Local Audit and Accountability Bill [Lords]

John McDonnell Excerpts

Monday 28th October 2013 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

I want to address three issues. The first is the Bill’s failure to acknowledge the fears for probity in local government, the second is its failure to address the structural and procedural breakdown of accountability and the third is the new code of practice for council newspapers.

We usually preface such debates by explaining our background in local government, and I am trying to address these matters completely objectively and without being partisan in any way. I do so as someone who has worked on the front line of a social services department, who was the head of policy of a London borough and who then became an elected member of the Greater London council, chair of finance and deputy leader before going back to being a bureaucrat in local government as the secretary—they now call them chief execs—of the Association of London Authorities, then the cross-party body of the Association of London Government. I have done my time, I suppose, over 25 years in local government.

There are fears for accountability and probity that the Bill does not seem to acknowledge or address. I wonder whether Members have seen the report published this month by Transparency International UK. Many of us will have worked with that organisation—which monitors corruption and probity, particularly in developing countries around the world—in the context of our countries of interest. I have, particularly on Kenya and other African countries.

The organisation monitors corruption in government throughout the world—establishing league tables, as some Members will recall—raises awareness of it and advises civil society and Governments on how to combat it. I urge Members to look at the report it has published this month, entitled “Corruption in UK Local Government: The Mounting Risks”. Let me quote the executive summary and some of its recommendations, which I will want to try to insert into the Bill as we discuss it in detail.

The good thing about the report is that it says there is not much evidence of corruption—but that is because what evidence there is, is anecdotal, although part of the problem is that not a lot of research has been done. The report found that although there was no agreement on the levels of corruption in local government, there was agreement across the board about the “disturbing picture” whereby

“the conditions are present in which corruption is likely to thrive”.

The report states that those conditions are

“low levels of transparency, poor external scrutiny, networks of cronyism, reluctance or lack of resource to investigate, outsourcing of public services, significant sums of money at play and perhaps a denial that corruption is an issue at all.”

The report goes into some detail about the checks and balances for accountability and probity in local government and is critical of the previous and current Governments’ performance, which undermined some of the processes of transparency, particularly the awarding of public contracts, the overseeing of their implementation and the growing tendency to outsource provision and transfer personnel between public and private roles—the revolving door syndrome that occurs not only in central Government but has gone into local government. The report also states:

“Planning decisions remain highly discretionary and are vulnerable to corruption in several areas.”

Allegations and incidents have been recorded—not at any high level, but they exist—of bribery in local government, collusion, conflicts of interest and corruption-related fraud. Of course, we have also seen examples of electoral corruption prosecuted in Birmingham and elsewhere. The report refers to a number of changes in legislation, particularly this Bill, that undermine the climate, procedures and structures that would address corruption and protect us from it.

Let me go through some of the criticisms of this Bill and some of the other legislation introduced by the Government. Transparency International UK is concerned about the abolition of the Audit Commission, as there will not longer be a “back-stop” to provide support and work to protect against corruption. There will be

“no institution with wider powers of public audit to enable criminal investigations, which the Audit Commission used to have”.

There will be

“no institution to collect nationwide data on fraud and corruption or analyse trends”,

and:

“New external audit reports will not be adequately covered by the Freedom of Information Act”.

That point has been raised by my right hon. Friend the Member for Leeds Central (Hilary Benn). The report also states:

“Local authorities will have a reduced internal capacity to investigate fraud and corruption, due to austerity measures”.

Those concerns will build up to create a climate in which there are fears for probity. The report also states:

“The responsibility for investigating and detecting fraud and corruption is being delegated to lower-level officers”

in local government. It continues:

“Audit committees are weakened and may disappear because there is no longer a statutory requirement for an audit committee to be a full committee in its own right…External auditors appointed under the new arrangements may face incentives to avoid undertaking investigations or raising concerns about suspicions of fraud or corruption.”

The report expresses its concern that:

“There is no longer a universal code of conduct to provide clarity to members serving on different public authorities and committees…There is no longer a requirement for members to declare gifts and hospitality and no legal requirement for either a standards committee or the monitoring officer to check any register of interests on a regular basis”.

Again, that is not addressed by the Bill. The report goes on:

“There is no longer a statutory requirement for a council to have a standards committee…There is no longer any obligatory sanction for members that violate the local codes of conduct”

and there is an overreliance on party discipline as the main sanction. It states:

“Since the abolition of Standards for England, there is no longer a national investigations body for misconduct.”

As the hon. Member for Mid Dorset and North Poole (Annette Brooke) mentioned, that means that some local authorities might struggle to appoint independent people

“of the appropriate calibre and legitimacy to perform the new role”

under the self-regulatory system of panels. The report says:

“The system relies too heavily on the new offence of failing to declare a pecuniary interest”,

and, of course:

“The ability of chief executives, financial officers and monitoring officers to hold elected members to account would be compromised by proposals to abolish their statutory employment protection.”

That all leads Transparency International UK to conclude:

“The Government’s changes, without apparent consideration of the consequences for corruption, are likely to have unintended consequences. The effect of the changes has been to create a situation in which corruption could thrive.”

