or councillors on the auditor panel to help with the selection.
Amendment 10 goes back to our discussions on wider issues; that is, the assessment of the independence of auditor panel members beyond direct personal links to the audited authority. I hope that I have explained that we need them to be really independent. Some concern was expressed last time, a concern which I do not think the noble Lord raised this time, about significant business relationships. By any definition, a significant relationship with a local authority, particularly on a contractual basis, would preclude somebody being a member of the panel.
We do not want to make much more regulation, but I think that we need to look at giving some guidance about who can and cannot be on an auditor panel. We will do this as the regulations are considered later in the year.
Baroness Eaton
Can the Minister give a bit more information about the process of selection for independence? That would deal with the point made by the noble Lord, Lord Palmer, about political affiliations sometimes not being absolutely clear. Is there likely to be a clearly defined process for how local authorities select independence? Rather than their just saying, “That is an independent person; we’ll have them”, is there going to be due process?
Baroness Hanham
My Lords, local authorities have due process already, as the noble Baroness knows, on how to appoint people, panels, independent committees and standards boards where independent members are required. I would not want to tie this down too firmly, other than to say that they must be pretty clear that nobody on the panel has a connection with any firm that may be applying to do the audit. If they have a political affiliation that should be declared so that, before the auditor panel is set up, it is known if they have a particular affiliation. Apart from, as I have suggested, there perhaps being one councillor on the panel, it is pretty clear that people should have some experience of audit so that they know what an audit looks like and what they might be expected to do.
We do not rule out independent members possibly being a member of a political party but it is essential that that is known so that there is transparency about it. We would hope that not more than one person, who would probably be the person off the council, would be that member.
It will be essential for members of auditor panels to declare any wider interests, commercial as well as political, and any other interests that they might feel had any relevance. Those would need to be taken into account in an appointments process that the committee undertook. If members of the audit committee were making the appointment they would have to make a balanced judgment on the balance of the panel, aligned with what I have already said. If it is an external appointment it will have to go through an external appointments process.
I think that it is clear that there should be, and be seen to be, independence in the auditor panel. I think that it is clear that local authorities have experience of dealing with external appointments. Although I understand the concern that the panels could be “stuffed” with political appointees, I think that there has to be transparency as to who is appointed. If it were found that it was just a political panel, it might be very open to question.
Lord McKenzie of Luton
I thank the Minister for her reply. The noble Lord, Lord Palmer, criticised the drafting of the amendment. I should explain that its purpose was simply to put down a mechanism which could be used to address wider issues of independence. We had in mind, specifically, significant business relationships. The Bill defines independence in terms of personal relationships; it should cover as well, for example, significant business relationships, which was the purpose of the amendment.
I was comforted by the briefing note that was produced following the meeting. It states:
“Through this combination of regulations and statutory guidance the Government intends to address other important aspects of independence for an auditor panel. We intend to work with interested parties and the sector to develop the detail of these, but as an example they might cover … the necessary skills and experience of panel members … specifying that certain persons are not independent where they have … significant commercial relationships with the authority or audit firm … the process through which independent members should be appointed … considerations around political balance, where the panel includes elected members … the conduct of members and, for example, how declarations of interest are managed on an ongoing basis”.
Each of those points, or at least some of them, were touched on by us in Committee. I took comfort from that. In a sense, that was the issue or the focus that my—clearly inappropriately drafted—amendment was seeking to address.
I reiterate where we are on the issue of audit committees or auditor panels. I think that, because there is in some instances a potential conflict between wanting to fulfil the independence requirements and the broader role of the audit committee, the best solution where they cannot be aligned is the sub-committee approach. I am not quite sure who at the meeting raised that, but the briefing note again confirms that the auditor panel could simply be a sub-committee of the audit committee. As long as that auditor panel fulfils the independence requirement, honour and justice are satisfied. That seems to us to be a helpful way forward which still encourages local authorities all to have audit committees and to move to greater independence relating thereto.
