Session 2010-11
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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 763-iv

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Communities and Local Government Committee

Audit and Inspection of Local Authorities

Monday 21 March 2011

Dai Hudd and chris round

belinda wadsworth, rebecca veasey and matthew sinclair

paul o’brien and professor john seddon

Evidence heard in Public Questions 262 - 375

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Communities and Local Government Committee

on Monday 21 March 2011

Members present:

Mr Clive Betts (Chair)

Bob Blackman

Simon Danczuk

Mike Freer

Mark Pawsey

Steve Rotheram

________________

Examination of Witnesses

Witnesses: Dai Hudd, Deputy General Secretary, Prospect, and Chris Round, Audit Commission Branch Chair, Prospect, gave evidence.

Q262 Chair: Good afternoon, and welcome to our fourth evidence session on the inquiry into the audit and inspection of local authorities. For the sake of our records, could you introduce yourselves, and say who you are and the organisation you represent?

Dai Hudd: Thank you. I am Dai Hudd, Deputy General Secretary of Prospect.

Chris Round: I am Chris Round; I am Branch Chairman of the Audit Commission branch of Prospect.

Q263 Chair: I would just say sorry at the beginning for the fact that we have slightly fewer members than we normally have. We have something quite important going on in the House this afternoon, and obviously some members have found it necessary to be there rather than here.

There has been a lot of speculation about why the Government made the decision to abolish the Audit Commission. What do you think were the true reasons?

Dai Hudd: Can I open and then I am sure Chris will add some personal perspectives as an employee of the Audit Commission? The announcement on Friday 13 August took us all by surprise. Clearly the Audit Commission, for reasons of what it does, occasionally gets into the public domain, but the announcement of the abolition came us a shock. We sought immediate meetings with the Minister and indeed officials to get some background to the decisions, and all we effectively had was the press release by the Minister, Eric Pickles, which is scant on detail and pretty high on rhetoric, if I can put it that way. We did not get a meeting with the Minister until 10 November, and that followed a parliamentary question asking the Minister why we had not met. That meeting-I was not present, but Chris was-again was fairly scant on detail and there were no actual proposals as to what should happen as a consequence of the decision, or in fact any detail of the evidence on which the decision was based.

Coming directly to your question, we can speculate in relation to why we believe the Audit Commission is where it is but, actually in terms of information and evidence on which the Minister made that decision, at the moment we are left pretty much in the dark.

Chris Round: From the staff point of view, the announcement came as a complete surprise. Prior to this, the Government had announced the abolition of the Comprehensive Area Assessment reviews, and the Government always made it clear before it was elected that it was looking at this and was seeking to abolish them, so that announcement did not come as a surprise, but the announcement to abolish the Audit Commission came as a complete surprise to staff. As to the reasons given-that it would save £50 million of public expenditure-none of the staff were clear where that figure came from or what it was based on. As far as we can see, there has been no thought as to the consequences of abolishing the Audit Commission, and staff are still very much left in limbo wondering what is going to happen to them, and as yet no firm decisions have been made.

Q264 Chair: In terms of the savings, have you done any analysis of what you think the savings will be?

Chris Round: We do not know where the Secretary of State got his figure of £50 million from. It appears to be based on the corporate expenditure, the centrally directed expenditure of the Audit Commission, but that would not all be saved if the Audit Commission is abolished, because some of that would relate to the running of the audit practice. In addition to that, a lot of that expenditure would have been saved anyway, as a result of the abolition of the Comprehensive Area Assessment. Where those figures came from, I do not know. The Chairman of the Audit Commission in previous evidence estimated that the net savings might be no more than £10 million. I have no better figures than those. The Audit Commission would have the more accurate figures, I believe.

Q265 Mark Pawsey: The Government did speak about a more localist agenda and allowing councils and authorities to get on with things. When that happens and there is no Audit Commission to monitor what they are doing, what do you think the major loss will be? How will people recognise a difference?

Dai Hudd: Can I answer that and then perhaps Chris can supplement that as well? A lot of talk in political circles has been about the Total Place and, I have to say, in terms of a taxpayer and as a union official, I can see the logic in that. If you look at Wales and Scotland, they have been able to take a broader view of public services. We think the Audit Commission and some of the work they have been doing in auditing across various parts of the public function could be the facility of developing that concept, so that localism becomes stronger, not weaker. We think part of the problem is, without a common perspective across all functions of the public sector that the Audit Commission would provide, it would undermine that principle, not support it. I do not know, Chris, whether you have any comments.

Chris Round: The Audit Commission has always been dedicated to delivering local audit to its client councils, and staff have very much been geared to doing that. In terms of your question of what would be lost, what would be lost would be the ability to challenge local authorities for some of their actions. To believe that armchair auditors, as the Secretary of State has suggested, could take the place of a proper audit and inspection regime is not likely to be very successful.

If you take an example like the Westminster saga with Dame Shirley Porter and the gerrymandering allegations, it is difficult to see how armchair auditors could have raised that issue and successfully pursued it. It is difficult to see how auditors, without the background support of a central Audit Commission, could pursue that sort of action. For much of the period of that case, the Audit Commission kept reserves of £12 million to fund legal action and potential liabilities. It is difficult to see how private accountancy firms would wish to pursue action in the same way with the same potential liabilities, without the support of an Audit Commission centrally.

Q266 Mark Pawsey: You are suggesting that individual bodies could not decide the level of audit and inspection that they themselves should undergo.

Chris Round: I am sure that most bodies, given the choice, would want to reduce the level of the audit to a minimum, but this is public money; it is not like a private firm, where you have the choice to invest. We all have to pay our council tax to our local authorities or our taxes to central Government, which funds a lot of the local services we have. This is not a matter of choice, and public sector audit is fundamentally different from auditing a private company.

Q267 Mark Pawsey: In terms of the role that Audit Commission staff have been undertaking, has it been their assessment that the role they have been undertaking has been a fundamental and important role within the Government sector?

Chris Round: We certainly believe that.

Q268 Simon Danczuk: My question is around independence and whether, with the new structures that are going to be put in place, you feel that auditor independence will be threatened by the fact that they will be appointed locally. At the same time, there is that contrast with the fact that private practice audits a lot; there are different aspects of the public sector that already choose their own independent auditor. Just your thoughts on that issue, please.

Chris Round: I think we go back to the premise that this is not like auditing a private company. These are public bodies and this is public money; none of us have any say in whether we pay it or not. There is a fundamental difference there from the start. I believe firmly myself, and I believe the majority of staff in the Audit Commission believe, that the appointment of independent auditors is very important, because it does provide that independence and that ability to challenge big organisations, quite often political organisations. An independent regulator has that ability to challenge.

I think if the local authorities were given the power to appoint their own auditors, there is a danger that that independence would be lost. If we go back to some of the major cases, would a private sector company or an auditor appointed under contract, knowing that that contract could be terminated, be so willing to challenge an authority in the way that the Audit Commission now can? I personally do not think so.

Dai Hudd: If I can just add a supplementary point, the politics of this need to be understood as well. It is fairly clear that different local authorities made up of different political complexions quite rightly will have different sets of priority. That is part of a modern, mature, democratic society. However, how public money is spent has to be calibrated, I believe, so that the public can judge beyond politics whether or not it is getting a fair bang for its buck. Without the role of organisations like the Audit Commission, any form of comparison as to public worth in terms of services, across a potentially wider range of providers in the future than we have now, needs to be underpinning that, I believe, as part of that process.

Q269 Chair: In terms of independence, could you not put safeguards in? An authority appoints an auditor but could only appoint them for a limited period of time. You could even perhaps ensure that there were independent members on the Audit Committee that did that appointment. If the Government is going to go ahead, aren’t there certain safeguards that you can build into the system?

Dai Hudd: This is the concept of rotational contracts. There are two question marks I would have over that. Firstly, that may very well mean that a good auditor that is producing good quality work may lose the contract by dint of the fact that they are not part of the rotational chain. The other difficulty with that is, if that is happening right across the country, the concept that I was referring to earlier about comparisons across local authorities, which may have very different political objectives but still underpinning that have to have the value of public money and public worth, would potentially be lost. Whilst it may have a superficial attraction, I am not quite sure in practical terms it would deliver the benefit that people think it might.

Q270 Bob Blackman: Under the old regime, something like 25% of audits were conducted by private firms anyway, under the direction, admittedly, of the Audit Commission. Many of those-I can tell you from when I was a local authority leader-had a private firm come in and do the audits. They discovered things that they thought should not have been done in particular ways that the Audit Commission had missed. It is not always true to say that the Audit Commission is doing things in exactly the right way, so why shouldn’t private firms actually be better at finding out some of the problems inherent in local authorities?

Chris Round: I am sure that quite often auditors will take over an audit and find things that the internal audit provider has missed. I do not think that is the point. If you take again the Westminster case, the auditor that pursued that case, the district auditor John Magill, worked for Price Waterhouse. The point was that the Audit Commission provided the support and took on some of the liability for pursuing that case, and that is what I cannot see in the new regime that is proposed, whatever form it takes at the moment.

Q271 Bob Blackman: Is your case then that there should be protection for private auditors that may pursue this, rather than just the position that it has to be done by the Audit Commission?

Chris Round: Yes.

Dai Hudd: I think your question, if I may just follow up, is one more of balance. There is a proper debate to be had about the balance and role of the private sector in this work. We have major doubts over the idea that in some way abolishing the Audit Commission would automatically open the door to greater private sector provision, but the argument about whether or not there is a sufficient mix of auditing being done under the auspices of the Audit Commission currently is a fair debate.

Q272 Chair: One question that you raised in your evidence in terms of the Audit Commission’s role is about the intelligent customer, which is an issue that a number of authorities have found very difficult. Once they have contracted everything out and then have to come to retender next time, they are not quite as able to formulate the tender documents with the degree of expertise that they probably had once upon a time.

Dai Hudd: I can see for some people of a particular political persuasion that a great rush towards-if I could put it this way-the private sector has attractions. I do not share their argument but I can understand why that may be. One of the great problems with that is, if you lose that expertise, your ability to manage that process and particularly manage competition-bearing in mind this market is so dominated by four very significant players-to the point that you become beholden to private sector competition, it not being a servant to the public-public good being the master-is a great danger. We think it is quite a danger in this particular area. There is an inquiry going on in the other place looking at this very issue as we speak, and this deliberation that you are considering today has been quoted in some of the evidence there.

Q273 Mike Freer: Do you not think that using more private-sector firms appointed directly by councils will actually drive down audit fees?

Dai Hudd: There is not a lot of evidence that we have seen to suggest that bringing in greater private-sector involvement will necessarily drive down costs. My view is that is a debate over which I am agnostic. I could argue neither that it will nor that it won’t. It is your colleague Mr Blackman’s point: it is the mix of the involvement of the private sector in this auditing area, albeit with the Commission having the ability to set the standard by which that happens, and the performance is a key point. Therefore you will be able to see whether the private sector can drive down the cost.

The other thing again, coming back to the Chair’s comment, that you need to be very careful of is, bearing in mind this is a potentially enormously lucrative part of work, there will be the move to loss leaders. There is a question people need to ask about the greater involvement of the private sector. There has been criticism for at least the last five or six years, by many different groups, of the dominance of the four big players in this area over the auditing world. If markets work so well, why aren’t more players entering that market? There has to be something structurally around the market of auditing that allows four preeminent players to dominate the market in the way that they do. I think there are great dangers to simply opening out to the private sector as a whole, but in part a greater involvement is something that we, as a union, would not necessarily oppose. In fact, there might be some merit in doing that for crosscomparison purposes.