The report is worrying and when the Bill goes into Committee, it might be worth inviting the organisation to address the Committee or provide evidence so that these matters can be properly discussed with it and its expertise can be drawn in to our consideration of the Bill, which is about local audit, and therefore probity, and local accountability, and therefore democratic accountability.

Some of the recommendations that Transparency International UK suggests could be built into the Bill are worth examining. The first states:

“Private companies, when operating services in the public interest, should be required to comply with the Nolan Principles.”

Secondly, the organisation recommends:

“Legal employment protections should be maintained for key anti-corruption officials, including Chief Executives and Monitoring Officers”.

Thirdly, it suggests:

“It should be a statutory requirement”

in this Bill

“for a local authority to have an audit committee as a dedicated full committee, with a specific remit to oversee corruption risk assessments and corruption investigations.”

It also suggests that now that the audit will be undertaken by private firms, consideration should be given to creating an auditors’ forum on corruption to bring together the private audit firms involved in local authority audit to share information, advice and good practice on the risks they identify in the audit role.

Transparency International UK also recommends that the Government should insist that the research function undertaken by the Audit Commission should continue somewhere within Government to give a clearer picture of the prevalence and scale of corruption in UK local government.

Again, although work has been undertaken by existing structures, such as the national fraud audit that has been taking place in some specific areas, there is no overall responsibility lodged with a specific body to undertake research at a national level.

The report recommends that each local authority should have a nominated individual responsible for counter-corruption who conducts a regular corruption risk assessment and liaises closely with law enforcement authorities. I will not go through the remaining recommendations except for the final one, which states that as work now goes out to the private sector, it is critical that auditors should be allowed to assess the documents from significant private contractors that a local authority has used.

[Chris Williamson]

On that point, is my hon. Friend familiar with the PricewaterhouseCoopers citizens jury which showed that, when polled, the overwhelming majority of the British public favour public services being delivered by public authorities and by directly employed public servants? If services are to be externalised, the safeguards that my hon. Friend is describing would be the bare minimum that the vast majority of the British public would expect.

[John McDonnell]

There is a general worry about what happens after privatisation. My hon. Friend cited a number of examples—rail, energy and others. People are concerned about standards of probity and issues surrounding the exploitation of the resource. There are similar concerns in relation to local government and the use of the private sector. It is important, therefore, that we build safeguards into the Bill to reassure people. I am a great believer in direct provision by the local authority itself, but if there is to be contracting out or outsourcing, it is important that we reassure people that there is a legislative framework that provides safeguards to ensure probity and to counter corruption. Transparency International suggests that that should be built into the legislation. It is important that we listen to an organisation that has the relevant expertise.

The final recommendation deals with freedom of information, which has been raised a number of times in the debate. Transparency International recommends:

“Private companies, when operating services in the public interest, should be required to comply with the Freedom of Information Act with regards to those services.”

As a specific example, it states that

“audit reports from local authorities should be covered under the Freedom of Information Act or published directly as public documents.”

That is not a particularly challenging recommendation. It should be standard practice.

As Members consider the Bill further, I suggest that they read the Transparency International report “Corruption in UK Local Government: The Mounting Risks”, and invite the organisation to provide them with more detailed information and evidence. That might enable us to address some of the concerns that have been expressed and which we all hear from time to time in our constituencies. These may be anecdotal, but the information from Transparency International suggests that there is mounting national concern as well.

My second point is about examples in my own area. The Bill does not seem to address any of the structural or procedural concerns arising from the degradation of accountability within local government. I was hoping that the Bill would go further in ensuring full accountability and transparency in local decision making. To a certain extent I blame the previous Government for the structural problems that we now have in local government. I use my own local authority as an example. I would like to see amendments to the Bill that ensure full transparency of all decision making.

In my local authority, Hillingdon, we have a leader and cabinet system which has centralised powers in the hands of one person—the leader. The leader is able to use exclusive patronage to appoint all the other members of the cabinet, and that patronage then determines the lucrative business of the payments of himself—£65,000 a year for a part-time job, plus expenses—and of every other member of the cabinet, who receive £50,000 to £55,000 each. If any members step out of line, they are demoted. In recent weeks in my local authority, I have seen long-standing experienced senior councillors prevented even from standing again for the local authority.

Transparency International’s report expresses concern about cronyism in local government. In my local area I am witnessing the worst forms of cronyism where the leader appoints everybody, everybody is responsible to the leader, and there are financial consequences if people step out of line. In addition to that, there is nothing in the Bill about the decision-making process in relation to policy, which has also been centralised. In my local authority all decisions, no matter how minor, go through the leader’s office. If any officer loses the favour of the leader, they are out. If an officer provides unpalatable advice to the leader, that is enough for them to be shown the door. That is described among officers in Hillingdon as a reign of terror.