Baroness Hanham
Although I do not think that I mentioned sub-committees, I think that I made it clear that where there are audit committees, the membership could be drawn from the independent members of that committee, with possibly a local councillor. The implication is that audit committees are meant to be there and could form the basis of the auditor panel.
Lord McKenzie of Luton
My Lords, I am grateful for that and beg leave to withdraw the amendment.
Baroness Hanham
“( ) omit “, 23A(1)”, and”
Baroness Hanham
My Lords, Amendment 11 is necessary following a recent amendment to the Companies Act 2006 made by regulations. As I am sure noble Lords are instantly aware, paragraph 21 of Schedule 5 to the Bill modifies Section 1253(5) of the Companies Act 2006. That section specifies the conditions for delegating functions, such as the function of recognising supervisory bodies, to an existing body and refers to Schedule 10 to the Companies Act 2006, which is also applied by Schedule 5 to the Bill. On 8 July 2013, the Statutory Auditors and Third Country Auditors Regulations 2013 were laid. One effect of these regulations is to insert a reference to paragraph 23A(1) of Schedule 10 in Section 1253(5) of the 2006 Act. Paragraph 23A of Schedule 10 to the Companies Act is expressly omitted by paragraph 27(2)(f) of Schedule 5 to the Bill. This is because paragraph 23A of Schedule 10 concerns arrangements for independent monitoring of third country audits, which are outside the scope of this Bill.
Therefore, for consistency with the other modifications to Section 1253 in paragraph 21 of Schedule 5 to the Bill, we are providing for the omission of the new cost reference that the Third Country Auditors Regulations 2013 will contain. This is a minor, extremely clear and easily understood technical amendment that responds to an amendment to the Companies Act 2006 and I beg to move.
Baroness Hanham
Baroness Hanham
My Lords, in June, the Delegated Powers and Regulatory Reform Committee published its report on the Local Audit and Accountability Bill. The report made a recommendation regarding the provisions in the Bill to prevent local authority newsletters unfairly competing with local newspapers. We have considered the recommendations in this very useful report carefully, and this group of amendments is the result of those considerations.
The committee said that in certain circumstances it is inappropriate for powers to make the code mandatory to be exercisable by directions rather than by statutory instrument, and subject to no parliamentary procedure. The committee recommended that, where the Secretary of State wishes to exercise his power to issue a direction to all local authorities in England or to a specified description of authorities, the affirmative resolution procedure should apply. While recognising that there can be circumstances where it is appropriate for the Secretary of State to be able to give directions to a class of, or to all, local authorities, we accept the committee’s recommendation that the exercise of this power in relation to classes of, or to all, local authorities, should be by affirmative statutory instrument.
We also agree with the committee’s implicit view that, where the power is exercised in relation to a single authority that the Secretary of State believes is not complying with the code, it would be appropriate for this to be by way of direction. However, we do not agree with or accept the committee’s recommendation that, where the power is exercised in relation to a single authority otherwise than where the Secretary of State believes the authority is not complying with the code, this should be by negative statutory instrument.
Our aim is simple: to be able to take effective action against those authorities that are giving rise to concern about their publicity, particularly relating to the publication of newspapers. Above all, in the case of such authorities, quick and effective action needs to be taken. These amendments ensure that the Secretary of State can continue to take that quick action against individual authorities. In cases where groups of authorities or all local authorities in England are being required to comply with some or all of the publicity code, we agree that this should be by order, subject to the approval of both Houses of Parliament. I beg to move.
Lord Beecham
My Lords, we are now coming to that part of the Bill that reflects several of the obsessions of the Secretary of State, not necessarily of the Minister. It is interesting that the draft Bill committee had, of course, no opportunity to consider these matters because they were not part of the original Bill; they were tacked on to the Bill at a later stage. I suppose we should be grateful that at least the Delegated Powers Committee has had an opportunity to comment on it. In fairness, I am grateful to the Minister and to the Government for accepting at least part of its recommendations, the part that referred to directions given to all local authorities. However, I find it difficult to follow the reasoning for the rejection of the second recommendation about directions to an individual authority.