Q274 Mike Freer: Is there not some evidence that things like Foundation Trusts and FTSE 100 companies have actually driven down audit fees, certainly in the last few years?

Chris Round: If you compare local authorities of the same size as equivalent FTSE companies, the audit fees in the private sector are considerably greater for the FTSE companies. The Audit Commission over the years has acted as a regulator of prices, by the very fact that it can act as a bulk purchaser, etc. With things like the Foundation Trusts, there is some evidence that the fees, where private-sector companies have won those audits, have been higher than if the Audit Commission inhouse staff had won those audits.

Q275 Mike Freer: Hasn’t there been some criticism of the Audit Commission, because the fees went up in the last few years, when in fact most audit fees in the private sector went down? They were countercyclical during the recession. There was commentary, certainly in my own local authority, complaining of them going up when most private sector audit fees were going down.

Chris Round: There can be a confusion between the audit fees, and the audit and inspection fees. Now that the Comprehensive Area Assessment has ceased, the Audit Commission fees are reducing considerably.

Dai Hudd: We would not deny that inspection costs did go up. The previous Government, for its own agenda, brought in that inspection regime. As Chris quite rightly said, if you look at the total costs in terms of the Audit Commission, they went up. We would argue that those are proportionately significantly higher in the area of inspection than they were in the area of audit.

Q276 Simon Danczuk: How do wages and conditions in the Audit Commission compare with those in the private sector?

Chris Round: When we have done surveys of our pay terms and conditions, we have normally compared them against the public sector and the private financial sector. We have used companies like Hay-MSL to do these sorts of surveys, and our salaries have always been broadly comparable.

Dai Hudd: In total reward terms, and that is including all aspects of employment, you could not argue that there is a lag, nor is there a gain, in relation to the Audit Commission and comparable private-sector practitioners.

Simon Danczuk: It is very similar, is it?

Dai Hudd: Very similar, but the reward package is made up differently.

Q277 Simon Danczuk: Briefly on that, how is it different?

Dai Hudd: For example, the pension regime in the Audit Commission is not similar to those in the private sector, although by and large private-sector salaries will be higher. If it would help, I am pretty sure we could probably dig out the comparative reports to let you see those. In broad terms, the total reward package is pretty similar.

Q278 Simon Danczuk: My second question is around people leaving the Audit Commission. Has there always been a high turnover? I presume it is high now; people are leaving. Some have been moved out and some are moving out. Has it always had a high turnover of staff or not?

Chris Round: No, the Audit Commission traditionally has had a very low turnover of staff, particularly on the audit side. Most people have been, for want of a better term, dedicated public sector auditors and have stayed with the organisation.

Q279 Mark Pawsey: I think it is Prospect’s position that the Audit Commission should be retained in its existing form. Is that right?

Dai Hudd: I would not quite say "in its existing form". We think there is a powerful argument for the retention of an Audit Commission. Our view is there is scope for reform. Clearly now inspection has gone, and that was very much a policy by the previous Government. That is no longer; that has an impact on the Audit Commission. There are initiatives this Government is taking around things like the Big Society, bringing a more diverse range of people and organisations into public service, so we think there is scope to reform the Audit Commission to respond to those challenges. There is the issue of the greater involvement of the private sector. Those are areas where we think there is a lot of scope for worthwhile and constructive debate and discussion. We would not argue for it in its current form.

Q280 Mark Pawsey: It does say on your website under "News and campaigns", "Scapegoating public servants who have done nothing to bring about the financial deficit shows that the Government is tackling the symptoms of the deficit but not its cause." Aren’t you just, as you would expect of a trade union, doing your best to preserve your members’ jobs?

Dai Hudd: In broad terms, I have no difficulty with the statement you have just read out but, in the particular, we have always as an organisation engaged in the merits of the individual arguments. We have gone along with different models of ownership in public and private over the last 20 years, let alone in recent years. I do not demur for one second from that broad statement on our website, but we will always look at the merits of the argument in individual areas. The conclusion we have come to, in terms of the Audit Commission, is there is scope for reform. In fact, we have probably said that before the announcement was made in the way that it has. We just simply think this is a very blunt approach and one that is inappropriate, and may yet have unintended consequences.

Q281 Mark Pawsey: One form of reform is becoming a mutual. What is the view of your members of that?

Dai Hudd: We would look at it. We would look at a mutual, provided there was a significant stakeholder involvement of the people who work in the Audit Commission. One of the difficulties with the concept of mutual is the Cabinet Office, as with another hat on quite a lot of the initiative is by Francis Maude. There is not a lot of flesh on the bones of what this mutual model may look like. On the one level, I think that is good because it allows for debate and discussion. On another level, it is tantalisingly frustrating, because we are not able to put a model forward to members that they can look at, see and engage in. In broad terms, a mutual approach that had strong stakeholder involvement of the people involved, with the reform agenda that I described earlier, we think could present a package that responds to a lot of the criticisms of the Audit Commission going forward.

Q282 Mark Pawsey: If there is a degree of uncertainty at the moment, are you finding staff leaving the organisation? What is the rate of staff turnover?

Chris Round: At the moment, the majority of staff are staying with the Audit Commission. The problem is the continued uncertainty. Until some sort of decision is made by Government as to whether it will support a mutual, that uncertainty is allowed to continue and we could lose staff. The Audit Commission did a survey of its staff to ascertain support for some form of employeeowned practice that would preserve the public-sector values that most of us hold, and there was 83% support among staff for that, so I think there is quite a lot of support among staff.

Q283 Mark Pawsey: If staff were to leave, where would they go? What sorts of skills do they have that would be marketable within the jobs market?

Chris Round: Most of them are qualified accountants with a lot of experience, so some staff would be highly marketable, I would have thought.

Q284 Mark Pawsey: Would there be opportunities for them in the private sector?

Chris Round: I imagine there would be for some, yes.

Dai Hudd: Could I just follow that up? We have done some anecdotal surveys of our members, more in science and engineering, I have to say, than this particular field. When people face redundancies, only one in four remain in the discipline from which they were made redundant. Most people, if they are made redundant, tend to look at broader career changes. Bearing in mind a lot of these people will be well trained and academically well qualified, the ability for them to switch careers is probably easier than it would be for people who have less of an academic background. You cannot make an assumption that this process would inevitably flood the market so that the private sector can then flourish. There is not a lot of evidence to suggest that that may happen.

Q285 Mark Pawsey: Does it follow then that, if the private sector picks up the work that the Audit Commission is currently doing, your fear may be that some of the people who have some skill and expertise in carrying out public-sector audit may no longer be involved in public-sector audit by the time the private sector comes to recruit?

Dai Hudd: That may very well be the case. For example, in teaching at the moment, even though there are cutbacks, teaching particularly of mathematics and other areas is in high demand. People may well make a complete switch of career and go into teaching mathematics, for example, something for which academically their background would well place them. What I am simply saying is you cannot make an assumption that these people bleeding into the labour market would automatically go to the nearest private-sector provider that does similar to what they do. Our evidence tends to suggest that that does not necessarily happen.

Q286 Mark Pawsey: If the private sector does take on this work and it is recruiting, your members would be ideally placed.

Dai Hudd: Providing you have the activity happening simultaneously, which may well happen, and people know what their options are, which they may know naturally. The announcement was made on 13 August, and we are now seven months down the line before we will get another meeting with the Minister. The last one was pretty dysfunctional, in the sense that the Minister was not particularly well briefed and was not able to respond to questions on pensions and so on. If the next one is that position, people will leech into the marketplace and make their own decisions. If opportunities in the private sector, if that were the route the Government were to take, are available at the time when skills become available in the marketplace, that may happen, but I strongly suspect that this has been planned so that is highly unlikely.

Q287 Simon Danczuk: I had a supplementary question around the idea of going to a mutual. I get the impression that you guys are supportive of that. You said that a survey of members suggested well over 80% were in favour. What as a trade union-you have loads of members in there-are you doing to try to make that happen?

Dai Hudd: We are in discussions, as I say, with Francis Maude and the Cabinet Office to tease out that idea from them. In fact, we have meetings coming up with the Cabinet Office Minister to try to understand more fully what this means in terms of a mutual concept. In this area, for example, there are significant liabilities, not just pensions in terms of staff. The nature of their work means, for example, the potential dangers of future litigation in the wider world are quite high.

Q288 Simon Danczuk: With all due respect, I get the impression you are waiting for Francis Maude to tell you what might happen in terms of a mutual. My question is about: why aren’t you being more proactive? Why do you not approach Cooperatives UK? As a trade union, loads of members there are relying on you. I do not get the impression you are doing a lot in terms of making it happen.

Dai Hudd: I disagree. With the greatest will in the world, before you can come up with a concept, you have to understand about where those liabilities are going to go. In essence, if the Government were to say, "Look, there are liabilities of this organisation going forward, and we will underwrite them with certain safeguards," that opens up the opportunity to have an engagement discussion with members about what the future of the organisation might be. If you do not deal with that liability, you cannot have that constructive discussion, because the mind goes back-I understand this is a perfectly natural human reaction-"What is going to happen to my pensions? What happens if the organisation gets into a highly expensive litigation case with one of the local authorities 12 months down the line? It does not have an asset base to build up." Remember the assets of this organisation are predominantly people. There is not a lot other than people.

I disagree that we are not being proactive. We are. We are looking at a number of models ourselves now to see what might be out there, if you like, generally used. The difficulty is that a lot of the organisations where mutuals work tend to involve an awful lot of voluntary labour, lowcost, lowturnover, and they do not have the sorts of overheaded costs than an organisation like this needs to have for probity, public accountability and so on. We are looking at it. I am sorry; as it is Francis Maude and the Cabinet Office that have come up with the idea of a mutual, I think it is only right that we test them to ask what this means in practice. We are trying to have a positive engagement.

Chris Round: The biggest problem we have is the uncertainty. It is alright being very supportive of a mutual, but we do not know what the audit regime will be, what the costs might be and how much work a mutual might earn, etc. We do not know whether the Government is going to be supportive of it in the first instance. Until we know some of those things, we cannot take forward the concept of a mutual. If it is going to happen, some decisions need to be made urgently, while, at the moment, staff are left in limbo not knowing where they stand.

Q289 Mark Pawsey: Can I come back on that? Why does the Government need to be supportive? If the private-sector audit job needs to be done and there will be private companies bidding for it, why can your people not form their own organisation and bid for that work? Why do you need to wait for the Government, to follow Simon’s point?

Dai Hudd: Back to the point I was making earlier, the key point about this is liabilities. The first one is clearly going to be pensions for staff. How is staff liability going to be taken on? There are significant risks in entering the market, bearing in mind this organisation does not operate as a private company at the moment. It will be taking on some of the biggest and most sophisticated operators in the financial world. These people operate on a global basis with Governments, multinational companies and so on.

Q290 Mark Pawsey: Do you think they won’t be able to compete?

Dai Hudd: What we are saying is that, at the moment, I do not believe the Audit Commission would be in a fit state to compete. I could see it happening if we could get to a position where we could agree on the liabilities that would be held and who would be accountable for them, and what model we could have for the staff having a proper stakeholder involvement in the organisation. At some point it might. The idea of pulling an organisation like the Audit Commission into that competitive world within the lifetime of this Parliament, let alone in the next 12 to 18 months, is fanciful. I do not believe it has the skills, nor could it attract them. The people they would need to attract to be able to compete openly with some of big players are costly; they would make your eyes water, and that is part of the problem. How on earth it gets to a position where it can compete is a big question.

