Considered in Grand Committee
My Lords, we have brought this draft order forward at the request of the Welsh Assembly Government to make a few minor technical amendments to the Government of Wales Act 2006. The amendments relate to inspection and audit fees charged by the Auditor-General for Wales, and are consequential on the Local Government (Wales) Measure passed by the National Assembly for Wales last year. The amendments are needed to ensure that the measure operates as intended and that fees charged under the measure are treated in the same way as the fees that are charged under existing legislation.
The Local Government (Wales) Measure 2009 has several broad purposes. First, it replaced the system of “best value” in local government with a new “local government improvement” regime which introduces a broader set of duties and powers for service improvement by local authorities. Secondly, it reformed the process for producing community strategies and requires local authorities and other local service providers to collaborate in developing and implementing a long-term strategy for enhancing local well-being. Thirdly, it joined these two processes together, requiring local authorities to reflect strategic objectives in service improvement.
Local government in Wales has long been devolved, and these changes are all within the legislative competence of the National Assembly. However, one small element of the package of changes is outside it. It is that element which is addressed by the order before the Committee today.
In replacing the “best value” regime, created by the Local Government Act 1999, the measure also replaced the inspection and audit regime under the 1999 Act. Independent audit is of course vital to public accountability and can stimulate improvement. The measure reflected that principle. It also streamlined and simplified the role of the Auditor-General for Wales and the Wales Audit Office in inspecting and auditing local authority performance. In particular, it gave the Auditor-General greater flexibility to support performance improvement and to report clear findings which enhance local and national accountability.
The measure also sought to preserve the principle that public audit and inspection takes place on a quasi-contractual basis between auditors and the bodies that they audit, and is funded by fees levied on audited bodies rather than from central government. This is a widely accepted practice across the United Kingdom, for two main reasons. First, it maintains audited bodies’ responsibility for, and ownership of, the audits to which they are subjected and avoids a general charge on the public purse. Secondly, the extent and thus the cost of an audit generally reflect the level of risk within an organisation. Funding it via fees provides a further incentive to public bodies to improve their standards of corporate governance and performance management, leaving them liable to a lower fee.
The local government measure empowered the Auditor-General to levy fees for audits and inspections as previously, but it could not deal with the accounting treatment of those fees. Under Section 120(1)(c) of the Government of Wales Act 2006, the default position is that the Auditor-General must surrender any income that he or she receives to the Welsh Consolidated Fund. The Act also makes exceptions to that rule to allow the Auditor-General to retain income from specified sources, including fees charged under the Local Government Act 1999. This means that best-value audit and inspection is funded from fees and preserves the general principles which I described earlier.
The local government measure made no equivalent provision for fees charged under the new improvement regime because it had no power to do so. In general, the Assembly is prohibited from passing a measure which amends the Government of Wales Act 2006. There are obvious constitutional reasons for that general rule, but in this case it creates a problem. This order is designed to solve it. The Auditor-General would have to surrender fee income to the Welsh Consolidated Fund, and audit and inspection work under the measure would have to be financed centrally from that fund. That would be contrary to established practice across the United Kingdom, which I have already outlined, and would diminish the local ownership and effectiveness of such work. The draft order is designed to correct that situation and allow the Auditor-General to retain fees charged under the measure. It would also ensure that the Assembly’s audit committee could not examine estimates of the Auditor-General’s fee income under the measure, just as it cannot currently examine fee income under the Local Government Act 1999. This reflects the fact that the Committee’s remit does not extend to the Auditor-General’s work in relation to local government performance.
In making these changes, the draft order seeks to maintain long-established principles and practices which exist for sound reasons of public management and accountability. The Wales Audit Office strongly supports the draft order and, indeed, believes that it is vital to make the draft order before the start of the 2010-11 financial year, when audit work under the measure will begin. I commend the draft order to the House. I beg to move.
My Lords, some Members of the Committee may be surprised to find me here—and, indeed, I am surprising myself. The reason for my presence is that my noble friend Lord Glentoran has been delayed in a meeting to deal with the somewhat fraught situation in Northern Ireland. He forewarned me that that might happen and asked me to stand in his place.
As the Explanatory Memorandum notes, this is the first order under Section 50 of the Government of Wales Act 2006, which provides for changes necessary in consequence of an Assembly measure being passed. This is yet another historic first in Welsh devolution, and a fairly significant one, because what is provided for here is a change in the content of Schedule 8 of the original 2006 Act as a result of an Assembly measure. It is a curious boomerang effect, which some of us may think more curious as we consider the possible unintended consequences.
