Select Committee on Welsh Affairs Minutes of Evidence


Examination of Witnesses (Questions 128-139)

Wednesday 11 June 2003

MR JAMES STRACHAN, MR CLIVE GRACE AND MR MARTIN EVANS

  Q128  Mr Caton: Mr Strachan, thank you very much for attending the Welsh Affairs Select Committee as part of the pre-legislative scrutiny that we are undertaking of this particular Bill. Would you like to begin by introducing yourself and your colleagues to the Committee and I think you would like to make an opening statement as well.

  Mr Strachan: Indeed. Good afternoon to all of you. I am joined on my left by Martin Evans, who is the Director of Audit Policy and Appointments at the Commission and, on my right, by Clive Grace, who is Director-General of the Audit Commission in Wales. I would like to make a number of opening comments. I would like to put our comments on the Bill itself in a slightly broader context first, but I will do that quite briefly, and that is in terms of what we see as the fundamental purpose of public sector regulators, including, of course, the National Audit Office, who you have just seen. This is very much the movement that has taken place over the last few years, and which we are trying to accelerate, from being primarily about assurance to being about assurance but actually even more about improving public services, because we believe quite strongly that while we have pronounced vigorously over the years on other people's value for money, it is fair to say that a number of regulators could perhaps ask themselves with the same degree of rigour what their own regulatory value for money is. In my view we should not be spending the amounts of money involved unless we can see some demonstrable improvement in public services. That is very much the backdrop. We have tried to conceptualise some of this into strategic regulation, which I am not going to describe at great length, just to say that this approach is almost as much about deregulation as regulation; less can actually be more. Regulators will of course continue to protect the taxpayer against fraud, against corruption, against waste, especially looking at protecting vulnerable groups, but the real focus should be on improvement, the public sector's capacity to maximise the value of its funding. It should focus heavily on the needs of service users, the public. It should leave the high performers relatively alone by taking a strategic approach where we are saying we want to devote our resource to those parts of public services where the room for improvement is greatest, and leave those bodies who are performing extremely well in relative terms relatively alone. The last point that I would make is that does alter slightly the relationship between the regulated and the regulator because while it needs, on the one hand, to clearly avoid any remotest glimmer of regulatory capture, at the same time there is a need to work more in partnership than public service regulators have in the past if we are truly to extract improvement from the process. The second part of what I would like to say is looking specifically at Wales, obviously the Audit Commission has a lot of experience historically looking at both England and Wales and comparisons between the two show quite a mixed picture with Wales stronger, in fact, in education but with a lot more problems in housing, in health and in social care. The picture within Wales is even more mixed in that there are some outstanding examples of services which have actually transformed themselves but there are many more which are failing to serve the people as they should, in our view. It is a very challenging agenda in Wales for a regulator, for an auditor, for an inspector. We believe that the proposals that have been put forward in terms of rationalising, modernising, audit arrangements for Wales are very good. We are fully aware of the desire to facilitate a fairly smooth parliamentary passage and we acknowledge that what has been proposed has that very much in mind. We think there are certain refinements that could strengthen what is being proposed and, although we highlight this in some detail in our written submission, before we open this further I would just highlight three key areas. The first one is comparison. We do believe strongly that there is a need for continued comparison between England and Wales. We believe that is very much in the interests of the Welsh public service user and, indeed, the Welsh taxpayer. There is a need perhaps even to widen that comparison to Scotland and Northern Ireland, but the purpose of the comparison, let us be clear, is in order to share best practice, to learn from other people's successes but also from their mistakes, in order to improve. Of course, as you well accept, the natural and logical consequence of devolution is increased variation and divergence in practice, not of necessity but I think we would all accept that is very likely. Wales has clearly taken a different approach from England in terms of targets, in terms of naming and shaming. However, we do think the learning needs to flow in both directions. The solution that we would propose is that there is actually a statutory duty on the Auditor General to collaborate with his or her regulatory counterparts specifically to facilitate comparison, the sharing of information, and—I would stress this point too—avoid a sharp divergence of methodologies because although, on the one hand, from the political perspective there may clearly be very different policy objectives, the ease with which you can compare will be made even more difficult if the underlying methodologies are diverging at the same time. Although one cannot be very specific at this point, because clearly the Bill is going through Parliament, one only has to look at health in that respect where CHAI, the newly proposed health regulator, has an England and Wales remit. If the underpinning methodologies in the two different countries are very divergent that will make some of the useful cross-country comparisons extremely difficult. The second point is independence. Concern has been expressed by others, as you well know, regarding the governance structure proposed in the Bill whereby existing powers that are conferred at the moment on both the board of Commissioners and a Crown appointment are transferred to a single Crown appointee. Certainly we agree, as you would expect, that independence, and indeed the perception of independence, is the very lifeblood of effective regulation. The advantages which flow from the very close working relationship which the size and governance of Wales make possible might perhaps blunt the edge of the independence and objectivity which regulators must also have if we are to be of lasting value. Our solution in terms of the independence point is that while, I am sure like you, we have the highest respect and total confidence in Sir John Bourn, the current Auditor General for Wales, however if we are to look at the future there have been suggestions that an advisory board would provide useful Welsh input and, indeed, constructive independent challenge to the work of the office of the Auditor General. We would certainly endorse further examination of such a proposition. My third and final point is integration. I have talked already about the inherent divergence that results from devolution. One of the challenges is that specifically focusing on health in Wales the Bill as drafted does not provide for the all-important local value for money remit in health which, of course, as we operate at the moment, is very much part of the Audit Commission's remit in health. I would say wholeheartedly that it is very much at the core of our ability to make useful statements both at a local level but also to underpin some of our national studies. If we lose that we think that we will be losing quite a significant item. While I think this is not a point of contention in terms of discussions with officials, we do feel strongly about the concept of an integrated local audit and that that should be maintained and, therefore, the remit of the Auditor General should be extended to include local VFM in health. That really ends all that I want to say by way of opening remarks.