Q291 Mark Pawsey: If it cannot compete, is it not better that it withdraws and leaves the work to the Big Four?

Dai Hudd: That very much depends on whether you think the model of competition is the ideal way to drive efficiency and performance in this area. My view is an Audit Commission, refocused in the way that we have described, recognising that there is a greater role for the involvement of the private sector, which is already in that field and dealing with it, is a far better way of progressing than trying to push the Audit Commission simply into the commercial world over the time-spans that I have seen articulated by the Minister. I do not believe that is a credible proposition. Over time, it could happen.

Chris Round: We are currently the biggest providers of audit to local authorities. We have an immense wealth of expertise in the organisation.

Mark Pawsey: That is why I am so surprised you are so fearful of competition.

Chris Round: We cannot have competition; there is no regime to compete in at the moment. You cannot have competition where there is no competition. At the moment, the Audit Commission still exists and appoints its auditors. There is no competition at the moment.

Q292 Mark Pawsey: The level of expertise that you have should give you a head start.

Chris Round: Indeed, one would hope so.

Dai Hudd: Can I be clear: expertise in auditing and inspection is one thing. What you are talking about is the ability to devise very competitive commercial contracts across a number of players. The idea that the Audit Commission can skill up in that key area, with some of the big players that it will be dealing with, is nonsensical. I do not believe that those contracts would necessarily be won on quality. They might be won on price, but not necessarily on quality. I think there will be a move and a rush to the lower end of the market, which many of the big players can underwrite. If the Audit Commission can develop those skills to be able to compete with some of the big players, I think it has the potential quality to compete. I just do not think, over the time-span of this adjustment, it can be done.

Q293 Bob Blackman: The concern I have, in what you are telling me, is that you appear to be suggesting the auditors are skilled, but it is the management that does not have the skills required to do the job that would be required if they were bidding for business and managing a company in the same way that some of the other auditing firms are at the moment. Is that your concern?

Dai Hudd: It goes back to Chris’s point. If the market is defined now, and it is not-we have a long way to go before we get to that point-then the Audit Commission probably does have the skills to compete on the defined areas of the market where they currently are. The big problem will be if you open up the whole of the potential market to the private sector simultaneously with the Audit Commission bidding for that work as well. I strongly suspect the market nous of people who have been able to compete in a much more rigorous environment than this will mean that quality will not necessarily be the thing that comes up as a successful bid. I strongly suspect that some of the bigger players will be able to underwrite and underpin costs in such a way that the Audit Commission cannot nor ought to. It is that concern that I have: putting the Audit Commission in a position where it can compete will take work and reform.

Q294 Bob Blackman: At the moment, local authorities are required to produce accounts every year. They are then audited by either the Audit Commission or firms under the auspices of the Audit Commission, so I do not see how those standards will change. There will still be a requirement to produce the accounts; there will still be the requirement to audit them to the accepted standards. Regardless of whether it is the Audit Commission, a mutual, a private firm-and by the way it does not have to be one of the Big Four in these aspects, as it could be a whole range of other competitors-you seem to be pleading, and forgive me if I am wrong, for a special case for some sort of floated company to be given an unfair competitive advantage compared with the private sector. I do not think that is ever going to be able to happen.

Dai Hudd: Let me go back to the question, and I think it was you who put it to me first: is there an argument for a greater involvement of the private sector in relation to the work currently done by the Audit Commission? I think the balance is currently 70/30. We think the answer for that is yes. That is the Audit Commission as it is, but reformed to particularly be able to respond to those challenges. The next question we get to is whether or not it should be a mutual. That is a different question-an entirely different point. That is the point about whether or not it competes with and tries to exclude other private-sector providers. My argument is I think the Audit Commission is well placed to be able to respond and reform as it currently is for a greater involvement of the private sector in the future.

Coming back to the mutual idea, which is a different strategy entirely-i.e. should the Audit Commission be more aggressive in relation to competing with the private sector and excluding as much of it as possible, which is a very different model from the one you and I were discussing earlier? To do that, it needs clearly to have a management regime that is probably differently configured from the one that it currently has. That is the point I am trying to make. I do not think you can conflate the two points. There is either one model of the Audit Commission, which is a facilitator of private-sector involvement and potentially trying to create more competition in the market by directly doing that, as opposed to one where it is a bigger player in the private sector, potentially excluding competition because of its potential size. I do not think those two arguments can necessarily be conflated in the way that they are one and the same. They are not.

Q295 Mike Freer: Just to drill down on one point, I would go for the more aggressive approach into the market, rather than seeking to be half in and half out of the public sector. Having sat on a number of Committees that have awarded audit contracts, if I can give you some reassurance, I do not think the private sector is as competitive as you think it is, because quite often I found that the gap of the private sector is that the skills mix on the audit team could not match the Audit Commission. You have a senior partner at several thousand pounds a day, and there may be an audit manager and normally two or three grunts at the bottom end, which is how the Big Four normally structure their audit teams. The Audit Commission is able to have a much greater blend of skills and experience. I am almost trying to say I do not think you should be afraid of competing because, on the merits of the quality of the team, you could outshine the Big Four. Is that not your experience: that your blend of skills is better than the Big Four?

Chris Round: I certainly believe so, yes. I think we generally have a higher skill mix for our audits, and I also believe we provide a very close and good service to our clients.

Mike Freer: So be brave.

Q296 Chair: Currently, you actually compete genuinely in the market for audits for Foundation Trusts, don’t you?

Chris Round: We do, yes.

Q297 Chair: You actually have the beginnings of that experience.

Chris Round: We have, yes.

Q298 Chair: One further point: if there was a mutual floated, would you want to see some restriction on the ability of the stakeholders of that mutual to be able to sell it on at a future date, namely for a significant profit for themselves?

Chris Round: The majority of staff would want to see it as an employeeowned organisation. Therefore, there would be some safeguard to ensure that it could not be sold off to another private-sector firm. I think staff would be looking for that sort of safeguard.

Q299 Chair: Thank you very much indeed for your evidence.

Dai Hudd: Can I just compliment the Committee as well, if I may? I am not making a cheap point in relation to CLG or the Minister.

Chair: Compliments are always well received. Carry on.

Dai Hudd: Over the weekend, I read many of the evidence papers, and found much more about the Government plans from the inquiry that you are doing than we have done through the conventional consultation process. That is sad, but nevertheless I thank you for the ability to do that. Thank you.

Examination of Witnesses

Witnesses: Belinda Wadsworth, Strategy Adviser, Local and Regional Policy, Age UK, Rebecca Veasey, Policy Officer, Women’s Resource Centre, and Matthew Sinclair, Director, The TaxPayers’ Alliance, gave evidence.

Q300 Chair: Good afternoon and welcome to the fourth evidence session of our inquiry into the audit and inspection of local authorities. Just to begin with, for the sake of our records, could you indicate who you are and the organisation you represent?

Matthew Sinclair: Matthew Sinclair; I am the Director of The TaxPayers’ Alliance.

Rebecca Veasey: Rebecca Veasey; I am a Policy Officer for the Women’s Resource Centre.

Belinda Wadsworth: I am Belinda Wadsworth, Strategy Adviser for Local and Regional Policy for Age UK.

Q301 Chair: You are all welcome. Could we just begin with a general question: what difference do you think the abolition of the Audit Commission will make to the quality of local services?

Matthew Sinclair: I think it will improve them. It will lead to councils being better focused on the outcomes that local publics need. I think it will lead to better value in audit and broadly be a good thing for local government performance.

Rebecca Veasey: I think it will be a bad thing for frontline services. The Audit Commission played an important role in promoting equalities, and particularly the Comprehensive Area Assessment provided a tool for ensuring that women’s needs and issues were taken into account in local priorities, and that outcomes and improvements had a significant impact on them.

Belinda Wadsworth: Clearly the Audit Commission carried out a number of important functions that we would very much like to see continued. Given that the Audit Commission is being abolished, we want to work with the main organisations to make sure that whatever is put in place subsequently produces better outcomes for older people.

Q302 Chair: I suppose there is a tension there in what you said between the view of the Audit Commission as trying to do something on behalf of central Government, with regard to standards and performance and doing comparisons, or whether it should be looking to a more localist agenda and assisting local authorities to perform better and get their own priorities right. Is that a fair description of the way it has been in the past and how change may be looked at for the future?

Matthew Sinclair: I think that the problem of the Audit Commission is that it was, as a national quango, adopting a kind of form that worked-in terms of its organisation of being a national quango-for the National Audit Office looking at central Government, and was applying that to local government. For that reason, it was a very centralising force and that was part of the problem. Instead of women’s issues being represented by that 50% of the electorate in each individual suit, it was being written through this organisation acting out national government priorities. The star system was the clearest example of that tendency coming into action.

Rebecca Veasey: The work of the Audit Commission and the framework was not by any means perfect, but it provided a way of holding local authorities to account. In practice, what the WRC has found is that there is a lack of gender awareness at a local level. Many local authorities failed to meet their obligations under the Gender Equality Duty, so these things are already not being met at a local level. By having a national overview of how local authorities are performing on those issues, it is almost a form of a safeguard.

Belinda Wadsworth: We are comfortable with the functions that were previously carried out at a more central level being carried out more at a local level, but we are very keen to make sure that there is continued oversight of those functions.

Q303 Mike Freer: Turning to the abolition of the CAA, do you not feel that the CAA was more process than outcome?

Rebecca Veasey: To some degree it did produce outcomes. For women’s organisations particularly, they used it as a mechanism to almost enforce the duty to involve; they used it as a way of engaging in local decision making, and it almost empowered them to challenge the representation of women and women’s issues in local leadership.

Matthew Sinclair: I have spoken to so many councillors and people at councils who got good marks under the CAA, who viewed it with contempt. If you can give someone a gold star and they can resent it, then I think that says that something has gone pretty badly wrong with your system. If it gives a lever for women’s groups to get involved, I do not think that local politicians are going out of their way to ignore women’s needs. You are talking there about an issue that should have a pull and that accountability should happen through the ballot box.

One of the reasons why it might not would be that councils are chasing Audit Commission rankings instead of chasing those voter priorities. I think it displaces other forms of accountability, rather than being a pure addition to accountability. We need to be thinking about some of what was missed and what we should be trying to recreate. It should be our job to bring accountability to local government in organisations like ours. We should not hope for a shortcut through saying, "Well, listen to the CAA." It should be, "Listen to us, because we can try to persuade voters."

Rebecca Veasey: Can I just make a point following on from what Matt said? In reality, we are seeing equalities being equated with bureaucracy, rather than being the most effective way to meet the needs of communities. The abolition of the Audit Commission and issues around the abolition of the Comprehensive Area Assessment are quite sad, because we are seeing the Public Sector Equality Duty being watered down. We are seeing that marginalised women, who deal with our women’s organisations and are involved in their local communities, find that local authorities are not willing to engage with them in practice.

Matthew Sinclair: The best way of ensuring that people see the Equality Duty associated with bureaucracy is to have it acted out through the Audit Commission. If you have bureaucrats enforce equality, then people see that.

Q304 Mike Freer: Would Age UK like to get a word in?

Belinda Wadsworth: Last year we carried out some research, talking to a number of older people’s forums and organisations, and local strategic partnerships and local authority staff, into the value and impact for older people of the previous system. What our research found was that the majority of people we spoke to did feel that the previous system was particularly bureaucratic and onerous, and was very processdriven rather than outcomesdriven.

