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Submission to the Communities and Local Government Committee inquiry into the audit and inspection of local authorities.

28th January 2011 Dear Sir/Madam, Please find below a submission from the TaxPayers’ Alliance to the Communities and Local Government Committee inquiry into the audit and inspection of local authorities. Given the remit of the Committee, we have largely avoided the Audit Commission’s role in healthcare, although the same principles do apply. If you have any questions about our submission please feel free to get in touch with either myself or our Policy Analyst at the email addresses below. Yours Faithfully, Matthew Sinclair Director, TaxPayers’ Alliance matthew.sinclair@taxpayersalliance.com Christopher Daniel Policy Analyst, TaxPayers’ Alliance chris.daniel@taxpayersalliance.com

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Summary The TaxPayers’ Alliance welcomes the abolition of the Audit Commission. It has placed

an unnecessary and costly burden on local authorities and stifles competition. The auditing of local authority accounts should be transparently tendered out to the

private sector, to help drive down costs and to ensure independent decision making that is accountable to taxpayers.

There should be no body or organisation formed to carry out compliance functions, as

this was perhaps the most egregious and costly of the Audit Commission’s activities. The TaxPayers’ Alliance believes that full and useful transparency will be a very

powerful tool to hold local politicians and council staff to account, to run alongside traditional financial auditing.

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The Audit Commission Problems The Audit Commission was an instrument of central government, finding new and

increasingly bureaucratic ways of controlling local councils. The Audit Commission has incrementally been handed – and lobbied for – greater powers, which have seen it stifle innovation at a local level in favour of meeting centrally prescribed targets. The TaxPayers’ Alliance welcomes its abolition.

Centrally set targets do nothing to improve local services. Systems like star-ratings –

once described as “disrespectful and utterly perverse” by Vince Cable1

– graded local authorities with stars, which were boasted about by local authorities but roundly ignored by everyone else. They made authorities compete in the wrong way; not by benchmarking service quality and efficiency, but so as not to be graded lower than their neighbouring authorities. Consequently, these targets – stars, flags or otherwise – do nothing to improve services, they merely undermine their performance. Councils became obsessed with compliance and fearful of poor Audit Commission reports. The Audit Commission should have stuck to its primary job and it clearly strayed too far outside of its remit.

The cost of the Audit commission in 2009-10 was £220.3million. Scrapping this body will obviously not save all of this money, as councils will still have to pay for the cost of auditing. But significant savings will be realised as the Audit Commission costs over £50 million to administer and staff.

However, there should be additional savings too. For example, the cost of complying with Comprehensive Area Assessments (CAA’s) is estimated to be in excess of £300,000 for some councils. Local authorities were under great pressure to meet the targets set so felt that they had no choice in paying.2

Solutions The TaxPayers’ Alliance welcomes the decisions to scrap Comprehensive Area

Assessments and to abolish the Audit Commission. We believe the Department for Communities and Local Government have worked quickly to strip out bureaucracy and give councils more freedom. We feel that councils should have more revenue raising powers but some important steps have been taken to give local people a greater say on how their local services are run.3

1 http://www.guardian.co.uk/politics/2010/aug/13/audit-commission-to-be-scrapped 2 http://conservativehome.blogs.com/localgovernment/2009/12/wandsworth-and-hf-councils-quit-costly-

inspection.html#tp 3 www.taxpayersalliance.com/Localism.pdf

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To that end, it is crucial that the Audit Commission is not simply replaced by another bureaucratic quango.

The TPA agrees that auditing should be tendered out to the private sector. This has the

clear benefit of opening up the service to competition. Local authorities have had auditing enforced on them by one organisation; if they have choice then this will help drive down costs. For example, the costs of auditing Birmingham Council’s accounts in 2009-10 was £1.2 million, a council with an income of £2.5billion,4 compared to the £0.6 million spent by the entire HMV group on auditing fees in 2009-10,5

an organisation which has private revenues of over £2 billion. While admittedly this is not a like-for-like comparison, the difference between the two costs cannot be ignored. The doubling of the costs makes a strong case for seeking private firms to audit local authority accounts.

There has been concern that private auditors would not necessarily be independent from Government. This apprehension is warranted, as cosy relationships between public bodies and private companies can and do happen. To ensure the independence of the auditors and to continue the agenda of transparent government, it would be vital that the tender process of selecting an auditing firm was an open and public process.

The TPA strongly believes that fully transparent government – though currently in its infancy – will in time provide local taxpayers with genuine tools to hold elected politicians and council staff accountable. Centrally set targets do not work for different councils with residents that require completely different services over and above core provisions. There should absolutely be no new body or organisation that carries out a compliance function on behalf of the Government.

4http://www.birmingham.gov.uk/cs/Satellite?c=Page&childpagename=SystemAdmin%2FCFPageLayout&cid=1223324977479&packedargs=website%3D4&pagename=BCC%2FCommon%2FWrapper%2FCFWrapper&rendermode=live 5 http://2010hmvgroup.ry.com/Accounts_and_Downloads/Default.aspx

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Localism Problems The centralised nature of British Politics has bred and assiduously maintained a culture

of “Government knows best”. One major failing of this is that local people are being told how their services should be run by politicians who do not have a true understanding of issues in their local area. The Audit Commission was part of this and subsequently did absolutely nothing to nurture innovation at a local level; it merely fostered compliance and local authorities suffered as a result.

Solutions To create a more efficient local government structure in the UK, local authorities must

feel that they are accountable to the people who both elect them and pay their salaries. This is only possible if local authorities are given more independence and freedom from centralised and standardised requirements. The system under the Audit Commission was that local authorities were not met with substantial repercussions for failure. The audit commission can grade a council, however this is meaningless to local residents, and priorities will naturally be different across council boundaries.

Much of what affects residents should be decided at a local council level. Decentralising

the balance of power to local authorities makes for cheaper and more efficient governance.6

6

http://www.cps.org.uk/cps_catalog/A_Magna_Carta_for_Localism.html http://www.cps.org.uk/cgi-bin/sh000004.pl?REFPAGE=http%3a%2f%2fwww.cps.org.uk%2fcps_catalog%2fA_Magna_Carta_for_Localism.html&WD=good%20guide%20council&PN=Catalogue_The_New_Good_Council_Guide_61.html%23a56#a56

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Transparency Problems The Audit Commission worked in an era of obfuscation and opaque governance. This

meant that they have been the sole arbiters of council spending. Taxpayers’ deserved – and continue to deserve – much better.

Solutions The abolition of the Audit Commission complements the measures already taken to

increase transparency throughout local government. The decision to publish all spending over £500 allows local residents access to scrutinise the spending of their councils and effectively hold them to account. This can be done in tandem with examination of local authority annual statement of accounts which, while more detailed in recent years, still need to be more comprehensive and accessible.

One major stipulation that the TPA would make is that the publication of any

information must be in a practical and serviceable format, user friendly to the local residents and easily available online. The publication of data will lead to the creation of armies of armchair auditors, which ultimately comes at very little cost to the taxpayer.

The oversight and inspection of local authority performance is not a role that requires

heavy spending from central or local government. Civil society is the most effective and proven guardian to watch over council spending and performance. Those who pay for and use the services will be more concerned about how their money is spent and how their services perform than a public sector body. Through empowering local people to challenge underperformance, councils can establish a self reviewing system which can fill the void left by the audit commission at a much reduced cost.