  Q129  Mr Caton: Thank you very much, Mr Strachan, that has set the scene very well. I have to apologise, I think there is going to be a vote in a very few minutes and I will have to suspend the meeting when that comes, but we will press on for now.

  Mr Strachan: I am used to that.

  Q130  Mr Williams: When we took evidence from Sue Essex, who is the Assembly Minister for Local Government, she told us that this draft Bill was one of three options for reorganising the audit functions in Wales; the other two being "do nothing" or following the Scottish or Irish models, which included an Accounts Commission. Is there any other way in which the audit functions could have been reorganised for Wales?

  Mr Strachan: I think I will ask Martin if he would like to respond to that.

  Mr Evans: I think those are the main options available to the government. In putting together our thoughts about the future arrangements for public audit in Wales we did look at those and we do think that the model being proposed in the Bill is better than the model that applies in Scotland where you have retained the equivalent of the Commission with responsibility for local government audit. We do think bringing it together in one body is consistent with the whole thrust of the modernising agenda in public services, joining up services across organisational, and sectoral boundaries. Of the options available, we think this is the right one.

  Q131  Mr Williams: So the strength of this solution is integration?

  Mr Evans: I think so.

  Q132  Mr Williams: We would like to move on now to the role of the Auditor for Wales and the abolition of the remit of the Audit Commission in Wales. Your memorandum promotes the establishment of an advisory board, as you have mentioned already. What powers should be conferred on to such a board?

  Mr Strachan: We feel that should probably be a fairly light touch advisory board or panel in the sense that it would provide a combination primarily of two things, one of very valuable local Welsh input in a way that by formulating that process you would get a greater value from it than merely being able to say you are open to stakeholders putting views to you, that would be on the one hand, and, on the other hand, nothing to do specifically with the Welsh context, simply a group of motivated independent individuals who would provide a consistent level of external challenge. We all accept that the reason that this structure is being proposed is a function of history, it is not necessarily quite the structure that if you said parliamentary time was not at a premium one would create off a blank sheet of paper. I think governing that it would be healthy to have some formalised mechanism which provided that independent external challenge but without going so far as to try to create a very different governance structure on top of what is a Crown appointment, which would get us into all kinds of legal wrangles.