Am I right in thinking—I believe that I am—that out goes the “best value” principle of the Local Government Act 1999 and that its place is taken by an “improvement” criterion, which is very much looser and is not confined to “economy, efficiency and effectiveness”? This is clearly the case, and it is confirmed by paragraph 7.1 of the Explanatory Memorandum accompanying the order. I have not seen a copy of the Assembly measure, so I must ask whether improvement is defined there, and how. Without definition, improvement can mean all sorts of different things to different people and authorities. Definition is necessary to achieve a measure of consistency between authorities of the same kind. I would have thought that that was desirable.
I shall be very brief in my comments on article 2, amending the 2006 Act so that the Auditor-General retains income from fees and does not have to pay them into the Welsh Consolidated Fund. How will the use and expenditure of these fees be accounted for? It is a fair and an important question. Auditing systems are just as fallible as any other, and financial integrity and accountability must have a very high priority, at all times and in all organisations, especially those supported by taxpayers’ money.
The same article 2 amends the Act,
“so as to prohibit the Audit Committee of the National Assembly … from examining any … of the annual estimate of the income and expenses of the …. Auditor General”,
to quote the Explanatory Memorandum. Why should this prohibition be required? I am mystified, and surprised that the Wales Audit Office appears to have agreed to this restriction on its powers because it is content that the order be made. We ought to have a clear answer about why the exclusion of the Wales Audit Office is included because unless we do, people will read between the lines with suspicion in their hearts, and I shall not blame them.
I have looked at this measure and the consequential modifications that it addresses. This order is relatively simple, because the modifications are consequential upon changes made to the relationship between the Auditor-General for Wales and the local government improvement scheme, which allows fees charged under the previous best value scheme to be retained by the Auditor-General for Wales rather than being paid into the Welsh Consolidated Fund. The noble Lord, Lord Roberts of Conwy, asked some persistent questions with his usual incisiveness, and I shall be interested in the answers.
I have not looked into this document in the detail that the noble Lord, Lord Roberts, has, but on the surface, it seems to be an eminently sensible arrangement. It connects the accountability of the Auditor-General for Wales and local government in Wales. In evaluating the performance of local government, the fees going directly to the Auditor-General for Wales rather than into the Welsh Consolidated Fund should result in improved administration. The new scheme reflects community needs in Wales over a longer term. Communities in Wales are often small and isolated, so to secure long-term development, they require sustained schemes to secure success. A one-size-fits-all best value scheme may not provide conclusive, constructive solutions in local government in Wales. I have seen the downside of that on a number of occasions.
This order goes in the right direction and is necessary. The fact that the Wales Audit Office strongly supports it is a good reason for supporting it, albeit that the barriers to examining the detail, which were highlighted by the noble Lord, Lord Roberts, require explanation.
I rise not to debate the content of the order but because, like the noble Lord, Lord Roberts of Conwy, I am rather intrigued by the procedures and processes by which this order has arrived here. Am I right in believing that my noble friend told us that a legislative competence order for local government allowed the Welsh Assembly Government to create the Local Government (Wales) Measure 2009? Will he tell us when and how? I presume that, during the passage of that measure, someone discovered that the original order did not allow the provisions in this order to be put into the measure. I think my noble friend said that this was outside the original legislative competence order. We are being asked to repair an omission that occurred when the original LCO was brought forward to cover the situation.
I find that interesting and intriguing. Although the 2006 Act clearly anticipated that possibility, and the order is being proposed under that Act, would it not have been possible, and perhaps more consistent with the whole process, for a new LCO to have been brought forward empowering the Assembly to amend its legislation in the proper manner and therefore adopt what is included in this order? Am I right in believing that that option was available to the Assembly Government? It would have been more consistent with the way in which the original competence was achieved.
One consequence of this process is that the order has not been scrutinised by the Welsh Affairs Select Committee. As we will see when we come to the next order, the role of that Select Committee, and indeed of the Assembly committee, has been very important. Legislative competence orders have been drafted, and in many cases redrafted, as a result of very good scrutiny by both the Welsh Affairs Select Committee and the committee in the Assembly, and, as I know from having recently been a member of the Constitution Committee, by this House’s Constitution Committee. There have been a number of examples where, as a result of our scrutiny, changes and amendments have been made, and in the next order we will be looking at where that clearly happened.
However, as I understand it, this order has not been the subject of any form of scrutiny by the Select Committee. I went to find out what it had said about the order because I have very much admired the work that it has done on legislative competence orders. I was informed that it had not done anything because this is a parliamentary statutory instrument and therefore does not fall within the committee’s scrutiny remit in the context of LCOs.