The committee indicated that a power does not merely afford a specific and targeted enforcement mechanism but could—and would, if the relevant subsection is relied on—have the character of a legislative power. It took the view that it is inappropriate for powers of this kind, to make the code mandatory, to be exercisable by directions rather than by statutory instrument. Hence the two recommendations it made; in fairness, the Government have accepted one of them, although they did not accept the other. That decision was communicated to the committee and is reported in its sixth report, which was printed as recently as 11 July. In fairness, the report was written in June, but it does not indicate exactly when. However, it was considered by the committee only a matter of a few days ago—or at least, its report was published only a few days ago.
Baroness Hanham
My Lords, as the noble Lord knows, on the code of conduct, as regards publicity, and in general, it would be fair to say that the code is probably reasonably well observed among the majority of authorities. There could be occasions—I say “could be” because that is how we need to put it—in which a number of authorities breach all or part of that code, in which case it would be essential that the Secretary of State was able to take action. If it is a large number, there would, presumably, by definition be some really serious element that had come about so that the Secretary of State needed to be aware of it. However, this could do with a further look at in Parliament, and further consultation. We fully accept that that would need parliamentary time.
We already know of local authorities that are breaching the code in terms of a number of publications—what is in the publication and what relates to them at the moment. Since we now know about these it would not be sensible to have to wait and waste a lot of time in delaying taking the direction to stop them, getting them to comply, getting that matter dealt with and moving on.
We have responded in as straightforward a way as we can to the DPPRC’s recommendation, except for on this one area. Indeed, it may be that these individual directions to these individual authorities and would be the most that would be applied. I do not expect there to be many; as always, with these things, there are those who breach and cause trouble for the rest. However, there is no doubt that we would expect or hope to continue with the provisions in the Bill as have been outlined and, for the reasons that I have said, that it makes sense to get individual local authorities to stop what they are doing as quickly as possible. They are probably just breaching individual aspects of the code.
Baroness Hanham
My Lords, I am probably in danger of saying the same thing three times as there is no doubt that these amendments stray into each other. We have heard some pretty wide comments on the code as it stands, which probably go slightly wider than the intention behind the noble Lord’s amendments. None the less, we should be very clear that we are talking about the publicity code. I think that guidance is given to local authorities on seven aspects of the publicity code, their behaviour in relation to it and what it involves. It is a statutory code but compliance is voluntary at the moment. If the Secretary of State had to intervene, it would become mandatory only as regards the aspects on which he gave directions, if that was done across the board. If the Secretary of State gave an individual direction, that would be mandatory only for the relevant local authority. This is not a case of putting the whole code on a mandatory basis but of directing local authorities where they are seriously breaching the current code. We are interested only in those local authorities—and there are some—which are giving rise to concern about their publicity because they are producing far too many weekly or fortnightly publications—the terms of the code are three monthly—or are going beyond the reaches of propaganda or stepping outside what they should be doing and producing publicity which is too political. Those are the areas we are dealing with. As I have said several times, I totally accept that the majority of local authorities comply with the code without thinking about it. It is part of their lives, as it were, and they do not set out to breach it. However, some do and this Bill gives us an opportunity to make sure that they are put under some constraint.
Amendment 25 would require the Secretary of State to be satisfied that a local authority had failed to comply with the code under Section 4. The amendment is not necessary and inappropriate. It would needlessly complicate and risk delaying the exercise of the power of direction, which, as I have explained, needs to be quick. Having the making of a direction formally conditional on this simply opens the door to even more debate, argument and delay. That is not compatible with our aim of rapid, targeted action.
Amendment 28 would remove the power for the Secretary of State to give a direction to an authority whether or not he thinks that authority is complying with the code to which it relates. This would remove the Secretary of State’s power to issue a direction where there was doubt over compliance with the code in the future. It is right, when legislating for a new provision, to ensure that as far as possible the provisions cater for different eventualities so that you do not have to keep coming back to the various aspects but cover them so that they do not need to be followed up.
