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Local Audit

Volume 594: debated on Monday 23 March 2015

Today, the final commencement order of the Local Audit and Accountability Act 2014 was signed off. This means that the residual Audit Commission will close its doors on 31 March, paving the way for local audit appointment within a new, leaner framework which, while it retains the knowledge and expertise of the commission where it has value, will create more freedom and flexibility for local public bodies, replacing top-down inspection with local accountability.

Hon. Members will recall that in August 2010, I announced plans to disband the Audit Commission and refocus audit on helping local people hold local public bodies to account for their spending decisions. The new system coming into effect will sweep away the old top-down regime, offering greater responsibility and choice for local councils, replacing central bureaucracy with local democracy, while upholding the same high standards of audit.

While this quango was borne of good intentions, local government has changed since the 1980s. The commission had become a regulator of local government, micro-managing local services and imposing excessive red tape, from best value performance indicators, to comprehensive performance assessment to comprehensive area assessment. Such box-ticking exercises did not champion the public’s interests, as evident by the fact the Audit Commission bullied and cajoled councils into axing weekly rubbish collections in order to meet Whitehall targets set by Labour Ministers.

Despite a slogan of “protecting the public purse”, it wasted public money on ill-advised spending decisions, such as a luxury London hotel to house its chief executive, a best practice audit conference with a string quartet, drinks receptions for its “alumni”, fine dining at the most expensive restaurants using corporate credit cards, board dinners in oysters bars (losing the receipt in the process), and hiring lobbyists to “combat the activities of Eric Pickles” (arguably, one of the least successful lobbying campaigns in history).

We therefore abolished the commission’s interfering and ineffective inspection regimes in 2010, and in 2012 the remaining in-house audit contracts were successfully outsourced, saving £250 million over five years. The Royal Assent of the Local Audit and Accountability Act in January 2014 put the legal framework in place to finish the job. Our latest estimates for the savings to taxpayers have increased to £1.35 billion over 10 years, with councils pocketing the bulk of the savings.

My Department will also this week make the necessary transfer schemes to provide continuity for essential roles in the local audit system. The National Audit Office will set the standards for public audit and take on responsibility for the code of audit practice, with the Financial Reporting Council and professional accountancy bodies monitoring the quality of audit as they already do for the private sector. The recent inspection by PwC into the London borough of Tower Hamlets illustrates how a private firm can provide robust advice and analysis without fear or favour.

The Cabinet Office will assume responsibility for the national fraud initiative, joining up its existing anti-fraud work. Public Sector Audit Appointments Ltd is the transitional locally led body set up to manage the existing audit contracts until they expire ahead of full local appointment of auditors in 2017. This new streamlined regime mirrors the framework already used for the private sector, while maintaining the high standards of public audit.

The localisation of audit is complemented by other transparency reforms to increase local accountability and empower an army of armchair auditors. The local government transparency code requires councils to place online important local information about spending and decisions; we have introduced a lighter-touch transparency code to smaller local bodies like parish councils so people can access key spending, governance and meeting information; we have changed the law to allow filming and reporting of public council meetings by the press and public; a new common period next year will allow local ratepayers to inspect councils’ accounts––a right more powerful than freedom of information, and it is our intention to legislate in the next Parliament to allow those local inspection rights to be exercised by members of the press who may not otherwise live or work in the council area.

I am confident that these reforms will protect taxpayers’ money and ensure high standards in local government.