However, there were a number of key lessons learnt from the system, which I feel we should make sure carry on. For example, the partnershipworking approach very much needs to be built on. We did see some significant and very positive examples of where older people were very much involved in the decision making around those processes, and we would very much want to see that continue.

Q305 Mike Freer: In terms of if the other elements of equality and engagement fall away, as you fear, wouldn’t the equality impact assessments pick that up, in that there is a duty to engage and to be seen to engage, and take those views into account?

Rebecca Veasey: As far as I know, under the new changes to the Public Sector Equality Duty, there will not be that onus on doing the equality impact assessments, or at least not publishing that out to the public, which removes a mechanism for holding local authorities to account, which is partly the objective of that decentralised auditing regime.

Belinda Wadsworth: We very much share the concern about the equalities legislation apparently seeming to be watered down and there not being such a strong recommendation on reporting around that. We would very much encourage any subsequent system to take a very strong equalities approach.

Matthew Sinclair: If you want to look at impacts you see as negative, with a group like ours we can do that. We can be on the watch for those. We can have grassroots networks that let us know when things are going wrong. We should be using our own analysis to reveal when these systems break, rather than relying upon impact assessments or the CAA to do that for us. We can do that job better and I think that is why we have to be here.

Q306 Mark Pawsey: The Government clearly has an agenda to do away with the centralised regulatory regime that we have had up until now. It sees a big plank of an alternative route as being transparency-making authorities publish every item of expenditure over £500, for example. The Audit Commission did bring out some performance data. How did you, particularly the campaigning bodies here, make use of that information? Was it useful? Was it helpful in your activities?

Belinda Wadsworth: We very much support the move towards transparency, and having information more publicly and freely available. We conducted a small focus group research of the Oneplace website last year, and found that the people we spoke to found it very useful indeed, easy to understand and were happy to use it. For those people we spoke to there, who are online users, it is clearly very useful and accessible. However, 60% of people over 65 have never even used the internet, so for us there is a major concern about information being only provided in an online format. We very much want to see that, as the transparency agenda goes forward, we have information produced in a number of different formats, to make it very accessible and easy to understand.

Q307 Mark Pawsey: Don’t you think that the fact that publishing it online would mean that newspapers will print it and that people who you would engage with would get the information through a different route?

Belinda Wadsworth: That is oneway information. That is fine to get the information, but if you then want to use the information in order to engage, you need to have access to being able to analyse it in the way that you choose to look at the services that you are looking at.

Rebecca Veasey: I would say that one of the problems with publishing the data is that data are not very useful unless they are disaggregated, unless you are making them accessible and unless you are providing them with some form of context. The major objection that my organisation has with this armchairauditing approach is that it is very reliant on the capacity, inclination and education of citizens. We are concerned that marginalised groups will not necessarily be involved.

Q308 Mark Pawsey: Won’t the media do that for the marginalised? Simply the fact of making it available means that other people will do the analysis.

Rebecca Veasey: I think the fear is about inconsistency, about oversight.

Matthew Sinclair: Yes, it is possible that information could go out and would never be used. Councils as far back as the 1980s were required to publish publicity information. That never really had bite to raise the issue of whether those costs should be controlled until we did a report on it. In the end, that is going to happen. That is what groups like us should be doing to assist the media. The media will do it on their own; the media are very interested in this sort of information and they get apoplectic when they do not work properly, when they struggle to access them, as they did in the early days with COINS before the best tools came out to analyse it. Yes, some people who do not have the inclination to access data will not be able to access data, but still you are opening it out to a vastly wider array of groups and individuals by publishing it like this than you previously were, so you will get a greater variety of perspectives.

Q309 Mark Pawsey: Would the people who are not able to access the data have read the reports from the Audit Commission?

Belinda Wadsworth: Possibly.

Mark Pawsey: Do you think so?

Belinda Wadsworth: Maybe. It depends how accessible they found them. As I said, the people we had spoken to, who had used the online system, had found it accessible. I agree: public information needs to be developed to be far more accessible than it is currently if the public is going to be able to hold public bodies to account in the way that this transparency agenda assumes.

Matthew Sinclair: I have read Audit Commission reports, and I have also read spending over £500 releases, for example-to give one example of a transparency release-and honestly I found the latter in many cases much more comprehensible. It is at least clear; it is at least functional. You have to do more analysis to get information out and get conclusions out of it, but at least you are not having analysis done for you in a fairly inscrutable way.

Q310 Mark Pawsey: Is it the view of people representing older people and women that we are going to lose something as a consequence of the lack of Audit Commission reports?

Belinda Wadsworth: I think it is more about, as we go forward, how we make public information very, very accessible and also very comparable from area to area. As I said before, while we are quite happy about localist principles of local solutions to local needs and local information and assessment, the public will also want to be able to compare area for area.

Mark Pawsey: With regard to women’s groups?

Rebecca Veasey: I would say I agree with Belinda’s comments, yes.

Q311 Chair: On that point, are we really empowering groups like The TaxPayers’ Alliance rather than empowering the public, because it is true that the analysis will not have been done for the public by the Audit Commission; it will be done for the public by you, won’t it, and you do have a political axe to grind on most of these matters, don’t you?

Matthew Sinclair: What is great is that we can do it, and then people who disagree with us can do it, and we can have a proper encounter between those two understandings of the information that has come out. We are breaking open a monopoly here. You do not have to think that you want our reports to be the gold standard here; no one is setting them up as that. We produce our work and we make it absolutely robust but, if people disagree or if people do not think we have made it robust, they can challenge that, and our credibility depends upon getting that right to a very high standard. We do not have the imprimatur of being a public sector body supposedly speaking for the Government or anything like that; all we have is our own credibility. We have to put that on the line and that is what we will continue to do. It does not have to be just us. All of us, all the organisations here and hundreds of others, are responsible for analysing this information and then talking to our grassroots supporters to try to find new ways of getting it out to the public. That is our job.

Q312 Chair: Some people might say that the Audit Commission or the Government Department is generally relatively neutral. An organisation like yours probably gets quoted more than any other organisation on these matters, so you have a pretty good monopoly of quotes on some of these issues, because you actually have a political point of view to address, don’t you?

Matthew Sinclair: We have plenty of points of view, but I am saying that we can be disagreed with. There are plenty of resources available to organisations who disagree with us. They are not starved of cash, starved of researchers. There are plenty of people out there who can come out with both points of view. You are blowing that open by transparency to such an extent now that we will have done it by a multiplicity of organisations, and they will take different routes. Some will go the direction of saying, quite independently, that they are there just to check from as unbiased a perspective as possible on the veracity of factual claims.

I was talking to the website Full Fact, which has set itself up to do that very recently; there are plenty of organisations like that. There will be some who are saying, "We have beliefs about the best policies, and we see this evidence as supporting that," and there will be groups that do it just because they have a particular stakeholder group that they want to try to inform. There will be all kinds of different approaches, and I think they can compete. We have a free market in policy analysis as well as in audits.

Q313 Simon Danczuk: Should future inspection activity be limited to services to vulnerable people then or scrapped altogether? What is your view?

Belinda Wadsworth: We are concerned about the scalingback of inspection, and certainly we are very clear that inspection of the safeguarding of vulnerable people must continue.

Rebecca Veasey: We would agree, and say that inspection of the promotion of equality and protection of vulnerable groups is most important to maintain.

Matthew Sinclair: If you are looking to promote the interests of women or the elderly, the people who are best placed to do that and should do that are here. That role, of scrutiny of local government, has to be performed by civil society, who can do it genuinely independently, who can do it not with an eye to the latest directive but with an eye to looking for genuine problems. That will lead to a better performing system. That is not one that can effectively be done by an Audit Commission. It needs to be putting information out there. The audit role still needs something, because we need to know the information that is being released is in fact accurate at the start. We need to have that solid empirical foundation. That is where it should be: it should be at the audit stage, not at the performance stage.

Q314 Simon Danczuk: You do not think there should be inspection from the centre in terms of local authority services to vulnerable groups?

Matthew Sinclair: I think accountability should flow through voters and should flow through scrutiny from the third sector.

Q315 Simon Danczuk: You think that electors/residents are attuned enough with the services provided by a local authority to various vulnerable groups, whether they are older people or vulnerable women or anything else, that they are able to make a judgment.

Matthew Sinclair: They are generally better attuned by the Audit Commission, and as to the extent they are not, we have to make them that way. That is the only way you are going to have reliable protection for vulnerable people.

Q316 Simon Danczuk: You think that vulnerable groups can rely on a change every four years, potentially, in an election, to determine whether their services improve or not?

Matthew Sinclair: The purpose of a representative democracy is not just that you lay down the law once every four years, but that you have effective scrutiny in between; you have people concerned about thinking about those four years. "Every four years" is just there as a Sword of Damocles hanging over people’s heads; it is not there to be the only form of scrutiny or the only democratic function during that period. There are improvements we can make there, but ultimately I think scrutiny of performance should be done through the third sector, through civil society and through elections. I do not think it can effectively be done by the Audit Commission.

Rebecca Veasey: I think that theory could lead to inconsistency and oversight, and that is one of the main reasons why we favour the Audit Commission. We think it provides that.

Belinda Wadsworth: For us, it is very much a both/and. We are very clear that independent external inspection audit needs to continue, but we also want to encourage older people themselves to be able to speak up and speak out. We are working very closely with CQC on a project called Experts by Experience, where old people can go and take part in the inspections that take place. We very much want to encourage that kind of activity. For us, it is very much a both/and; it is working hand in hand.

Simon Danczuk: I attended an involvement event organised by Age UK in Rochdale this morning before travelling down here, and there were plenty of older people, dozens upon dozens of older people, making their views clear about the local economic situation. It was a good qualitative technique at work.

Q317 Mark Pawsey: Could I just ask if Age UK and the Women’s Resource Centre could give us any examples of when you have looked at an Audit Commission report and used that information to call a local authority to account?

Belinda Wadsworth: The research that we carried out last year throws up some very good examples of where older people have been working very closely with the preceding structures, the local strategic partnership and influencing the local area agreements. In particular in East Sussex, older people have been involved in every single decisionmaking panel in the county, and I also know a very good example in Wiltshire, where they have been very much involved in decision making and on scrutiny panels and very much influencing the decisions.

Q318 Mark Pawsey: I accept that, but that does not need the existence of the Audit Commission to take place, does it?

Belinda Wadsworth: It does need the existence of a performance management framework that they can be involved in.

Q319 Mark Pawsey: Nobody is saying that we are going to get rid of performance management; we are simply saying the Audit Commission is not going to do it. Authorities will continue to have that, and that information will continue to be available to organisations such as yours, so why should the abolition of the Audit Commission be necessarily a bad thing?

Belinda Wadsworth: We have been clear that we are looking to see the continuation of a form of performance management framework. As we said in our written submission, for us that could be locally, as opposed to nationally, defined.

Mark Pawsey: The same point to the Women’s Resource Centre.

Rebecca Veasey: In terms of the Comprehensive Area Assessment, that was used by women’s organisations to increase representation in local strategic participations. In terms of the question you have put forward about the need for the existence of the Audit Commission, I would say that our main argument behind that is because the framework has helped us in the past and we are unconvinced whether under a decentralised regime it will actually work, and we will have that same performance management framework that will evidence the outcomes that we want.