Whistleblowing is not an option for most. In Hillingdon, when people are asked to leave, they go under a compromise agreement, which includes a gagging order. I would like to see in the Bill an end to all compromise agreements in local government and an end to all gagging orders that are implied as part of those compromise agreements, because they prevent officers from providing independent advice or making public their concerns to all members of the council and to the general public.

I want to see the Bill also address the issue of secrecy. The cabinet system means that all major decisions in my area are made in part 2 of the cabinet agenda—that means in confidence and in secrecy. As an officer in the past, I have advised on what should be in part 2 and what should be in part 1 and in public. Decisions which I considered in the past should be made in open committee and information upon which those decisions are made are almost inevitably put in part 2 in Hillingdon—the confidential part of a cabinet meeting. I want to see a provision in the Bill which restricts the ability of members to avoid accountability by putting decision making into the secret part of cabinet agendas.

I shall give a couple of examples to show how ludicrous the practice has become. For the building of a new school in my area, a matter which I have raised in the House before, a consultant was employed to examine which site the school should be built on. It was controversial because the council wanted eventually to build on a country park—a green-belt field about which even the Mayor of London expressed his concerns. The consultant’s report on which sites were examined, all in council ownership, was put in part 2 of the cabinet agenda—the secret part. Even freedom of information requests were refused on the grounds of commercial confidentiality.

We must address in the Bill how councils are allowed to interpret commercial confidentiality in a way that avoids accountability and avoids their providing even the basic information to local members of the public and also to opposition members. Let me give another example. On the same site there was a recent archaeological find of flints. The report from the archaeologist who discovered the flints was put into part 2 of the cabinet agenda on the basis of commercial confidentiality. It might have been commercially confidential 6,000 years ago, but not now. Eventually both reports were released, but not in a timely fashion.

The problem—I say this from a non-partisan point of view—is that an opposition councillor who seeks to reveal anything that is in part 2 of a cabinet meeting is threatened with criminal sanction, so people are fearful of releasing information from part 2. We should address that matter in the Bill. We need to define more clearly what is commercial confidentiality, and what criteria can be used for putting items into the secret part 2 of the agenda for a committee or cabinet meeting. I believe that is being abused, not necessarily for corrupt reasons, but perhaps for party political advantage or because individual councillors do not want to be held to account by local communities.

The Bill refers to audit and some elements of transparency as best it can, but it does not really address accountability and scrutiny. In my borough, scrutiny is virtually non-existent. Scrutiny committees are packed with a majority of party members loyal to the leader and can therefore be controlled by patronage. Scrutiny committees might have been an excellent idea some years ago, but in many local authorities, including mine, they have proved toothless.

There are real concerns about corruption. Advice needs to be provided to local authorities on how independent investigations should take place when allegations of corruption are made, but again that is not covered in the Bill. I will cite an example I raised in the House some years ago relating to the planning incentive grant introduced under the previous Government by the then Department of the Environment. If a local authority considered its planning applications within 13 weeks, it was given an additional grant from central Government, so it was in incentive to improve efficiency. In my local authority—this was proved, and the details published, as a result of what I said in the House—dates and signatures on documents were found to have been forged in order to bring planning application decisions within the 13-week period, even though many were taken later.

Those forgeries were exposed because fortunately one of the planning applications was submitted by a police inspector. He looked at the documentation and discovered that the dates had been changed. In fact, decisions on his application had been recorded as taking place even before council officers had met him to discuss it. After an investigation, a couple of officers retired from the local authority unsanctioned. Bizarrely, the leader of the section responsible for the planning process was then promoted. There is nothing in the Bill that provides real direction for local authorities on how to deal with such matters. It is extraordinary that these things still go on, yet we turn a blind eye to it by not relating the legislation to the real world of local government.

I could cite many other examples, including Southern Cross and the neglect of the elderly in my constituency, and non-monitoring as a result of the staff cuts that have taken place. Again, elderly people suffered but no one was held responsible. There was a refurbishment programme of an old people’s home—I raised this 12 months ago—which resulted in a year-long delay for elderly people being relocated to their homes. There was laundering of money via contracts to a builder. Again, there was an internal investigation that reported to part 2 of a cabinet meeting and there were no sanctions whatsoever against any officer. I wrote to the Secretaries of States of successive Governments on all those matters to call for an inquiry, but there was no response and no action was ever taken.

I am using my local authority as one example, but there are others across the country. My point is that the Bill seems to be irrelevant to what is happening in my local authority and many others across the country. It is irrelevant to the concerns about corruption raised by Transparency International and to our concerns about good governance and accountability at the local level. I hope that there might be an opportunity to amend the Bill and expand some elements of its remit to tackle some of the concerns that I, many of my constituents and many others across the country have. I hope that the Government are not fearful of grasping this nettle. Their main priority in the Bill should not be simply to let more contracts to the private sector; it should be to improve local audit and accountability. A key element of that is probity.

Let me turn to the proposal relating to local authority publicity. The all-party group on the National Union of Journalists, of which I am secretary, has been expressing concerns about some of the ideas raised throughout the consideration of this proposal. The NUJ represents members of the local press and media as well as local government officers working on the newspapers and journals published by local authorities. It is worth remembering, whatever has been said in the knockabout between the parties, that NUJ members working in local government abide by the same code of conduct as other journalists but, as local government officers, are not allowed to put forward party political views. Indeed, they could be sanctioned legally for doing so.

