Draft Audit Commission (Borrowing Limit) Order 2002

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Dr. Whitehead: That was a most interesting speech from the hon. Member for North-East Cambridgeshire (Mr. Moss), which set out a series of diverse points. I am unsure how many of them related to the issue before the Committee, but I shall do my best to respond to them. If his points were valid, they would have made a substantial case about the best-value regime in general. The importance that Opposition Members attach to the issue of best value is evidenced by the almost complete absence of Opposition Members from the Committee to support the hon. Gentleman. The Labour Benches, by contrast, are rather well stocked.

The hon. Gentleman made four key points and I shall deal first with the last one, which concerned the reason for the appointment of Lord Warner to chair the Audit Commission. I am not sure that I can shed too much light on that, because Lord Warner is not being appointed to that post. Speculation as to the reasons for the appointment is therefore superfluous.

Mr. Moss: The Minister said that Lord Warner had not been appointed; is he in line to be appointed the next chairman?

Dr. Whitehead: No.

The second issue raised by the hon. Gentleman was why the Audit Commission requires an overdraft facility of £12 million, and the answer relates to its operational requirement. For example, at the start of the commission's operational year, which runs from 1 November to 31 October, auditors and inspectors are

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required to agree the annual fee with councils and authorities. The sheer number of authorities means that that process can take up to two months. Most authorities are unwilling to approve invoices for payment until the annual fee has been agreed. That results in the majority of authorities paying an annual fee over a 10-month period. However, the risk to the commission comes at the beginning of the period. The range of the risk is about £7.5 million per month for district audit, or £2 million per month for the inspection service. Over a two-month period, that could lead to a maximum cash flow risk of up to £19 million. On the basis that the commission's cash deposits rarely exceed £7 million to £9 million, its liquidity risk alone would justify the extent of the overdraft facility up to £12 million.

It is interesting, also, to note that several health authorities and national health service trusts defer their payment of audit fees to before the end of their financial year. Total debtor balances, therefore, at the end of January 2002, amounted to £24 million, of which £6 million were overdue. It is worth noting that the commission receives about 85 per cent. of its income from audits and inspection fees. Approximately 60 per cent. of its costs relate to staff salaries. Therefore, the commission is required to pay salary and associated payroll costs of up to £8 million a month, at least four weeks before the corresponding fee income is due. That figure alone rises to £11 million when performance management payments, which are judged twice a year, are made.

On any reckoning, with respect to the requirements on the Audit Commission to operate safely and reasonably during the year, the potential exposure to which it is liable at various times could easily reach the suggested £12 million limit. The current overdraft limit is essentially the same as when the commission was first set up. The figure of £12 million, is, in terms of prudent operation, well chosen. It has not, as the hon. Member for North-East Cambridgeshire suggested, been plucked out of thin air.

The hon. Gentleman contended that the immense expansion in the activities of the commission is all down to the Labour Government, and that the overdraft somehow relates to that. I remind hon. Members that the commission was set up in 1983 to appoint and regulate the external auditors of local authorities in England and Wales. Shortly afterwards it took to itself a much wider function in terms of best practice, advising and encouraging local government. There was rapid expansion after 1983, during the early years of a Conservative Government. In 1990, again under a Conservative Government, its role was substantially expanded to cover the NHS, including auditing health authorities and conducting value-for-money studies.

The Local Government Act 1992, enacted under a Conservative Government, gave the commission responsibility for local authority performance indicators, and best-value performance indicators have superseded and replaced them. They have not significantly expanded the indicators in total in terms

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of the commission's work. The Audit (Miscellaneous Provisions) Act 1996 gave the commission responsibility for the joint inspections of social services, and the Education Act 1997 gave it responsibility for the joint inspection of local education authorities.