Q320 Chair: Is there not always a danger that you can get one authority that really is failing? If it is failing, its performance management might fail. If there is no oversight, it is hard luck for those disadvantaged children who are getting an awful service and may be put at risk, if they are going to have to wait for an election in three years’ time.

Matthew Sinclair: In some of those cases you have had existing structures and authorities have continued to fail. Those are very deepseated problems in some local authorities. Hang on-we had the Audit Commission writing reports about authorities saying that they have been irredeemably and utterly failing for 15 years. You compose these questions of: what if there is an authority that just continues to fail where there is not a sanction of voters or where that is ineffective? You can come up with these sorts of things: "What if you are in an elevator and it is burning? You are in an impossible situation; what do you do?" Those have existed, will exist, and there are troubled authorities. We are not saying this is a panacea that solves that, but the present system does not have a panacea either. The best way of improving those has to be engaging through local structures.

If you look at the last question, all of these local groups can engage with how the council manages its performance. This is part of what we should be getting away from with the move away from the Audit Commission: to have councils setting up structures to manage their performance that reflect local priorities. All these things can come into being and they can be driven by effective councillors and councils. If you have failing councils and councillors, I do not think there is any evidence that the present system is able to really kick them out in a serious way. It can in the end say central Government needs to, as its ultimate sanction. You still need a powerful Government, in the case of absolute failure, to step in and remedy the situation. Again, if you need someone to ask for that to happen, it does not need to be the Audit Commission, because that is in the end a very political judgment. It will be made politically and made on the basis of groups demanding it. It does not need to be the Audit Commission. I do not think, in those impossible situations, the Audit Commission offers something invaluable.

Q321 Mike Freer: Just a quick one: has The TaxPayers’ Alliance done any research to show that many of the authorities that have had significant service failures have either had glowing reports and inspections, been fourstar authorities or indeed been Council of the Year? Having been a former council leader, we went for Council of the Year. We were often advised not to, because you usually crashed and burned the year after. Has The TaxPayers’ Alliance done any analysis?

Matthew Sinclair: No, we have not done that. It is a good idea. What we have looked at using and were considering at one point-because we have various reports like the one that came out last week, the Town Hall Rich List-is whether we should look at whether there is a correlation between how well paid all these chief executives are and their performance, as measured by the star system. We decided we were not going to give even a tacit endorsement of the quality of that measurement. Yes, it is a reasonable idea, but not one we have done systematic research into.

Q322 Bob Blackman: In the last financial year, the Audit Commission conducted 24 national studies and spent £5 million doing them. I would be hard pressed personally to name them, but that is a matter of opinion. How useful are these national studies and do you think they provide value for money? Could I start with Matthew?

Matthew Sinclair: I do not think they provide value for money, because I do not think they have anything like the effect that you can see from other reports. There are lots of groups. Even if you just look at the generalists, there are us and organisations like Demos, Policy Exchange and New Local Government Network. There are lots of organisations producing reports that both have a higher profile and a much more significant effect. At the same time, if you look at a comparison to something like the National Audit Office reports, for example, they do not have anything like the same authority to them. They do not obtain that same power. It is just so rare to see them cited, which I think shows that they are not getting to the core of these issues or not in such a way that people really find them indispensable. To that extent, and given £5 million for 24 reports-those are some pretty expensive reports-I would say they represent very poor value.

Rebecca Veasey: I would not say I would be best placed to comment, but happily defer to Belinda on this one.

Bob Blackman: Belinda, I know you found some of the reports useful.

Belinda Wadsworth: Indeed, a couple of reports very much stand out for us: Don’t Stop Me Now, published in 2008; and Under Pressure, published in 2010. For those of us who work in the age sector, these are incredibly important reports that really reflect a state of play with regard to tackling challenges in an ageing population within local authorities. Reports like that will very much be missed. We feel very strongly there is very much an ongoing role for an organisation to produce similar comparable reports.

Q323 Bob Blackman: You are experts in dealing with older people. Why should not an organisation like Age UK do the same sort of thing, because you are experts already?

Belinda Wadsworth: We can produce similar reports. We do indeed produce a number of reports. The issue for stakeholder organisations like ours is actually about the accessibility of the information on which to base those kinds of analyses.

Q324 Bob Blackman: With the new transparency, you have all the information; you could interpret the data.

Belinda Wadsworth: We are ever hopeful, and it is absolutely critical for us that stakeholder organisations that do have that capacity to provide that kind of information to produce the reports have open access. It is not easy at the moment, I can tell you, so we are very much hoping that will open up.

Q325 Bob Blackman: How should you be funded to do it, if you were to do it?

Belinda Wadsworth: I will have to come back to you on that, if that is okay.

Q326 Bob Blackman: Rebecca, in terms of your organisation, you are experts in dealing with women in various different guises, vulnerable women as well as creating greater equality. Why couldn’t you do a national report on the state of the nation, as it were?

Rebecca Veasey: Capacity-wise, we are full at the moment, so realistically we would not, but our role is we are a national membership body, which supports women’s organisations up and down the UK, so our primary area is in research. We do feel that it would probably be better placed for the Government to conduct that study, and that we would be given the opportunity to feed into it.

Q327 Bob Blackman: Clearly the Government is not going to do this. That is quite clear: the Government will not do these studies in the future. So you are saying this is a potential risk. Are you prepared to step into the breach?

Rebecca Veasey: I would have to confirm with my chief executive. If he were willing, we would consider it.

Q328 Bob Blackman: Matthew, here is a golden opportunity.

Matthew Sinclair: We try. We do our bit. We are a small team, but we will do this. As far as funding goes, there are plenty of people who are interested in these issues. Fundraising is a challenge for organisations like ours; it is a challenge for anyone, but it is much better they are funded by people who are interested in the issues, so they become part of the public sector nexus, which gives it greater independence, ideally by a broad base. That is how you need to continue this work. Age UK is not a poor organisation. They are a substantial body and they do very large, heavyweight reports. You can improve data availability and should, but I do not think there is any reason that there is an inherent lack of capacity for policy reports in civil society.

Q329 Chair: Given that the Local Government Association has been talking about the work that they might do among their members to try to get some comparative data and maybe look at comparative studies of various kinds, I just wondered if any of you have talked to the LGA about whether you could act in partnership with them on some of this work.

Belinda Wadsworth: Not directly, not yet, but we are certainly very open to working with the LGA in partnership.

Matthew Sinclair: We tend to have an adversarial relationship with the LGA, and we are quite comfortable with that.

Chair: It will probably not be a marriage made in heaven today then.

Matthew Sinclair: There is some stuff where, if the LGA wanted to do more of this with us, that is great. Honestly, the LGA probably is not the best organisation to do it, because they have deep problems trying to work out whom they are representing, because they are representing councils that fiercely disagree with each other. There are probably better organisations to do it than the LGA, but there are loads of them. There are loads of organisations that are interested in this; there is no shortage of people interested in local government policy questions. There is just not a shortage.

Q330 Simon Danczuk: There was some consensus earlier about the need to continue to do audit of local authorities, local government. My question then is about whether they can remain independent if they are appointed by the local authority itself, as opposed to something like the Audit Commission. I wondered whether you had a view on that.

Matthew Sinclair: I think that a system that can work for Tesco, BP and Vodafone can work even for Kent County Council and Birmingham, the largest of their respective types of authority. Those concerns about independence are important, which is why they are addressed by massive corporate risks to accountants who get it wrong. We have seen examples when accountants have not been sufficiently rigorous, and it has led to death for even the largest accountancy firms. There is a very heavy sanction; if it goes wrong, there is equally regulation. Regulators from the National Audit Office to PricewaterhouseCoopers are all regulated by the ICAEW, which has a very high reputation.

It does not mean the system is perfect; it does not mean you do not need to be extremely hawkish about the relationship between auditor and audited, but the best way to do that is to do it once for companies. There is a very specific issue with central Government as regulator, and that is why I think the NAO is a very different case, but for local authorities I do not see any reason why we would want to do the business of regulating auditing twice. It is a big job, and I think we do it once and we get it right for corporates and for councils. There is no reason the same system cannot work for both.

Q331 Simon Danczuk: It is public money, isn’t it?

Matthew Sinclair: Sure, it is public money, but it is enormously important if there is a failure of financial controls at a major corporate; it is extremely important. I am the last one here to decry the importance of it being public money, but it is important with respect to whom you are accountable to, not who does your auditing. The audit just needs to be rigorous and, to the extent that we can ensure that, we need to ensure it for corporates and for councils. I think we can; I do not think that accountancy is a great failure that we would not want to let touch any other industry. That regulation is one that we can shift across from the existing private sector to local government.

Q332 Simon Danczuk: Just to follow that, you mentioned Tesco. I can stop shopping at Tesco. Well, I do not shop there anyway, but I could move to Morrisons. I cannot at the moment change from Rochdale Council in terms of service provision.

Matthew Sinclair: You are not just preaching to the converted; you are preaching to the priest on this issue.

Simon Danczuk: Let me just say: there are no additional safeguards because it is public sector, public money.

Matthew Sinclair: The additional safeguards have to be over accountability. The problem in the end in the public sector is not a lack of auditors; it is a lack of shareholders. It is the fact that you cannot go elsewhere. You need to have a substitute for that, which should in the end be the public voting. I am absolutely 100% with you on the fact there is a big difference between these two, but I think that it is not audit where the difference between them needs to manifest itself; it is greater democratic accountability, and it is heightening that process steadily through reform, which needs to be in place. The audit function, that basic making sure that financial or other records are accurate, that job is the same. We just need to use that information in different ways, because they should be accountable to very different groups of people.

Q333 Simon Danczuk: Belinda, what is Age UK’s view?

Belinda Wadsworth: Our view very much would be about the need to continue the independence of audit, and we are not specialists in public audit, so really these are broad principles, and there is a need for audit to be regulated in order to maintain public confidence in public spending.

Rebecca Veasey: I would say the latter point about maintaining public confidence is very important.

Chair: Thank you very much indeed for a very lively session. There were somewhat different views, but it was all the better for it. Thank you very much indeed for your contributions.

Examination of Witnesses

Witnesses: Paul O’Brien, Chief Executive, Association for Public Service Excellence, and Professor John Seddon, Managing Director, Vanguard Consulting, gave evidence.

Q334 Chair: Welcome, both of you, to our fourth evidence session of the inquiry into audit and inspection of local authorities. For the sake of our records, could you just begin by saying who you are and the organisations you represent?

Paul O'Brien: Paul O’Brien, Chief Exec, Association for Public Service Excellence.

Professor Seddon: John Seddon from Vanguard.

Q335 Chair: You are both most welcome. Could you just tell us if you think the Audit Commission’s approach to trying to secure improvements in local government services was effective and successful?

Paul O'Brien: I think it was effective against the measures that were set, the priorities that were set, by Government over the last decade, in terms of showing an improvement with regards to local government. Whether those priorities that were set within that framework were the correct priorities may be a different matter but, in terms of the improvement framework that was established, towards the end of that improvement framework, 80% of authorities had achieved three or fourstar status with regards to that framework. I also believe, however, that any worldclass audit and inspection service should work itself out of a job up to an optimum minimum level. There is a natural cycle that came from that, and the role had maybe become a bit bloated, and there is less of a need for it now.