It has been argued that additional statutory powers are needed to strengthen the existing code of practice. As my right hon. Friend the Member for Leeds Central said, there are existing powers for that and the Government could take action against local authorities that overstep the mark, but they have failed to do so. They have taken no legal action and there has been no judicial review whatsoever of any council newspaper. I find that surprising, given the outrage that has been expressed in this House and elsewhere.

Although many of us would like to see thriving local newspapers reporting what happens in council chambers and providing information to their local communities, in reality it is rare to find a single journalist even at full council meetings. I will circulate the information from the NUJ on just how many newspapers have gone to the wall over the past 20 years, how many jobs have gone in the industry and the impact that has had on quality journalism. The circulation of some of the papers that still exist is also very limited.

The council newspaper is therefore often the only way that local people can get some form of information on what is happening in the local authority. I have looked at this, as has the Communities and Local Government Committee and others, to see what impact council newspapers have had on the commercial viability of local newspapers, and no evidence whatsoever has been found. In some instances it is quite the reverse, with an element of synergy between the local press and the local authority in its publication of information. I am concerned that the proposed measure is unnecessary, because sanctions already exist. It will also undermine the dissemination of information by local authorities to their local communities. From the NUJ’s point of view, it could have as a consequence the loss of jobs at a local level, which we should all be concerned about.

There also needs to be some clarity. I have criticised Hillingdon council, but let me now try to defend it. It is currently seeking to ensure that the local community is properly informed on two key issues of local concern. One of them, as my right hon. Friend the Member for Leeds Central mentioned, is the expansion of Heathrow airport, in which it is up against a large corporation that is sending out large amounts of information to the local community, most of which is inaccurate. It is only the local authority that is providing a balanced analysis of what is happening. The other issue is high-speed rail. I am anxious that Hillingdon council, or any other local authority, should not be debarred from ensuring that local people are kept informed about such pertinent issues, because it is absolutely essential that they are fully aware of the consequences if they are to exercise their democratic right and decide on the actions taken by local and national Government.

I would like assurances from the Minister that the activities of local authorities to inform local residents of matters such as high-speed rail or the expansion of Heathrow airport will not be curtailed by this legislation. I agree that putting press releases out is one thing, but if the local press has declined so badly, with a limited circulation and an inability to report on many issues, a press release will be inadequate. I understand the point the hon. Member for Mid Dorset and North Poole made about other mechanisms, particularly the internet, but not all people are connected, so they rely on the local authority journal that comes through the letterbox. I agree with what she said about having pictures of local councillors on every page, which I could possibly do without.

It is important that we in no way hamper the ability of local authorities to communicate with their residents. There may be opportunities for authorities to work together with the local press. I understand the point made about newspaper wrap-arounds, which have proved effective in some areas. That can assist greatly in communicating local ideas, but it does depend on the local newspaper’s circulation. Even the free sheets do not get everywhere, unfortunately. It might be possible—I would like the Government to look into this—to enable partnerships between local authorities and the local press whereby joint publications or similar could assist in the dissemination of local information.

[Chris Williamson]

Many local newspapers already print the council newspaper, thereby providing an income stream and additional source of welcome revenue for those newspapers, which are often under extreme financial pressure.

[John McDonnell]

I hate the word “synergy” but there is a potential for synergy between the local authority and some of the independent local press and publishers to disseminate information locally. One of the ideas that has come up is about local authorities participating in independent publishing companies—DCMS considered this previously—through joint ownership of a magazine or other communication that can go out to local residents. However, some flexibility from Government and amendments to the Local Government Act 2000 and the Local Government Act 2003 may be required to enable that sort of investment by the local authority in participating in independent companies.

There are constructive ways forward on this issue. If we take away the banter, whether it is about Hammersmith, or East End Life or whatever, we may arrive at a constructive way forward whereby local authorities can communicate with their residents and we can ensure that that is not used for purposes beyond good information dissemination and can protect jobs in the local authority and the local press.

--- Later in debate ---

[Andy Sawford (Corby) (Lab/Co-op)]

This has been a lively debate on an important Bill and it is a pleasure to follow the contributions of many hon. and right hon. Members. The hon. Member for Bromley and Chislehurst (Robert Neill) spoke with experience of local government, and it may not surprise him that I want to start on a note of consensus with him and the hon. Member for Meon Valley (George Hollingbery) by saying that I for one recognise that the Audit Commission went beyond its remit. Indeed, my right hon. Friend the Member for Leeds Central (Hilary Benn) made clear at the outset that we do not seek the restoration of the Audit Commission, and we understand that, to be frank, no one will lament its passing.

However, even though the Bill has been three years in the making, it is full of holes. My hon. Friend the Member for Derby North (Chris Williamson) said that the Bill is a dog’s breakfast. He made a strong speech in which he talked about the important functions of the Audit Commission, such as auditing and providing value for money in an independent way. Although we might not lament the Audit Commission’s passing, we should be concerned about those vital functions.