The vast majority of the commission's expanded workload took place under a Conservative Government. The present Government are, to some extent, changing the nature of some elements of the commission's work, but we are not expanding it in the way suggested by the hon. Member for North-East Cambridgeshire. Nor, were he to be asked, would he deny that the Conservative Government supported the commission, and that his party continues to support it, as a method of auditing, regulating, advising and assisting local government and other public services in the execution of their duties.

The hon. Gentleman said that best value does not work. On the contrary, an increasing amount of evidence shows that it does. The commission's report, ''Changing Gear'', drawing on evidence of the first 18 months of best value—from inspections, and from audit and performance indicators—confirms that best value is bringing about service improvements. The indicators show encouraging signs of progress. For instance, 40 per cent. of councils have already achieved high standards across the board, and a number of local authorities have entered into large-scale partnership arrangements with private companies, which can offer significant savings and service improvements.

The Government have reviewed the operation of best value performance indicators.

Mr. Moss: Will the Minister explain why, if best value is so wonderful, the Labour party in the Welsh Assembly has decided to do away with it?

Dr. Whitehead: One of the undoubted benefits of devolution is that parties in different parts of the country can do things differently. A significant element of devolution is that the Welsh Assembly and the Scottish Parliament can do things in different ways, but that does not gainsay what I have said about the review of best practice undertaken by the Audit Commission or about the fact that, in England, where the commission is responsible for local government, the signs are that best value has offered significant savings and improvements. In general, it can be said to be working well.

Mr. Julian Brazier (Canterbury): Perhaps the Minister should bear in mind the words of Vladimir Putin, who is trying to turn round a large and difficult bureaucracy. He said in his election manifesto that an organisation that sets itself hundreds of priorities ends up achieving nothing.

Dr. Whitehead: I have not read that election manifesto, but it seemed to mark a return to some of the elements of the state-centred bureaucracy that was the main feature of the nomenclatura era of the then Soviet Union. If one reads it carefully, one might consider that that manifesto statement sat rather ill with whatever else it contained. Indeed, experience of some of the elements of Mr. Putin's rule, especially the way in which local government has fared in Russia,

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underlines my view rather than that of the hon. Gentleman. We should let that pass, however, because I am not sure that it is strictly germane to the business in hand.

As we announced in the local government White Paper, best value will be streamlined. Some early changes will be streamlined, and some early changes to the performance plan, audit deadlines and review of requirements have already been made. We are attending to local government concerns about exactly how the aims of the best-value regime are achieved within the overall principle that it should assist local government in making service improvements and savings. Achieving the aims of best value will be an important part of the comprehensive performance assessment to which all local authorities will be subject. That is set out in the White Paper.

Mr. Moss: The Minister quoted me as saying that we do not think that the concept of best value is useful, but that is not true. We all agree that continually aiming for best value in local authorities is good idea, but we take issue with how that is being done, as £54 million is not enough money for councils to operate the system. About £175 million, which was earmarked for basic services, is being taken from those basic services to run the system.

The Minister says that he had listened to local government concerns, but they are more than concerns—they are severe criticisms by local authorities about the policy. Tinkering with that policy will not solve the problem. Does he not realise that he has a serious problem on his hands?

Dr. Whitehead: I would be more sympathetic to the hon. Gentleman's point if there had been no such thing as the Audit Commission before the Labour Government took office, and if the commission—or, indeed, anything like it—had had no responsibility for auditing, inspecting, validating and guiding the performance and activities of local government and other public service providers. I have demonstrated that that is not the case, as the vast majority of the commission's expenditure and activities that are in place now were in place under the last Conservative Government.

If the hon. Gentleman wants to start again from ground zero and invent an entirely new system, he may speculate further on that matter on some other occasion. I understand that the hon. Member for Maidenhead (Mrs. May), the shadow Secretary of State for Transport, Local Government and the Regions, would do away with best value if the Conservative party were ever returned to power. Does that mean that there would be no regulation or auditing of local government and no inspection or discussion of best practice with local government, or does the hon. Gentleman have something better in mind?

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