Amendment 30 would lengthen the period a local authority might continue not to comply with the publicity code. The noble Earl, Lord Lytton, agreed with my noble friend Lord Tope that the 14-day period was too short. Local authorities will know perfectly well when they are breaching the publicity code, so a two-week notice period is perfectly reasonable under those circumstances. The notice must be given in writing. A text message or an e-mail will not do. A formal notification must be given, marking the start of the 14 days’ notice. I am sure that the local authority concerned would have plenty of time to raise its concerns.
I return to the important point made by the noble Lord, Lord Beecham, on the form of the code. The Secretary of State cannot just change the code any old how. Any changes to the code would have to be approved by both Houses of Parliament, and any revision to it can be made only through the negative resolution procedure, so it would have to come before this House. The noble Lord shakes his head but a negative resolution can be turned into a proper debate in this House, as he knows as well as I do. The revision must be laid in draft before each House of Parliament and cannot be laid until after 40 days. This is the norm. If you laid the changes before 40 days, the noble Lord, Lord Beecham, who keeps an eye on these things, would leap on it after day three. If either House votes against the proposed change, it cannot go ahead. I think that is more or less the situation with any such proposal.
Amendment 35 is similar to the amendment on the notification. I think it is intended to require the Secretary of State to write to individual local authorities—I have already indicated that he will—modifying or withdrawing a direction. Any notification between the Secretary of State and a local authority would have to be in writing.
Our amendment, which makes provision that the exercise of the power by the Secretary of State to ensure compliance with the code in relation to all local authorities in England of a specified description, or to all local authorities in England, should be made by an affirmative statutory instrument, removes the need for these amendments. It would be highly unusual for an order-making power to be subject to a requirement for the Secretary of State to bring it to the attention of relevant authorities. To make special provision for the publicity code in this instance would bring confusion to other order-making powers, and is unnecessary.
Amendment 36 would build on Amendment 30 which, as I have said, would lengthen the period a local authority might continue not to comply with the publicity code. For the reasons I have set out and because we wish to move swiftly where there is an abuse of taxpayers’ money, I see no reason to extend the 14-day period.
Finally, Amendment 37 would require that a direction must take into account whether the authority has demonstrated to the external auditor that acting outside the code is in the financial interests of the authority to whom a possible direction may apply. This amendment would, I am afraid, once again delay the process. Local authorities know when they are spending too much money. In some circumstances, local authorities can act outside the code and issue notices, leaflets and newsletters as long as they are straightforward. I think that we will discuss that later.
This is also unnecessary. The provisions already allow local authorities to make representations before a direction is made requiring them to comply with the code. The 14 days does give them an opportunity to comply. Those representations could include a view from the auditor if the local authority wants it, but we would not require it. Taken as a whole, we do not consider the amendments necessary. I do not suppose that the noble Lord will be entirely reassured by what I have said but we have other amendments and we will no doubt consider them even further. I hope that from what I have said so far, the noble Lord will be happy to withdraw his amendment.
Lord Tope
My Lords, I am grateful to the noble Earl, Lord Lytton, for clearly supporting my amendments and putting his name to them. I am not entirely clear whether the noble Lord, Lord Beecham, was supporting them, grudgingly or not, but I am grateful to him for at least recognising my high wire act. I shall endeavour to remain on the wire. I am grateful to the Minister for at least a detailed reply on the amendments. To say that I am disappointed would imply that I had higher expectations in the first place. I am sad to say that I probably did not.
I was surprised at the Minister’s dismissal of the issue of the 14 days to 28 days notice, as 28 days is normal, good practice. It is hard to understand what is to be of such urgency that it can be dealt with under the 14-day notice but is so urgent that it cannot be dealt with in 28 days. I am surprised more than disappointed. The Minister will know that these provisions are causing widespread alarm, much of which I believe to be understandable but misplaced. I hope that in her further replies, which she herself said she will have to make, she will give greater reassurance on a number of the examples that I gave in moving the amendment—whether they are of the more standard publicity-type notices that local authorities issue, such as bank holiday recycling arrangements or notices about public health, or the rather more difficult ones concerning the third runway or HS2. I hope that we can get some reassurance on that.