We must explore critical issues in Committee that are currently unclear, such as the arrangements for the future management of audit contracts and the transfer of Audit Commission functions. We do not know, for example, who will maintain the vital value-for-money tools. As a result of pressure in the Lords, not least from my hon. Friends, we have been promised improvements, such as amendments on opting into centralised arrangements for audit procurement. We can only hope that when the details are forthcoming in Committee, they meet the aspirations of their lordships and of the many organisations, including the LGA, that have pressed for those sensible amendments. It was good to hear the hon. Member for Mid Dorset and North Poole (Annette Brooke) pressing the Government on that point. I hope that she will take forward the good work of her colleague, the noble Lord Tope, in Committee.

There is doubt about the amount that the proposals will save. When the Minister responds, I expect that he will make claims about the level of savings, as did the Secretary of State in opening the debate. However, it would do Ministers much more credit if they stopped double-counting and deliberately inflating the estimated savings. We all know that most of the savings have already been banked with the axing of the Audit Commission’s inspection work and with most of the audit work outsourced.

It is disappointing that the Government ignored the advice of the draft Local Audit Bill ad hoc Committee, which, after receiving conflicting evidence on the savings, recommended that a new financial impact assessment be made. The Committee believed that only modest savings were likely and was concerned about whether a real market would develop. As my right hon. Friend the Member for Leeds Central said, in the last financial year, only seven firms were appointed for the nearly 800 councils, health bodies and fire and rescue authorities that were audited by private firms, and 90% of those bodies were audited by only five firms.

The Audit Commission has raised fears that some local authorities might find it hard to attract a suitable auditor:

“In a free market, we believe there is a risk that some local authorities may find it hard to attract an auditor with the necessary skills and experience, at a reasonable price.”

It continues:

“We are aware that the firms are already considering which audits they would look to drop under the new arrangements.”

As my hon. Friend the Member for Derby North, the LGA and the National Association of Local Councils have said, that will be a particular concern for smaller authorities.

On new entrants to the market, I share the scepticism of the draft Local Audit Bill ad hoc Committee, which said:

“We heard evidence to suggest that it is not realistic for smaller firms and organisations such as mutuals and co-operatives to bid successfully for one-off audits without an inevitable impact on quality, consistency or cost.”

The Local Government Information Unit, whose evidence and advice should always be considered—I should declare an interest as its former chief executive—points out that a 10% increase in audit fees would wipe out any predicted savings. Grant Thornton said that

“it is likely that fees will increase, not decrease, as a result of the draft Bill”.

[John McDonnell]

One simple measure to expand the market might be to prevent an audit firm from being the auditor for a local authority if it already has contracts with that authority.

[Andy Sawford]

My hon. Friend made a very interesting speech and I hope that he will follow the passage of the Bill closely. I will have to give further thought to the implications of his suggestion, but if the arrangements proposed by the Government are to work, there must be an open market and a wide range of audit firms must provide audit services. We would also want that to be reviewed regularly by the audit panel. The points that the hon. Member for Meon Valley made about the dismissal of auditors were important.

Steve Parkinson of the Society of Local Council Clerks said:

“When we get to the 2017 tender exercise, I cannot imagine those fees going down, and especially for the smallest, I can see them needing to go up.”

That speaks to the point made by my hon. Friend the Member for Derby North about what lies ahead. What assurance can the Minister give that the new audit arrangements will not lead to rising costs, rather than savings, for some councils?

On savings, it is welcome that, after Labour pressure in the Lords, the Government undertook to look sympathetically at a proposal for an optional joint procurement body. We welcome the assurances that the Secretary of State has given today and we look forward to seeing those proposals. Central procurement could save more than £205 million of public money over five years. That figure does not come just from the Audit Commission, but is supported by the LGA. Will the Minister assure us that he will bring forward detailed proposals on joint procurement as soon as possible? We hope to have them by this Thursday evening so that we can give them full and constructive consideration in Committee.

Joint procurement arrangements might address some of the concerns about the practicalities of requiring all councils to have auditor panels with independent members. As my right hon. Friend the Member for Leeds Central said, the Secretary of State considers himself to be a revolutionary, so he must be disappointed to be associated with arrangements that everyone but him sees as overly bureaucratic.

We will table amendments in Committee on the overlap between the new audit panels and the audit committees that most councils already have. My hon. Friend the Member for Hayes and Harlington (John McDonnell) suggested that all councils should be required to have an audit committee. Most councils have one already, but we should consider his suggestion further in Committee. We will also raise the practicalities of recruiting sufficient independent and appropriately qualified members for the audit committees, which were referred to by the hon. Member for Mid Dorset and North Poole. What evidence does the Minister have that there are people who are willing and able to take on that important role?