If, in order to achieve the purpose of this order, the Assembly Government had come forward with an LCO to acquire such a power, they could have proceeded by amending their own measure in that way. I hope that I have not got hold of the wrong end of the stick.
If I have not, then I think that there is an issue here. If it had been in the form of an LCO, proper scrutiny by the Welsh Affairs Select Committee would have taken place, but that has not happened. Therefore, I assume that the Statutory Instruments Committee has scrutinised it, although I have not had the chance to check the trail of events leading to the order. I am very grateful that my noble friend has assured me on that point. It was originally a draft order, which, I am glad to say, required affirmative approval. I hope that at least the Statutory Instruments Committee has scrutinised it but I rather regret that an order of this kind has not been the subject of Select Committee scrutiny. I certainly value such scrutiny and it has been invaluable to the deliberations of this House and the other place.
My Lords, I am grateful for the scrutiny that has been vouchsafed on this order by the Committee today. If there is any suggestion that it has not been scrutinised enough in the past, we have certainly made up for it over the past 20 minutes or so. I assure my noble friend Lord Rowlands that the Joint Committee on Statutory Instruments has scrutinised the order, so he can rest assured that the House has done its job in those terms.
The noble Lord, Lord Livsey, indicated that he thought that the noble Lord, Lord Roberts, had been pertinent in his questions. I did not. I thought he was extremely pertinent in one question but extremely impertinent in another. He said that we would be surprised to see him in his place but I am absolutely delighted to see him in that position. As we all know, he has graced that position for many years and has served in a ministerial role in the past.
However, the noble Lord, Lord Roberts, believes that today is the occasion when we can scrutinise and challenge the principles of the measure passed by the Assembly—not this order, but the principles of the measure. The legislative Assembly thinks that the narrow concept of best value ought to be replaced, as the noble Lord, Lord Livsey, indicated, by a concept more appropriate to a strategic approach to local government in Wales. If the Assembly reaches that judgment in the age of devolution, I am not going to have the noble Lord, Lord Roberts, come to this Committee and say, “But I disagree with the principles on which the legislative Assembly is working”. That is its rightful power.
I described the order as being largely technical and I will come to the points that have been appropriately raised. The noble Lord, Lord Roberts, raised some entirely appropriate points but his main point was not appropriate. It strays too far and I am not prepared to accept it.
My noble friend Lord Rowlands never strayed from accuracy in his analysis of the issue, save in one respect. This is not a mistake; there is no oversight; this is not covering up a slip. It covers up, over a minor and technical area, for the fact that the settlement does not include this minor, technical aspect but covers the broad issues. That is why I am in dispute with the noble Lord, Lord Roberts, on whether the broad issues should have been the subject of any controversy within the Committee.
It could have been dealt with in another way. We could have had a new legislative competence order to deal with this minor matter which involves no new principle. Everything to do with the order follows principles which obtain across the rest of the United Kingdom and have already been in practice over a long period. Nothing new is suggested here but it was outside the competence of the Assembly to establish this.
Consequently, the Assembly has this principle in its new make-up. I am not prepared to countenance the noble Lord’s point except in general terms. I am always grateful for his views in general terms, but not if he is going to knock over the measure on an issue of principle of that kind. The Assembly does not have the competence for this technical aspect. It was not thought that a major legislative competence was necessary for this, but rather that it could be dealt with through a relatively minor order that was restrictive, specific and dealt with well established practice. I hope my noble friend Lord Rowlands will accept that answer.
I am going to accept it, obviously, but I would like clarification. Is my noble friend saying that it would not have been possible to have included these rights and this content in the original legislative competence order? In other words, if the order had been drafted to include the provisions that are now in this order, could they have been included in the original LCO?
My noble friend will accept that when one is dealing with major issues in legislative competence, one concentrates on the major issues and that, from time to time, a small, technical dimension may not be included. I would not accept that what is being covered up here is an error or a mistake. It is, rather, that in dealing with the measure and the competence, the measure was concerned with the principles obtaining with regard to local government and this is an aspect of audit. My noble friend will appreciate that this is a distinct and small dimension which is separate from the process of government in the obvious sense. Audit is about scrutiny and holding to account. Within that framework, what is and was being done and obtained is exactly the same as in audits of all devolved Assemblies and of the United Kingdom Government as a whole.
If my noble friend will forgive me, I shall shy away on this occasion. I am more than prepared to own up to the very infrequent mistakes that Her Majesty’s Government—this Administration—make; one or two over the past decade come to mind. This one is less an issue of mistake: it is a recognition that something needed to be done because the legislature said that it did not have the competence to do it without an order.