A great majority of authorities cope within the voluntary code but we know that most local authorities are risk averse. They need to be and should be risk averse. They are advised by lawyers who are by nature risk averse. I fear that the consequences of what we are doing here will be far greater than even the Secretary of State intends. We will continue with this issue. I am quite certain that it will continue throughout the passage of the Bill. I hope that the Government will be willing not to dig in their heels but to look at how they can better and more specifically achieve their objectives than is currently the case. I beg leave to withdraw the amendment.
Baroness Hanham
Baroness Hanham
Baroness Hanham
Baroness Hanham
Baroness Hanham
“4B Power to make order requiring compliance with code
(1) The Secretary of State may by order made by statutory instrument impose a duty on all local authorities in England, or all local authorities in England of a specified description, to comply with a code issued under section 4 that applies to those authorities.
(2) An order under this section may impose a duty to comply with—
(a) one or more specified provisions of a code, or(b) all of the provisions of a specified code.(3) A order under this section may—
(a) specify the steps that an authority to which the duty applies must take to comply with it;(b) specify the time within which such an authority must comply with the duty.(4) The Secretary of State may make an order under this section which applies to an authority whether or not the Secretary of State thinks that the authority is complying with the code to which the order relates.
(5) An order under this section—
(a) may make different provision for different cases or classes of case, including different provision for different descriptions of local authority;(b) may make incidental, supplementary, consequential, transitional or transitory provision or savings.(6) A statutory instrument containing an order under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(7) In this section “specified” means specified in an order under this section.”
Lord Beecham
My Lords, this amendment stems from concerns raised at a meeting of the all-party group inquiry into electoral conduct, to which I referred in Committee. Doubts have been expressed about whether it would be possible for local authorities at any time, but even during elections—perhaps especially then—to correct mis-statements of fact that could give rise to problems in relation to the Equality Act, such as racist or discriminatory statements that might apply to particular groups.
The noble Baroness said that she would look into this and write to me to clarify the position. I am grateful to her for doing that. She confirmed that it is permissible for local authorities to do exactly that, even during an election period, which is probably the most urgent time, provided that it is a factual statement. The purpose of the amendment is simply to allow the Minister to repeat for the record and Hansard the assurance that that is the position. That would be of some comfort to electoral officers and local authorities that might be confronted with this situation. Given some of the things that are being said up and down the country by various groups, it is likely that at some point local authorities will feel constrained to issue material of that kind, perhaps during an election period. It would be good to have that assurance on the record. I am extremely grateful to the noble Baroness and indeed to the Government for acknowledging that perhaps there was a doubt and for clearing it up so comprehensively.
Baroness Hanham
I am happy to confirm what I have written to the noble Lord and I will read it out. The publicity code explicitly provides for a local authority to correct or rebut misinformation, making explicit provision in the sections about objectivity and care during periods of heightened sensitivity. Moreover, it contains provisions about equality and diversity, specifically allowing local authority publicity to seek to influence the attitudes of local people or public behaviour in relation to matters including equality, diversity and community issues.
During an election period, for example, local authorities may publish factual material. A local authority should take care when issuing publicity and should not be issuing publicity that seeks to influence voters. However, this does not prevent an authority from fulfilling its role in seeking positively to influence people in terms of equality and diversity. Hence if there is disinformation in circulation promoting harassment, a local authority may take action to correct it at election time or indeed any other time. The provisions in the Bill do not change the contents of the publicity code that have been agreed by Parliament. Rather they give the Secretary of State the power to ensure that taxpayers’ money is not being wasted by local authorities by disregarding the publicity code. Nothing in the publicity code prevents local authorities addressing issues of discrimination or harassment and tackling them head on. No local authority can claim that the provisions in the Bill to tackle non-compliance with the publicity code prevent them complying with the Equality Act.