In Committee, we will also explore the removal of auditors and the purposes for which data matching can be used. As the Bill stands, those purposes do not include the prevention and detection of maladministration and error, as my hon. Friend the Member for Hayes and Harlington pointed out. We want to see that included in the Bill. We also want auditors to be covered by the Freedom of Information Act and will table amendments to that effect.

Does the Minister understand the concern that whistleblowers might feel uncomfortable approaching a private auditor that is employed by a local body or council? That is why we will propose that the audit committee should be named as a prescribed person in the Bill. I do not understand why the Government have resisted that. Perhaps the Minister will enlighten us.

My hon. Friend the Member for Hayes and Harlington highlighted concerns about corruption. I have read the important report that he mentioned. It is important that the new audit arrangements maintain independence, encourage probity, make appropriate provision for whistleblowers and ensure that it is possible to compare the relative performance of different authorities. He made wider points that we should explore further, including on the openness of council meetings, the use of commercial confidentiality and the role of scrutiny.

Perhaps the biggest disappointment with the Bill, as my right hon. Friend the Member for Leeds Central and my hon. Friend the Member for Derby North said, is that the proposed audit arrangements do not provide for the changing way in which public services are being managed and provided. The proposed arrangements require each local authority and other local bodies and public sector bodies to conduct separate audits. However, shared services, community budgets and combined authorities all demonstrate that there is a shift towards much stronger partnership working by local authorities, including with Government Departments. It is therefore a missed opportunity that the Bill focuses too narrowly on individual local authorities, rather than on arrangements that would enable auditors to follow the public pound through the system.

Many hon. Members have spoken about the provisions on local authority publicity. We support the code of recommended practice on local authority publicity and believe that it is broadly sensible. However, as my right hon. Friend the Member for Leeds Central said, there is no evidence to suggest that there are widespread breaches. No hon. Member has provided clear evidence of that today. The Government have taken no action to date under the code. Why not?

Clause 38 will allow the Secretary of State to issue a direction regardless of whether or not he thinks the authority is complying with the code. That is an extraordinary power grab that is worthy of the worst form of authoritarian government. The hon. Member for Bromley and Chislehurst revealed the true purpose of it. In seeking to support the Government, he listed a range of council publications, but gave no examples of where they had breached the code. The only common factor between the publications was that they were all from Labour-led councils. I know that in his heart he is a localist, as am I. Does he not agree that the way to deal with the problem is to fight the elections in those areas a little harder and to seek a Conservative majority, because it is clearly their political control that offends him, rather than the content of the magazines?

As for the wider controls on council publications, the Government suggest that local authority publications undermine the local press, but there is no evidence to prove that. Local papers are struggling for a variety of reasons. Indeed, as my hon. Friend the Member for Hayes and Harlington said, sometimes there is a welcome synergy between local newspapers and council papers. The Conservative-led LGA has complained, rightly, that the proposals are ill considered and not based on evidence or proper consultation—points echoed in the House of Lords by the Conservative peer Baroness Eaton, and the Liberal Democrat Lord Tope.

In my area, I have received many representations from residents in the smaller towns and villages of east Northamptonshire for whom the Nene Valley News—published, despite my best efforts, by the true blue local council—is a communications lifeline. Some residents of those villages feel so strongly about the issue that they tell me they will consider voting for me and my party for the first time because of the impact the measures will have on general well-being in those villages. That is surely not what the Secretary of State thought would follow from his nonsense claims about pocket Pravdas, which he cannot substantiate. We hope the Government will see sense when we consider the Bill in Committee, and I hope we will have the support of the hon. Member for Mid Dorset and North Poole because, as she rightly said, this is using a sledgehammer to crack a nut.

When the Minister responds, will he say whether he accepts the comments made by his colleague, Baroness Eaton, a former leader of Bradford council, that the Bill centralises powers to the Secretary of State? Will he say how many local authorities in England publish magazines more than six times a year, and will he inform the House how many times the code of practice on local authority publicity has been breached? We are concerned that the third major area of the Bill on council tax referendums adds further uncertainty to council finances at a time when—as my hon. Friend the Member for Derby North said—councils face incredible challenges, and that that could lead to further reductions in essential local services.

Clause 39 means that councils may have to hold a referendum on council tax increases because of increases in levies due to agreements made in previous years or over which they have no control. As my right hon. Friend the Member for Leeds Central said, we are deeply concerned about the retrospective nature of those changes—a point pressed on the Minister by the hon. Member for Mid Dorset and North Poole in another sensible intervention.

A year ago the Government signed city deals to improve transport infrastructure and boost local growth by allowing specific transport authorities to raise money for specific schemes. A year on, that agreement is being torn up. That undermines confidence in the whole city deal process across government, and harms the certainty on which sound financial planning and private investment relies. In short, it is damaging for our cities and our economy. As the LGA said:

“There is a risk of perverse outcomes that will put growth generating investment at risk”.

That is absolutely right, and I hope the Minister will address that issue and think again.

There are other complications. Authorities have no powers to reject levies, yet they are obliged to hold referendums because of large levy rises imposed on them by other bodies. The actions of levying bodies could lead to council tax referendums in some authorities, but not in neighbouring authorities because some levying bodies cross local authority boundaries. I hope the Government recognise the serious problems with those proposals.