  Q133  Mr Williams: How could you ensure that the presence of such a body would not compromise the independence of the Auditor General?

  Mr Strachan: Because I think if you were to give that body formal directions you would start to compromise that independence, but if that body simply is the provider of consistent, focused external challenges as opposed to the looser notion of everybody can say their piece, I think that is of value.

  Mr Caton: The Division has started so we will have to suspend the meeting until we have voted.

The Committee suspended from 4.31 pm to 4.56 pm for a division in the House

  Q134  Mr Williams: Still considering the possibility of an advisory board, you argue that the Auditor General should appoint members to such a board "after consultation with audited bodies' national representative bodies, the profession and other stakeholders". Would you envisage these groups holding a veto on the appointment?

  Mr Strachan: I do not think they should have a veto, no.

  Q135  Mr Williams: Just an advisory role?

  Mr Strachan: Yes, exactly.

  Q136  Dr Francis: The draft Bill proposes to draw together the two separate functions of the National Audit Office and the Audit Commission. While there appears to be a consensus welcoming the principle of the draft Bill, there have been concerns about the safeguarding of local democratic accountability. Are you satisfied that the draft Bill will provide these safeguards?

  Mr Grace: There is quite a lot of concern about that. The principal way in which the safeguards continue is that the Auditor General would not himself audit local government bodies in particular but would appoint auditors to do that much in the way that the Audit Commission currently does, so that that would help to create a degree of separation. That should be sufficient because in effect it retains the current arrangements that the Commission has to ensure that the relationship between auditor and audited body has the right degree of separation.

  Q137  Mr Caton: Mr Strachan, in your opening remarks you referred to your concerns about health, and indeed in your memorandum you state that the draft Bill would make it "more difficult to carry out and charge for performance audit work as part of the annual audit work at health bodies". How should the draft Bill be changed to allow for this work to be carried out?

  Mr Strachan: In response to the first part of that question, the power simply is not there, and in response to the second part, we will want to see it there and it is simply a question of an omission which I think in our discussions with officials is something that is not contentious. It has been realised ex post that this is an omission and it is simply a question of putting it in. It is not complex.

  Mr Evans: In practice it would involve extending the remit of the Auditor General in relation to health bodies as set out in Clause 56 of the draft Bill to include the powers of the auditors of local government bodies as set out in Clause 17 of the draft Bill. If you could bring those together in relation to health you would achieve what we are looking for.

  Q138  Mr Caton: Professor Talbot of the University of Glamorgan, who we took evidence from on Monday, argues that the draft Bill should encourage the auditing of performance targets. Would you be in favour of this?

  Mr Strachan: Clearly, if we are to look at performance audit, then an essential part of that is to look at what the objectives or targets of particular local bodies are. That is in effect performance auditing because if you are auditing against something in a sense you have an aim to the target. It is an effective form of performance audit, so that is another way of saying, "Absolutely".

  Q139  Mr Williams: Talking now about safeguarding the democratic accountability of local government, the Welsh Local Government Association told us of its concerns that the "ethos" of local audit and the partnership approach taken by the local authorities, auditors and the Audit Commission could be lost with the amalgamation of the two audit bodies. Do you share these fears?

  Mr Strachan: I must admit I do not share those fears. If anything it really highlights a different approach, a marked contrast of approach, which actually, if anything, is a slight inversion of what you have just described in the sense that in Wales there is very much a partnership approach. Some would argue that that creates less pressure. I think that is really the contentious issue more than the way you described it, which is the reverse of that.

  Mr Grace: It is true that the partnership working which does exist depends upon building up relationships, trust, confidence, over a period of time and there is at the moment a particular flowering of that in relation to local government through the Wales Programme for Improvement and the creation of the Improvement Board which is working very effectively. I suppose institutional change and the creation of the new Wales Audit Office could mean that that could get lost along the way. My own view is that those arrangements are proving very successful and there is a lot of momentum behind them. The proof of the pudding will be if they can translate into actual improvement and change on the ground and if they do that I think there would be overwhelming and comprehensive commitment to maintain them, and I think that is the best source of that continuing.


 
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