In short, this amendment is not necessary and I hope that, with the reassurance that I have given the noble Lord and what I have said in the House today, he will be willing to withdraw the amendment.
Lord Beecham
Indeed, I am, and I repeat my thanks to the Minister for making the position clear. Now it is on the record. I beg leave to withdraw the amendment.
Lord Beecham
My Lords, in the parallel universe occupied by the Secretary of State, Pulitzer prize-style municipal correspondents can no longer haunt the corridors of town halls, rigorously holding local authority leaders and councils to account. They have now been supplanted in his imagination by what he describes as “town hall Pravdas”. To adapt a phrase, it seems that the local authority devil wears Pravda. In so doing, the local civic newspapers disseminate propaganda at public expense.
As I have demonstrated, there is very little evidence to support any of that, still less that the effect has been damaging to the local media. On the contrary, local media have very consciously and over many years withdrawn from reporting local government. I remember in the early 1980s, when I was leader of Newcastle City Council, urging the BBC to appoint a local government correspondent. They had a very good reporter there who has now made a national reputation, Mr Michael Blastland, who covered local government and much else. That was rather unusual for a local television and radio station, but it was not by any means a full-time job and the idea did not seem to catch on.
Furthermore, at a later point, the local papers in Newcastle, the Journal and the Evening Chronicle—which, strange to say, my constituents and those of the noble Lord, Lord Shipley, when he was a councillor and leader of Newcastle City Council, were able to distinguish from the city council newspapers occasionally distributed, contrary to what the Government appear to think happens in the real world—apparently decided that they would reduce the amount of coverage of local affairs. They attended meetings and contacted members of the council, me and others, less frequently.
I raised the point with them and made it nationally as well. The Journal in Newcastle, the morning newspaper, said that it had conducted a survey and its readers were not interested in local affairs. Therefore, it ceased to be to any extent a paper of record, which is what good newspapers ought to be. It did this not because of competition from half a dozen issues of Newcastle City News but because, in its judgment, the readers were not interested. Some of us like to think that the virtue of local media is that they seek to educate and inform the local community. They have abdicated that responsibility; they have done it of their own volition and it is ridiculous to suggest that that has been caused by local authorities.
The conflation of a variety of issues that have been adduced to support the Government’s position on the whole issue of a code of publicity is entirely unconvincing. There is no significant cost to local authorities. There is no evidence, as I have already reported, via the National Union of Journalists, that it has had an impact on the circulation of local papers and the decline of revenue. On the contrary, there are many other explanations, which I will not rehearse again. As for the other main argument, that there is a danger of political abuse by some of these papers advocating a party line or support of the authority in control of the local council, of course that can and should be dealt with without a code, because it would be unlawful as matters stand to conduct propaganda in that way.
We have debated at considerable length the role of the auditors. The auditors have a responsibility in this and other matters. They are entitled to look at whether council expenditure, in the area of publicity, for example, is lawful and appropriate. In addition, there are other sanctions that can be applied, including, in extremis I suppose, judicial review. Therefore, both props of the Government’s case fail. It is not necessary to emulate the man on the wire to deal with these matters. It is simply the case that the Government are overreaching themselves.
I have to comment on the hypocrisy of a Government who allow, possibly promote, their Civil Service spokesman to make statements using the personal pronoun. Therefore, government spokesmen—not Ministers, or even MPs or Peers—in the form, presumably, of press officers or civil servants are all too often quoted as saying, “We are taking action on it”. It might be on welfare benefits or whatever. That is a politicisation of the Civil Service that is a step too far. It happens all too regularly. I do not say that it did not happen under the previous Government. I cannot recall such events, but it may still have happened. Under any Government, it is wrong for that to happen. If that were to happen in local government, there would be a legitimate outcry. It would be quite wrong for a chief executive or an officer of an authority to use the personal pronoun on a political issue, as opposed to saying that it is the council’s policy.