The Chartered Institute of Public Finance and Accountancy stated:

“The entire burden of any referendum is actually placed on major preceptors and billing authorities despite the fact that they have no ability either to directly influence the amount of individual levies or require a body to reduce its levy as a result of a referendum.”

Does the Minister accept that including levies in the amount used to trigger a council tax referendum will jeopardise the city deals his own Government have approved? If a council tax referendum is lost and the levying body refuses to reduce its levy, what does he expect a local authority to do?

Despite serious problems with the Bill, I will end on a positive note. The Government propose to introduce two new elements to the Bill: on parish polls and transparency of council meetings. As the Minister would expect, the Government will have to answer the justifiable criticism—not least from our friends in the other place—that those proposals are being introduced rather late in the day and have not had the scrutiny given to the rest of the Bill. However, we support the intentions behind the proposals, and stand ready to play catch-up and assist with detailed scrutiny of those proposals in Committee. I sincerely welcome assurances that the Government will address the concerns raised by my right hon. Friend the Member for Leeds Central about combined authority boundaries. I hope we can do that through the Bill, but we welcome the assurance that another way will also be sought.

Finally, I thank the Minister for the helpful dialogue we have had since my appointment, particularly over the instruction to extend the scope of the Bill, and for the way he has facilitated contact with officials at his Department involved with the Bill. I hope that he is under no illusions about the many holes in the Bill, but also that he is in no doubt that the Opposition will approach Committee stage constructively.

[The Parliamentary Under-Secretary of State for Communities and Local Government (Brandon Lewis)]

Right hon. and hon. Members have raised a number of important points in the debate, and I look forward to discussing some of them in more detail during Committee as well as now. I will first respond to some of the main points raised, and then I will speak more generally and hopefully cover all the points Members have made.

A few comments have been made, not least by the right hon. Member for Leeds Central (Hilary Benn), about an audit for a modern world and authorities working together—an understandable point as we are looking to modernise the way we all work. Auditors of local government bodies and health bodies are required to comply with the relevant code of audit practice, and are used to working together across organisations in both the public and private sectors. It is right, however, that auditors must assess the body responsible for the spending, which is why the Bill is worded in this way.

The right hon. Gentleman also raised data matching, and we are sympathetic to that issue and will no doubt discuss it in Committee. The hon. Member for Corby (Andy Sawford) mentioned a sector-led procurement body. We are open to allowing the establishment of a central procurement capacity, provided—this is key—that it is led by the sector, is not mandatory, and gives local authorities the choice and opportunity to take part or appoint locally. We will deal with that in Committee.

Comments have been made about independent audit committees, or auditor panels, and the approach in the Bill gives flexibility to local authorities. A body can use its existing audit committee to act as the auditor panel if the majority is independent, or it can establish a small separate auditor panel if it is not, thereby allowing for anything that might happen later with a centrally organised sector-led body.

The hon. Member for Derby North (Chris Williamson) raised some issues, not least competition in the audit market. We are not creating new barriers; in fact, we are opening the local audit market and I hope it will develop even further. He also commented on whether council tax referendums are fair—other Members also made that point—and said that nobody wants this change. Councils such as Stockport, Liverpool and Newcastle—to name a few—might disagree with him, however, as they have all asked specifically for this change, which will put all local authorities on to a consistent footing. Currently, some local authorities undertake functions directly and in-house, and are therefore subject to referendum principles within that. Levying bodies are not, and therefore the proposals will bring things closer together.

My hon. Friend the Member for Bromley and Chislehurst (Robert Neill) did an excellent job early in this Parliament on ending the Audit Commission—the quango and the way in which it worked with the comprehensive area assessment. He has huge experience in and understanding of local government, and how the Audit Commission worked. I appreciate the time he has given me since I took office to work through some of those issues. His huge experience has been a great asset in reaching the point we have with the Audit Commission. We have managed to save councils so much in officers’ time, and therefore taxpayers’ money, over the past couple of years, as my right hon. Friend the Secretary of State was able to take through the ending of the comprehensive area assessment. My hon. Friend the Member for Bromley and Chislehurst mentioned the publicity code and referendum principles, and I will touch on those in the main part of my speech.

I welcome the support of my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke) for parish polls and the modernising of transparency, as I do that of the hon. Member for Corby. My hon. Friend noted how important the council tax freeze has been for families, which is one reason why we think it so important for that freeze to be applied across the board, fairly and evenly, as I have outlined. She also mentioned statutory notices, which I will touch on in a moment.

The hon. Member for Hayes and Harlington (John McDonnell) touched on a range of issues that are probably outside the scope of the Bill. I must explain to him, however, that the Audit Commission has been contracting out a percentage of its work for some considerable time. He also touched on counter-fraud activities and outcomes, and we are clear that local government must tackle fraud. That is worth about £2 billion a year, and it is important for taxpayers that it be dealt with. We are actively supporting local government to tackle that issue, not least through the Fighting Fraud Locally strategy with the Local Government Association.