Professor Seddon: My answer is no. The good news is that there is still massive scope for improvement in local authority and housing services-massive. In the last 10 years, we have doubled our expenditure in local authorities and we have not seen improvement commensurate with that investment. The Audit Commission has been an instrument of Whitehall, coercing local authorities to comply with ideology and ideas simply, from the centre, both in the macro sense of "you must have call centres; you must have back offices; you must share services and so on" and the micro sense of "you must work to these targets; you must have these features and specifications existing in your services to tick the boxes". I became so angry about this that I wrote a whole book of evidence in 2008 of how adherence to central specifications was driving costs up and worsening service. It is true for every service I have studied in local authorities and housing.

To go back to the point, the good news is that there is massive scope for improvement. To take one example, I know you have had evidence from Owen Buckwell, who is head of housing in Portsmouth. In Portsmouth, between them and their private-sector suppliers, they have developed a service that now gives housing tenants a repair on the day and at the time the tenant wants it. They deliver this service at half the original cost. If every housing repairs organisation did that in this land, we would save hundreds of millions of pounds. It is quite remarkable that the Audit Commission went to visit Portsmouth and downgraded them, because it could not tick the box. What I regard as an economic benchmark, they regard as not worthy and downgraded them, because they could not tick their boxes.

Q336 Chair: It does not need, of course, an Audit Commission to tell local authorities they have to share services. We perhaps have other examples of that. Just coming back, the Local Government Association you presumably are dismissing as being completely out of touch. While they are completely frustrated and fed up with the amount of bureaucracy that the audit regime now gives to them, they would also accept that, over the last 10 years or at least initially, it did kick start some genuine look at efficiency and a lot of authorities improved because that kick start was given to them. It probably went too far, and it has gone on too long, but there was an initial stage when it actually had some benefit.

Professor Seddon: I have not expressed a view on the Local Government Association at all.

Chair: They have a slightly different view from the one you have just given us, I think.

Professor Seddon: I am a psychologist, and we understand this phenomenon called cognitive dissonance. If I spent an awful lot of effort and time doing something, I am unlikely to say it was of no value whatsoever. It is also true to say that I can identify chief executives of local authorities who I regard to have been target-and-star junkies-anything to get the ratings, which is not the same as improving your services. So many local politicians tell me that they find it paradoxical that apparently they have a fourstar service yet their surgery is full of people complaining about the services. I had a meeting with David Parsons from the LGA before Christmas and, as it happens, I said to him, "I bet in Leicester County Council you had a call centre built by 2005, because it was a requirement, a target." He said, "Yes, we did." I said, "I bet when you opened it you had a higher volume of calls than you had planned for." He said, "Yes, how did you know?"

This is what happens everywhere; it happens in the private sector too. If you think, as the Audit Commission and people in Whitehall do, that this is just about transaction costs, "Let’s move things on to a telephone; it will be cheaper," you make the mistake of creating more demand for your service. This is not an argument against call centres; it is an argument against focusing on cost. When you focus on cost, paradoxically you drive your costs up. As you have seen with esites, "Let’s move it on to the internet. That will be cheaper." All it does is create more demand into the call centres.

Q337 Chair: We should go back to pen and paper.

Professor Seddon: I have not said that.

Paul O'Brien: As I said in my opening remarks, I think there was the evidence of improvement against our framework. Whether the framework was right or wrong, whether there was a correlation between the framework that was there and what the public want from public services is another matter. To have an independent body established that assesses performance against that framework is important. Whether the framework from the outset was about Government priorities or the public’s priorities, and whether there was a correlation between that, is an issue, I believe.

Q338 Mark Pawsey: In addition to auditing and inspecting local authorities, a great part of the Audit Commission’s work has been to assess the value for money that an authority offers. In a future regime, how important should be an independent assessment of whether or not a public body is providing value for money? Mr O’Brien to start with.

Paul O'Brien: I think it is the public purse, so it is important that there is an assessment of whether value for money has been achieved. I think there is a need for openness and transparency in public services, and a need for challenge where that is failing. One of the significant issues about the role of the Audit Commission, as I said earlier, is that it was independent; it had the chance to look across the sector and join up some of the lessons that have been learnt on a national basis. I was listening to the last session, when people were talking about some of the valueformoney reports that were established. I found some of them very helpful. I found Positively Charged useful, which was the report that looked at trading and charging in local government, and identified £11 billion of charges were levied from local authorities in 2007 and 2008. The fact that only 75% of local authorities had corporate strategies towards charging was a real lesson for those 75% of local authorities. For Better, For Worse, the report that the Audit Commission did on strategic partnerships and whether they were actually delivering on the promises that were made at the outset, was another piece of important work. One of the things I would want to raise is, if it is other organisations that are delivering those types of reports in future, will they have a vested interest in the outcomes from those reports or will they be as independent as the Audit Commission was?

Q339 Mark Pawsey: You think there is a big issue with regard to independence if people other than the Audit Commission prepare these reports?

Paul O'Brien: What I am saying is whoever does those reports would need to be independent. There is no point in an organisation doing that if they have a huge consultancy ring that operates alongside them, and they have a vested interest from that.

Q340 Mark Pawsey: There needs to be a body other than one that is providing-

Paul O'Brien: There needs to be an independent body, yes.

Q341 Mark Pawsey: Do you think that the transparency, the publishing of all items of expenditure over £500, will go a long way towards providing an assessment of value for money for the armchair auditors?

Paul O'Brien: My view of the armchair auditor is that they will not want to work their way through volumes of items over £500. They will probably be interested to know that the average cost per household to get their bin emptied is £64 per annum; the average cost to keep their street clean is £35 per annum; the average cost to maintain a streetlight is something like £48 per annum. They may be interested in those types of things. I do not know how far beyond those types of things. I do not think they want to plough through tomes of paperwork to get to those issues.

Q342 Mark Pawsey: Professor Seddon, you think the valueformoney reports were of less value than Mr O’Brien does?

Professor Seddon: There is a big problem with value for money. The problem is a problem of operational definition. Value for money is a thing we would all like. It sounds great, doesn’t it? It is a bit like leadership; it is a bit like intelligence. It depends what you mean by it and, therefore, what you choose to measure. When you read the valueformoney reports, there are implicitly a whole series of definitions of what is value for money, and many of them are problematic. For example, in November 2005, the Audit Commission published a report in the valueformoney series. I can quote it: "The greatest potential for efficiency savings in housing benefits will be partnership working." That is not true. They actually encouraged in that report all London boroughs to outsource their back offices for housing benefits to lowcost areas of the country, where we can buy cheap labour and have independent contractors do it, and then pay them on a transactioncost basis. This has locked in massive costs.

The truth is that the most optimal way to design a housing benefit service is not to have a front office/back office, and no back office whatsoever. The optimal way to design a housing benefits service is to meet people face to face with the right expertise and solve their problems. This is happening, for example, in many local authorities. Stroud is one that has been published; East Devon is another. There are many others that have followed this route, and they have achieved 20% to 40% efficiency savings as well as having a rise in the volume of demand because of the recent recession. More than that, they do not just solve the housing benefits problem; they solve the total problems of the people who are presenting, so we do not get demand on to other services. That is true value for money. If you follow the Audit Commission’s advice on value for money, you would end up with a highcost, poorquality service, as most local authorities have, because they have been obliged to follow it.

Q343 Mark Pawsey: Is that because the valueformoney report then recommends a course of action?

Professor Seddon: Indeed, the conclusion was you have to work in partnership, share your back offices or outsource them to the private sector-absurd. Hundreds of millions of pounds of public money has been spent on backlogbusting, and the backlogbusting was created by splitting the front office and the back office, and then setting targets and all the other paraphernalia, which has destroyed the benefits process.

Q344 Mark Pawsey: If we leave aside the recommendations that you are concerned about, shouldn’t somebody-at least for the reassurance of the public, who are funding everything-be doing the work that analyses what is going on and tells the public whether they are getting value for money?

Professor Seddon: No, the first thing we have to do is to get a bit smarter about what we mean by value for money. I would accept what Paul was saying; if we could actually work out that it costs £64 or whatever it is to do the average bin, that would be a more useful number than most numbers. It is actually very hard to do that in most local authorities, because of the way the accounts are run. What I am saying is that we need better understanding of what value for money means.

I will give you another example: there was a recent valueformoney report on procurement in housing. Do you know, if you follow the advice of that report, you will never achieve what Portsmouth has, because it tells you that the way to buy housing services from the private sector is to buy it from the people who have the palmtops, who work to targets and who use the schedule of rates, none of which you would see in Portsmouth. Because we have frightened local authorities into professional procurement issues, they outsource their procurement now to socalled professionals, because they do not want to be sued by Connaughts and people like that of the land, so you can guarantee you are going to get lousy service provision, and we call this value for money.

I have already talked about unit costs. They think that, if we move services on to the telephone or internet, it will be cheaper. No it will not, because the cost of service is end to end from a customer’s point of view. I would say, first of all, we need to get our act together about what value for money means in operational terms.

Q345 Mark Pawsey: Mr O’Brien, Professor Seddon is very critical of all the recommendations that come hand in hand with value for money. Why can’t we do what he is suggesting and simply have somebody analyse whether or not the system is working, whether it is a good system or not and leave it at that? Why do these valueformoney reports have to go into a level of detail and impose a onesizefitsall on every authority?

Paul O'Brien: I do not think they do impose a onesizefitsall approach on every authority. Maybe people take it that way, but anything that informs what is going on, on a national basis, and identifies best practice, is useful in context to make local policy choices for elected members and senior officers within the authority. On that point about the 2005 report, John, of course that was corrected by the 2008 report, For Better, For Worse, which was quite critical of the strategic partnerships. There was an opportunity to correct it, because there was an independent national body that was not afraid to admit that things had moved on, things had changed and the findings that were coming out were slightly different from what had happened previously.

Q346 Mark Pawsey: Professor Seddon has given us some examples of valueformoney recommendations that, with regard to specific authorities, were barmy. Can you give us examples of recommendations that, in your view, have worked particularly well for an authority and enabled them to create some form of improvement?

Paul O'Brien: It is difficult off the top of my head, but the example I would suggest is a report I referenced, Positively Charged, which identified the level of trading and charging activity that local authorities were undertaking, and identified the other 75% of the authorities when they did that report that did not have charging strategies in place. My information-I do not have it with me today-is that a number of authorities have then put corporate strategies in place, which have allowed them, in difficult times at present, to look at the revenues that there are through charging and see if it is appropriate to levy additional charges on certain services. Everybody has been struggling with budgets recently.

The one other thing I would add is the point that I do not think it is difficult to collect how much it costs to empty a bin per annum, in a local authority. I think there are easy ways of defining that. As long as it is consistent and clear on a national basis, and people are doing it like for like, it is really easy to achieve. We do that through our own performance networks benchmarking service.

Q347 Chair: Professor Seddon, is your real problem not that the Audit Commission exists but that you are not in charge of it? Then it could do its comparisons in the way that you would like?

Professor Seddon: Very cheeky. Not at all. My purpose in life is to challenge managers to change their thinking. We, mankind, invented management; we can change it. A lot of conventional management has been rained down upon the public sector by the Treasury, the Audit Commission and people in Whitehall-people like yourselves who believe in the plausible. I have an argument going on with Lord Freud at the moment about the single universal credit. He thinks it will be delivered well over the internet-ha ha. I know it will not, because it will not absorb variety.