In addition to all the other grievous sins of omission and commission that the Government commit in this area, this is something that they ought to look at on their own account before they descend on local authorities in the way that they propose in the Bill. Again, I remind your Lordships that the draft Bill committee was given no opportunity whatever to discuss matters of this importance. It is not surprising that the Local Government Association is completely united across the political divide about this, hence my amendment opposes that the clause should stand part.
Baroness Hanham
My Lords, the trouble with clause stand part debates is that they tend to come after everything else has been said. The danger is that one says it all over again. As I said, three groups of amendments have all covered more or less the same ground. I must ask the Chamber to forgive me if I cover some things that have already been said. It is clear that the Government do not see the situation in quite the same way as the noble Lord, Lord Beecham, has laid out tonight, nor as the Local Government Association has seen it in wanting all these provisions removed. We do not believe that should happen. We accept, as I said, that the great majority of local authorities will never breach the code. They will always do, and be guided by, the right thing.
I shall not say which local authorities we already know are breaching the code. I have them. I could do it, but I think it is probably not helpful. I hope noble Lords will accept my assurance that at least a dozen are breaching it at the moment. Either they are publishing publications, very frequently, outside the terms, or they are including propaganda or their own political statements. It is there and it is wrong; that is not what was meant to happen. As I say, with legislation the opportunity comes to try to put that right. Once again, it is putting it right for a minority—I totally accept that—but put it right we must. The Secretary of State is not taking very draconian powers. If the Secretary of State would have to put a broad direction out to a whole lot of authorities, we would be very worried about what local authorities were doing. That provision is there in case it is needed, but we are much more concerned at the moment about the individual authorities doing individual transgressions.
There are two elements of this, as I have said right from the outset. The provisions are necessary to make sure that taxpayers’ money is not abused; to see that local authorities produce publicity, not propaganda; and to ensure that local newspapers—which the noble Lord, Lord Beecham, slightly downgrades—hold local government to account. They are often full of what is going on; they are the proper means by which that should be done. The provisions do not change the publicity code itself; the guidance remains the same, allowing local authorities to communicate effectively with their communities. However, the clause provides the Secretary of State with the power to direct one or more authorities, as I have said. The clause also sets out the procedure to be followed, as we discussed—14 days’ notice in writing—and provides for a direction to be modified or withdrawn in writing.
Baroness Hanham
My Lords, Amendments 42 and 43 would remove subsections (15) and (16) from Clause 39. Amendment 45 allows for transitional provisions to be made in respect of previous arrangements or contracts entered into prior to 2013-14. As noble Lords have said, subsections (15) and (16) are not linked and they fulfil different purposes. However, I understand that the noble Lord, Lord Tope, originally tabled these to address a single concern, although he has not spoken tonight. It was made clear in Committee by the noble Lord, Lord Tope, and now the noble Lords, Lord Beecham and Lord Shipley, that Clause 39 and subsection (15) in particular have a retrospective effect, and that the clause would be impractical and councils would have insufficient time to take account of the changes.
With respect to the noble Lord, Lord Shipley, I must restate the Government’s disagreement with this view. Neither the clause nor subsection (15) is retrospective. They do not interfere with the council tax and levies set last year. Those increases have been made and are in authorities’ tax base for future years.
Subsection (15) simply allows the Secretary of State—should he so choose—to set a referendum principle for 2014-15 focusing on authorities where the council tax, including levies, increased by a large amount in 2013-14. The Secretary of State will consider whether he wishes to do this later in the year as part of the usual round of principle-setting. Authorities and levying bodies will have an opportunity to make representations on principles, which will be put to the other place for approval.
Furthermore, authorities will have the opportunity to set an overall increase in council tax and levies in excess of the principles, making the case to the local population in a referendum if that is where they need to go. If noble Lords work it out—as I think the noble Lord, Lord Beecham, has done—they will find that very few authorities are likely to be affected because the combination of the levies and the council tax potentially gives a bigger pot for the percentage increase.