At the point of closure, the Audit Commission’s national fraud initiative will transfer in its current successful form to the Cabinet Office. We recognise the value of the Audit Commission’s other counterfoil tools and are working with it and other interested parties to develop recommendations on their future.

[John McDonnell]

May I suggest that the Minister meet Transparency International UK and go through its report? Perhaps he could offer advice in Committee after meeting that group.

[Brandon Lewis]

As a general matter of principle, I am happy to meet anybody who wants to talk about any part of my brief. I obviously extend that invitation to Transparency International UK.

On the fairness of council tax referendums, my hon. Friend the Member for Mid Dorset and North Poole rightly outlined the anger of some areas and residents when they are faced with claims of a council tax freeze but receive spiralling bills from their authority. Clause 39 specifically addresses that—it ensures that claims of a freeze are based on the bill that hits doormats rather than any half-measures.

My hon. Friend the Member for Meon Valley (George Hollingbery), who has a background in local government, spoke of his wide experience of comprehensive area assessments and gave a great outline of exactly why we need a firm ending of the Audit Commission, so there is no chance of it coming back in the format we have experienced. He touched on auditor appointments, on enforcing the publicity code, which I will deal with later, and on council tax referendums and levying bodies. He suggested a range of interesting opportunities to ensure that referendums are dealt with in a proper and fair manner for the authorities. I look forward to taking his suggestions forward in Committee.

Let me be clear why the Government have decided to proceed with the final abolition of the Audit Commission. The House has heard how our reforms to local audit will result in a more efficient audit system, with an estimated £1.2 billion of savings—I would not want to disappoint the hon. Member for Corby by not mentioning the £1.2 billion of savings. That is exactly why it is important to push forward and embed that to stop any chance of future Audit Commission mission creep.

The reforms are not just about saving money. They are about the Government’s drive to decentralise power and responsibility to local bodies, and giving local people better tools to hold bodies to account. By cutting out the middleman, local bodies will no longer be forced to foot the bill for Audit Commission costs. They will know exactly what they are paying for in their audits. Local bodies will be required to publish information about their auditor appointments and any public interest reports they receive from the auditor. People will therefore be able to find that information locally, rather than having to go to a remote central body.

The reforms improve local accountability. As many hon. Members, including Opposition Members, have said, the Audit Commission had lost its way, forcing councils to focus on Audit Commission priorities rather than priorities that matter to local residents. My hon. Friend the Member for Meon Valley outlined some of those. As a councillor, I remember sitting in meetings when officers told us what we should do—it was often to do with waste collection. The suggestions were not made because they were right for our residents, but because they ticked a box to please the Audit Commission, and the Government would punish us further down the line if we did not take that action. The Government’s impact assessment estimates that the cost to local authorities of complying with the CAA was around £25 million per year—that money could be better spent on other things that residents want and need and deserve to have delivered.

Let me reassure hon. Members who are concerned that the quality of audit will suffer. The Government are committed to ensuring that that does not happen. Private audit firms have long had a role to play in auditing public bodies. As I have said, the Audit Commission has contracted out some 30% of its audit contracts to private audit firms. Last year’s outsourcing exercise demonstrated that public audit can be carried out to the same high level but at a much lower cost to the taxpayer.

The Bill contains robust mechanisms to safeguard auditor independence. The work of the auditors remains largely unchanged and auditors will still be required to use their professional judgment to decide whether to make a report in the public interest if they believe something is amiss. To enshrine that important principle, the Bill allows auditors to recover costs for their time in making a public interest report or advisory notice. By amending existing secondary legislation, we will ensure that whistleblowers can make disclosures to local auditors directly or to the National Audit Office.

Many hon. Members have mentioned the publicity code. I want to make one point clearly at the outset: there is no change to the code. The measures contribute to the Government’s commitment to localism rather than run counter it. Given that the code is not changing, I am somewhat surprised that any hon. Member has a problem with it being put into statutory form. Opposition Members have complained that the Government have not enforced the voluntary code. By putting it in statute, we can make sure that it is enforced to ensure that taxpayers’ money is spent appropriately and properly, and not for political ends.

There have been exaggerated claims that provisions on the code will lead to central Government clamping down on, for instance, HS2 campaigning, which has been mentioned. That is nonsense. Councillors are free to campaign on behalf of their constituents. Indeed, the Government legislated in the Localism Act 2011 to give councillors the freedom to campaign. If any challenge is balanced and factually accurate, it will not contravene the code, unlike some publications. For example, Nottingham city council’s website seems unusually to mirror the Nottingham Labour party’s website. Residents might want to question expenditure on that sort of thing. If anything, the publicity code defends council communications from political interference and propaganda-pushing, as was outlined by my hon. Friend the Member for Bromley and Chislehurst, who gave a range of examples.

The Government have no intention of monitoring or censoring communications, but it is right for us to act when concerns are expressed that local authorities are in breach of a code approved by Parliament. It is certainly right to act when authorities use taxpayers’ money to fund publicity for political purposes.