I do not want control. I think the smart thing that this Government has done is to relinquish central control to stop the specifications industry, although they have not yet got rid of the specifications people. That was a mistake made in Scotland, which said they were going to stop micromanaging the local authorities, but then did not get rid of the people in the centre who did it, so they just kind of carried on. There is a move to say to people, if we want innovation, then we have to hold you to be responsible. You have to make the choices about what to do. We cannot run it from Whitehall; we cannot choose here. You do not want Seddon to choose either, but I would like a level playing field, that if Seddon says a and Steve Bundred, as was, says b, at least people can make the choice. I have lived through 10 years where, if Steve Bundred says b, that is what you do.

Q348 Chai r: Doesn’t there have to be some mechanism then? Perhaps it is not the Audit Commission but some mechanism, such as the example you gave about outsourcing of housing benefit and benefit processing, which from personal experience many of us might share your criticism of. If you have examples of things being done better, how can you make sure that there is that comparison done, so you can say actually an authority here is doing better than an authority over there, or in a different way that probably has benefits, so we can actually get that good practice transferred?

Professor Seddon: I have no problem with people talking about what they are doing, having others visit them, although it is slightly problematic. I do not see any reason to stop that, but I do not see the need for a socalled independent person to come along and decide that you are good and he is not good.

Paul O'Brien: I happen to think that learning should be shared within the public sector. If we are looking for value for money in the public purse, then it is important that that is shared. My experience over the years since I have worked with the Association is that excellence has no geographic boundaries. It is just as likely to be found in Aberdeen as it is in Southampton, Cardiff or Belfast. There is a lot of information out there. Nobody has a monopoly on doing things correctly. Some people think they have but nobody really has in my experience of it.

When you benchmark with each other, when you benchmark processes with each other, you find out who is doing things well and who is doing things potentially better than you are doing them. You have to set that in a local policy context as well that is correct for you. It is about informing you; it is about giving you the information; it is about sharing that information among the sector and allowing local politicians to make legitimate policy choices about what works within their local area.

Professor Seddon: Can I just say, Chairman, this raises for me the weakness in this whole thing. I honestly believe that benchmarking is the fastest way to mediocrity. If we all peer review with each other, we will all end up the same. I learnt first of all from an American called W. Edwards Deming that copying without knowledge is a folly. This is what people often do. This is the way they do it. It is going on at the moment in adult care. "Oh, let’s do triage. That sounds like a good idea. It seems to be the modern thing." It is wrong, but we copy. Copying without knowledge is a folly.

I learned from Taiichi Ohno, who built the Toyota production system, that everything you need to know to improve your service is in your own service. It is a question of knowing how to look. Benchmarking is looking in the wrong place. One of the reasons that Portsmouth was downgraded by the Audit Commission was because they did not go benchmarking. It ought to occur to at least an averagely intelligent person that you will never set an economic benchmark if you are benchmarking by visiting other people. Does that make sense to you? Some might say, like Paul, "Well, go visit them now," but the average housing repairs manager would see things that would scare the life out of them.

Q349 Mike Freer: We accept that Professor Seddon does not like benchmarking but, Mr O’Brien, you do. How do you make benchmarking effective?

Paul O'Brien: You make it effective by doing something more than compiling data. You make it effective by using those data, analysing those data, assessing where you are strong, assessing where you are weak by peer comparison with others, and then you try to identify where you can improve your processes as a result of that. Evidence we have suggests that happens regularly across the country. I will be prepared to submit that to the clerk. There are probably 10 case studies or thereabout where that has led to savings somewhere in the region of £10 million. I am quite happy to submit that, but that is by learning from each other. I do not happen to think that elected members and senior officers locally and further down the line are incapable of interpreting data, analysing their processes, learning lessons from that and implementing systems and new process that actually improve the system. They are more than capable of doing that, if you give them the information and allow them to do it.

Q350 Mike Freer: This is one of the problems from my experience of benchmarking: you can never get local authorities to agree on how to allocate central costs.

Paul O'Brien: My point on that is the one that always comes up, and people would complain about it all the time. My experience across a range of services, I think 14 different service areas that we operate in, is that the vast majority of authorities’ central establishment charges are something like 4.5% to 5%, each service. I do not think there is a big difference that people in services actually complain about-that they have been treated unfairly and things. My experience is that, for most services, it seems to be between 4.5% and 5% for central establishment charges. The way you do it is to have clear definitions that everybody signs up to from the outset, and then you audit that to ensure that those definitions are complied with.

Q351 Mike Freer: Who does the auditing? Is it selfreporting?

Paul O'Brien: The system we have in place in our benchmarking system is that peerauditors audit us within the system from other authorities, who will go to visit those authorities, or specialists who will check the data. With our system, we do a 20% sample each year so that, within a fiveyear period, the full sample has been audited of the data that are in there. It is a simple arrangement. It is a random sample to assess that people are actually putting the correct figures in.

Q352 Bob Blackman: The Government’s view is that, by publishing lots more information about the cost of transactions and services, and also much more information about performance data, that will actually engage the public and the public will start to drill down. What is your view about the information that is going to be published? Do you think it is an explosion of data that will not be analysed or will it actually engage the public? Perhaps Professor Seddon could start.

Professor Seddon: The requirement to publish all expenditure above £500, or something like that, is a gimmick, frankly, and an irrelevance, but it is the kind of thing that obviously appealed to somebody at some moment here. It is vital that we ask those responsible for delivering the services to make their own choices about the measures they are going to use. It is vital that we should encourage them to think about the citizen, the customer of these services, in the choice of those measures, and that those measures should be used in two ways: first of all, in the service to manage the service for improvement; and secondly, to be reported as part of the transparency agenda. There should not be additional information for reporting. It should be the same as what is actually in use.

Q353 Bob Blackman: The problem that emerges is if the local authority is making the decision over what it publishes or does not and how it publishes it, how does the citizen then say, "My authority is doing pretty well compared with the next one"?

Professor Seddon: I do not know about you, Mr Blackman, but I have never met anybody who spends their time comparing their local authority with another.

Q354 Bob Blackman: No, but what they may be interested in is: "I am paying this money in council tax. I am demanding a service. Am I getting the service I should be expecting for the money I am paying?"

Professor Seddon: What I do find out there is that most people in our communities want local services that work, full stop. When they do not work, people do get a bit engaged, active, have a shout and go to their councillors and use the vehicles that we have established for them. What I have also found that is really interesting and something that we did not anticipate is that, where the services do work, the citizens engage more responsibly. For example, the housing minister went down to see this work in Portsmouth, and it was the housing minister who noticed how much more responsibility people are taking for their communities, for the environment, and they have a positive relationship with the council.

Now that is very interesting. Because this is part of the localism agenda, it teaches us that, if we can design services that work, we will have a better impact on the communities. It is a natural phenomenon. It kind of makes sense if you think about it. That is the most important thing: people want services that work. When they work, they engage responsibly, but they do not spend an awful lot of time worrying about it.

Q355 Bob Blackman: Mr O’Brien, what is your view?

Paul O'Brien: I agree with John that, first and foremost, they want services that work and deliver for them. However, I believe that they also want the cost of that service, the quality of that service, set in a national context as well. They want something to compare that against. My fear with the £500 issue is that there is information overload for ordinary members of the public, and the army of armchair auditors cannot get to the information that is meaningful for them. In our evidence, we submitted a small set of sample indicators that we believe the public is really interested in, like some of the ones I cited earlier about the cost of getting their bins emptied, the cost of keeping the streets clean, the cost of keeping the street lighting working. There are issues like that that I really believe the public is interested in. If that is buried within a pile of information, it would be difficult for them to find that.

Q356 Bob Blackman: Are you saying then that there should be more work done on the data that are produced so that the public can analyse it, so that it could be filtered before it arrives at the public? Is that your view?

Paul O'Brien: I am comfortable with the notion of selfregulation for authorities, if we are moving away from what has been quite an intensive process in the last 10 years. I think everyone recognised the need to move away from that to something that was done on a much more selfregulatory basis. However, I think that has to be done on a consistent basis, and it has to be set in context. Therefore, it is important that there is probity of those data as well by someone who is independent.

Q357 Bob Blackman: Who does that? The problem from the public’s perspective, I would assume, would be that they are sitting at home saying, "Well, that is okay. The local authority has manipulated these data to make it look as good as it possibly could."

Paul O'Brien: That is why I think there needs to be scrutiny at a national level of data. I am not talking about what went on in the last 10 years; I am talking about there needs to be some form of lighttouch overviewtaking, and then, if there are significant failings in any one particular area, they need to be challenged.

Q358 Bob Blackman: The other issue that is important is if you have representation of small amounts of data. I would like Professor Seddon’s reaction to this. How does the citizen there spot that the local authority has just gone on a spending splurge and bought all this expensive furniture when cheaper furniture would do, or something else, because that would not be reflected in services? How do we give it teeth, Professor Seddon, so that people at home can actually say, "I am not happy with what is going on"?

Professor Seddon: I have already said we ought to encourage all local authority services to be measured against the purpose from the citizen’s point of view. If we go back as an example to housing benefits, what is the purpose of housing benefits from the citizen’s point of view? It is to pay the right money to the right people as quickly as we can. Why don’t we make that a statement, and then actually tell people how long it takes from when you first put your hand up until you get sorted out? You would know that in East Devon and Stroud, for example, the ones I talked about, that you would be sorted out in three days, no problem. Done.

Q359 Bob Blackman: For you, the performance data would actually be the time taken to process the application in the first place.

Professor Seddon: It is the whole endtoend, from the citizen’s point of view. We were talking earlier about adult care. What matters to people who get into a state where they need some help from society is how quickly we go out and help them. This is the most amazing thing. If you look at the Care Quality Commission and its predecessor, the CSCI, and the same for children’s services as well, that is the single thing you do not know. We can meet all of our targets for functional assessments and activities. It means actually that the old person is visited not by one person but as many as seven different people.

Q360 Bob Blackman: Surely one of the issues is going to be under the localism agenda that services provided in one local authority could have very different performance levels compared with somewhere else. It might be that citizens say, "Actually we don’t mind."

Professor Seddon: Again, this is something that seems to have been dreamt up in this part of the world. When you go out there, you find that services ought to be different because demand is different. The demand for adult care in Bournemouth is quite different from the demand for adult care in Rochdale, Barnsley or wherever. If we encourage people to think about how we design services against the local demand, we are part of the way there to delivering services that work for people. I do not think it should be the same.

Paul O'Brien: I think in local government and public services there are also overarching policy drivers at times, which are not just about demand coming at you. There are things you have to show leadership on, like climate change for example, where you need to put in place certain measures, processes and systems that require leadership within an area. You cannot always do it on the basis of demand.

Q361 Bob Blackman: Can I cut across you there? In authorities I know very well, some authorities have said, "We have to capture the performance data. We have to make sure our buildings are energy efficient. We have to set leadership standards," and that costs them relatively small amounts of money. Other local authorities went out and recruited almost an army of people to actually monitor and control and do everything possible. That is the difference, isn’t it? How do you measure it and make sure this is happening?

Paul O'Brien: How do you measure how effective you are in terms of climate change, for example? It is outcomes. The outcomes you get from it identify how effective you are, not how you actually measure it. I do not think you would put in an army of auditors to measure the heat efficiency of your buildings, for example, obviously as well because it is only one part of the climate change jigsaw. What is right for Cornwall, for example, on climate change in terms of solar PV use probably, because they have most sunlight hours, might not necessarily be the same for Northumberland, which might be better for wind, for example. There is a different local context to performance. There are different drivers and policy issues. It cannot always be about demand. Sometimes it is about leadership as well.