The approach proposed in the clause is entirely consistent with previous and current practice. Perhaps I may go back to the unhappy word of capping. As part of the setting referendum principles, the Secretary of State considers all relevant factors. These always include council tax decisions taken by authorities in previous years. It is worth highlighting that 2012-13 and 2014-15 have been the only two years since the 1980s when levies have not been part of excessiveness considerations. We are simply reverting to the definition of excessiveness used by successive Governments from 1984 to 2010. This approach resulted in some smaller authorities with a history of lower council tax being set more generous referendum principles in 2013-14. No one accused the Government of taking retrospective action when they took this approach.
The possibility of the Secretary of State setting specific principles for those authorities where substantial levy increases resulted in substantially higher bills in 2013-14 should come as no surprise to them. His speech to the New Local Government Network and his Written Statement of 30 January 2013, and letters to all authorities, could have left them in no doubt as to the possibility. Council tax and levies for 2013-14 were set in full knowledge of the Government’s intention for 2014-15—that is, a year later on.
The Government have been clear from day one that council tax payers should be protected from excessive increases, and this clause will extend that protection. It will also increase fairness for local authorities by ensuring that all the money raised through council tax is potentially subject to a referendum if it is in excess of the principles. At present, there are areas where more than 50% of the local council tax bill is made up of levies and is therefore not subject to a referendum.
The legislation is not retrospective. We have been clear about what the situation is since January this year. Existing legislation already gives powers to the Secretary of State to determine different categories of authority, so the measures will not necessarily be across the piece.
Amendment 43 would remove subsection (16) from the clause. It may be helpful for me to explain the purpose of that subsection, which is not, as noble Lords have already admitted, directly linked in purpose with subsection (15). To be able to determine whether an excessive increase has been set in 2014-15, all authorities will need to make a like-for-like comparison between the council tax in 2014-15 and that set in the previous year. The principles will be based on an amount including levies in the next year, so the removal of the provision would not be helpful for many local authorities. It would mean that their previous year’s relevant basic amount of council tax would be at a much lower level than that of the subsequent year, against which it was being compared. Subsection (16) simply means that the 2014-15 figure can be compared with the one for 2013-14, which includes the levies that were set for that year. Without subsection (16), authorities would be effectively required to compare apples with pears, and the whole clause would be unworkable. I am sure that that was not the noble Lord’s intention.
The Government have been entirely open with authorities about their intention to bring levies within the scope of the referendum legislation and to take into consideration the previous increases when setting future referendum principles. A Statement approving the referendum principles for 2013-14 was laid in the other place on 13 February—so between January and February plenty of notice was given. Amendment 43 would undermine the Government’s commitment to protect council tax payers and prevent all authorities and levying bodies being subject to the same kinds of accountability and financial discipline. In view of the comments that I have made, I hope that the noble Lord will not press the amendment.
Amendment 45 replicates one which was proposed in Committee, so I shall expand on the response that I made then. The issue here is city deals and the levies that are envisaged by combined authorities in future years following the agreement between the Government and local authorities, particularly in West Yorkshire. The city deal implementation plan agreed between government and the Leeds City Region included the following summary text:
“Leeds City Region will establish a £1bn West Yorkshire … Transport Fund overseen by the new Combined Authority. The Fund will be financed by a levy that the Combined Authority will place on individual councils”.
In Committee, the noble Lord, Lord Tope, read into the record an e-mail from the director of finance at Bradford Metropolitan District Council. Bradford’s contribution to the city deal is funded by a £1.2 million increase to its levy each year.
We have looked at these figures carefully. These levy amounts would produce a council tax increase in Bradford of 0.7% in 2014-15, falling to 0.5% by 2023-24. We have also established that similar percentage figures apply across authorities in West Yorkshire. There is therefore no need for any transitional or other provisions to be made for contracts already entered into, as the levies envisaged by the authorities in the Leeds city deal area are substantially below the current 2% referendum threshold. I therefore hope that the noble Lord is willing to withdraw his amendment.