Q362 Simon Danczuk: We touched on this earlier a little bit. We had the Local Government Association in and representatives from there. They talked about replacing what has been in place with more peer review and things, and I wondered what both of you thought about that external challenge. Is it a good thing or a bad thing?

Paul O'Brien: It is something I would be supportive of. If you have selfregulation, it is important you have peer review to go alongside that. We will actually be meeting with the LGA this Friday to have some discussions about how we may be able to help in terms of performance management, benchmarking and that concept of peer review. It is something we believe is important: that people who actually deliver services, who understand the context of those services, who understand the policy drivers for some of those services, are actually involved in challenging at a local level how improvement can take place within those services.

Professor Seddon: I would regard it as more of the same. As I have already said, I think peer review and benchmarking are the fastest ways to mediocrity. If you go in this direction, I would suggest you please do not make it mandatory. If people choose to innovate without visiting other people to be bland, encourage them to do that. I know this sounds extraordinary, but the fact of the matter is that I have had a whole life working in service organisations. If you want to change them and have a profound impact on their performance, the place to start is to go and study them, because you learn some very strong counterintuitive truths. You learn of the folly of managing costs, because managing costs drives your costs up. You learn some of the things I was talking about earlier. You learn of the folly of managing from budgets. You start to understand that, if you think about your organisation in a different way, you can achieve outstanding levels of improvement. That is my concern with peer review, and you cannot communicate counterintuitive truths through peer reviews.

Q363 Simon Danczuk: Somebody coming in, Professor, and giving their advice and sharing their experience-I am just playing devil’s advocate here-and supposing it was you who came in and you shared your knowledge and understanding-

Professor Seddon: No, I would not.

Simon Danczuk: It would not be helpful to them.

Professor Seddon: No, if I was helping you and you were a manager, I would not share things with you. I would have you study some things for you to realise some counterintuitive truths. If people went to visit Owen Buckwell in Portsmouth who were housing managers, they would walk out going, "Oh, you cannot do that." They would see, for example, that when a tradesman enters a house the tradesmen calls up and says how long he is going to be there. Most managers would say, "You cannot do that." Why is that an important part of their design? Because they learnt that no two plumbing jobs are the same; there is variety. What is the best way for this system to absorb variety? For the plumber to decide how long he is going to be there. Now this flies in the face of convention in housing repairs, because in housing repairs, bullied by DCLG and the Audit Commission, we are supposed to use something called the schedule of rates, and the schedule of rates has a category and a code and a standard time. That will not absorb variety, so the conventional manager would look at this design in Portsmouth and they would probably say, "It is obviously pretty good but it would probably be better if they had their schedule of rates," instead of understanding that what Portsmouth did is study it and realise that the schedule of rates is actually driving the costs up. The best thing to do is throw it away.

Q364 Chair: You just said that you would not get people to share things or you would not share with the officers or councillors if you go into a council. You would get them to study. Actually, by getting them to study, you would be sharing what you know about the organisation you are getting them to study, wouldn’t you? You would be saying, "There is something good there. Go and study it." You are sharing, aren’t you?

Professor Seddon: That is true, but the processes are very different. One process is: "Let me explain to you, Mr Manager of a Housing Business, how you should design it." That is rational, and you would kind of go, "No, I am sure I do not believe it." If I said to you, "Now, study this and you will learn some things," that change is normative. You actually change your thinking as you study what you are doing.

Paul O'Brien: I understand John’s theory behind studying services at a local level, and it is something I would sign up to as well. However, I do not buy the concept that for over 400 authorities throughout the UK, delivering something somewhere in the region of over 200 services to their residents, that we need to learn the lesson every single individual time, over and over again; I think we can learn from each other and I think we can generate that improvement.

Professor Seddon: Our agendas are quite different. My agenda is to change management thinking and, as a psychologist, I know the fastest way to change thinking is to get them to see things they cannot see.

Paul O'Brien: On the point of housing repairs, for example, I could go back to the late 1990s, when people were moving away from compulsory competitive tendering and therefore moving away from the client/contractor splits that were in existence at the time. In housing repairs, which is something I know about as well, there were 15 steps in the supply chain from the tenant reporting the repair until that repair was completed and signed off. By integrating the client/contractor functions together, you can move that down to five steps in the delivery chain. By taking that then out to a whole range of authorities all around the UK, they were able to look at that and analyse that. I think they could make their own conclusions from that. We did not tell them how to do it on an individual basis all the time. They could understand it from how we had done it at that point.

Q365 Simon Danczuk: Just to clarify the point you made there, Professor, with all due respect you are saying your aim is to get people to change the way they do things. It is admirable, but you are a consultancy. Your primary objective is to make cash, isn’t it?

Professor Seddon: No.

Simon Danczuk: It is not to make cash?

Professor Seddon: No, I am a very fortunate man. Work comes to me. My purpose in life is not to make money. My purpose in life is to change management philosophy.

Q366 Simon Danczuk: I have seen the adverts in the local government press.

Professor Seddon: You should have come to the event then, because the purpose of that event was to showcase not me but leaders from local authorities, from the public sector, from the voluntary sector and from the private sector, all talking about this whole business about how they have changed the way they think about management.

Q367 Mark Pawsey: I have a question about inspection, which I do not think I should put to Professor Seddon, because he has said that in every instance that he has investigated inspection, he has identified that it makes local authorities worse.

Professor Seddon: That is correct.

Mark Pawsey: Mr O’Brien, you presumably believe that inspection does not make local authorities worse. You believe inspection makes them better.

Paul O'Brien: On a proportionate basis, yes. I do not think we need people to come in annually to tell us we are doing things wrong and this is the way you do it. I agree with John’s point about that; I do not think you need a body that does that. I think if you move to a selfregulatory approach, it is important that, as and when appropriate, when the alarm bells start to ring or an individual authority’s performance is pretty poor, then there is an opportunity to go and inspect that, find out where things are wrong and put in some corrective measures.

Q368 Mark Pawsey: Does every function of the local authority need inspecting? Are there functions that would carry on without inspection or areas that you would particularly want to focus on? Could you just clarify frequency again?

Paul O'Brien: It has to be proportionate to risk, I guess. Obviously if you are talking about children’s services and things like that, it is more important that there is probity around those services. We are aware of some of the horror stories that have come about in children’s services, and there needs to be the opportunity to intervene if something has gone wrong within an organisation, and attempt to put that right.

Q369 Mark Pawsey: Is inspection the only or main way to identify that, in your view?

Paul O'Brien: I do not think it is the only way, no. We have spoken about peer review; we have spoken about selfregulation and reporting. When that approach actually highlights issues, it is important that you can intervene in some way and set in chain a sequence of events that can generate improvement in that service, particularly when it is with vulnerable children.

Q370 Mark Pawsey: Professor Seddon, I was going to come on to your approach in that particular area, because you have said that all an authority needs to do is ask itself what means it is taking to understand and improve performance. How would that be sufficient with regard to the services of children and vulnerable adults?

Professor Seddon: Profoundly so. You have obviously read the book.

Mark Pawsey: I have read the quotation.

Professor Seddon: That is a start, isn’t it? First of all, given that I was just accused of wanting to make money, if I wanted to make money, I would have set up a benchmarking service; I would have set up a prepareyourselffortheAuditCommissioncoming service. That is how you make money in this sector, not by encouraging people to change the way they think.

Q371 Simon Danczuk: Let me say there is nothing wrong with making money. I am a businessperson myself, but it is on your agenda. You cannot say it is not on your agenda.

Professor Seddon: No, it is not. I am very lucky. I am very busy. I earn a lot of money in the private sector. For me this is a bit of a hobby and a mission, the public sector. There are an awful lot of people in the public sector who would not work with me, because it is too scary because the Audit Commission does not like me, because I say the things that I say.

Let’s talk about adult and children’s services because, again, I first provided evidence to the then Minister for adult care, Ivan Lewis, and David Behan, who was at that time running CSCI, saying that this is what we actually see when we study adult care as a system. I was mentioning this earlier. It is not one person who comes to see you; it can be up to seven. The financial assessment can be weeks after the process first starts and, if you had known that, you would not have bothered to first apply. You find that you waste thousands of pounds in administrative work that is completely unnecessary. You waste quite large amounts of money on material that is unnecessarily used and repeatedly used and so on but, most scarily of all, we wasted millions of pounds of taxpayers’ money driving people into care homes where they did not want to be. This was strong evidence based on studying adult care in England, in two counties, and of course it got ignored, because it did not fit the then narrative, which was about personalisation and various other dreamtup ideas that were going to be foisted on this sector.

It is very pertinent to tell you that, in Wales, because they are not run by Westminster, we have been able to make great strides in improving the delivery of adult social care and saving the money. Millions are not being spent putting people into care homes, using equipment in an inappropriate way, and so on and so forth. This is the kind of freedom that I would expect to see. To go back to your point, if they took that question-what measures are you using to help you understand and improve for work-this is not a soft option; it is a hard option. You run a care business; you have to make those choices. I would encourage you to make those choices from the citizen’s point of view. You would need to understand the nature of demand. What do people want from us? And you need to understand how well you deliver it to them.

Q372 Mark Pawsey: How would that process prevent things going wrong? It is in this sector where, if things go wrong, most people are personally affected.

Professor Seddon: I would say because it fits with the whole body of knowledge in the quality movement they call prevention, rather than inspection. We have known since the 1950s that you cannot inspect quality in. I would argue that, if you have those kinds of measures in the places where the work is done, then a lot of the current problems would not occur. The fact of the matter is, in children’s services, we have the kind of incident that we had in Haringey running at about three a week, and it is largely because of the design of the system that all the social workers have to work to. I am giving evidence to the Munro Review on this. I think it is alarming.

What is really disturbing about this is that, in England, when you get to the stage where you have all this knowledge, you see what is going wrong, you understand how we fragment this service and we do not help the children, it ought to move to a design where we are not working to all the central directives. We actually have to get a letter of dispensation from the Minister. How absurd is that?

Q373 Mark Pawsey: In the absence of inspection, how would you know that things were going wrong?

Professor Seddon: Because it is palpable. It is there in the work to see, as it were. You could turn up if you wish. What I am trying to say to you is that innovation starts with having responsibility in the right place, making choices in the right place. I have no problem with citizens or other parties turning up to see what is going on. I have no problem with the transparency of the data. I have no problem with any of that, but we have run a whole regime where the centre decides what is going to happen and then we send out the Audit Commission to coerce people to comply, and it has driven massive costs and poorquality service.

Q374 Chair: Should local authorities do their own inspection then?

Professor Seddon: I am not a great fan of inspection because, as I have said, we have learnt since the 1950s that inspection does not improve performance. We have to change the way we think about control. It is much better to have measures that relate to the purpose of the service, used where the service is performed. It gives you much stronger control and innovation.

Q375 Chair: But no checks on whether that is actually happening.

Professor Seddon: It is a bit like that tradesman in Portsmouth, who turns up at the house and he decides how long he is going to be. If you think we should check up on him, or if you think actually what should happen-this is what does happen-is if you have a rogue tradesman who is swinging the lead, it becomes very obvious, very quickly, because the whole system is transparent.

Paul O'Brien: There is something I would like to say about Wales. Wales has a system in place for performance management, quite a well-established performance management framework, called Ffynnon, which is delivered by the Welsh Assembly Government, and that covers a lot of these areas and is similar to some of the things we have been talking about today-selfregulation and peer review. That is a measure of success then.

Chair: On that point of complete disagreement, which is probably where we began, thank you very much indeed, both of you, for a very stimulating and lively session.