Schedule 4 - Further provisions about auditor panels

Local Audit and Accountability Bill [Lords] – in a Public Bill Committee at 2:00 pm on 7th November 2013.

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Amendment made: 16, in schedule 4, page 40, line 4, at end insert—

‘(6) The function of appointing a panel or making a determination under this paragraph is to be exercised in the case of a parish meeting by the parish meeting itself (and not by its chairman on behalf of the parish meeting).’.—(Brandon Lewis.)

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government) 2:15 pm, 7th November 2013

I beg to move amendment 81, in schedule 4, page 41, line 3, at end insert—

‘(10) Such regulations shall in particular provide that an individual shall be ineligible to act as a member of an audit panel if that individual has any disqualifying interest.’.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

With this it will be convenient to discuss the following:

Amendment 82, in schedule 4, page 41, line 11, leave out paragraph (c).

Amendment 83, in schedule 4, page 41, line 13, after ‘may’, insert

‘after consultation with relevant authorities’.

Amendment 84, in schedule 4, page 41, leave out lines 23 and 24.

Amendment 85, in schedule 4, page 42, line 10, leave out sub-paragraph (7).

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

Schedule 4 sets out further provisions about auditor panels and how they will be comprised. If you will grant leeway, Sir Edward, I want to make a point that may otherwise have been raised in a stand part debate. I hope that you will allow us to include it at this point as it relates to our other amendments.

I want to draw attention to the use of the term “close friend” in schedule 4. We considered whether to table an amendment to omit the term, but we instead ask the Minister to reflect on the lack of definition in the Bill and commit to defining the term. Hon. Members will understand our concern that the phrase is highly subjective and difficult to define, so it must be clearly defined in the Bill if it is to have any meaning in practice when the Bill becomes law.

I asked the Library to provide me with information to illuminate the assurances that were given by Baroness Hanham in the other place. Her principal assurance and the basis on which my colleagues in the Lords withdrew their amendment was that “close friend” was already defined in the Localism Act 2011 and that great comfort should be taken from that. I asked the Library  to tell me where the term appeared in the 2011 Act, how it was defined and, for completeness, how council officers, independent audit panels, the Government, courts and others may interpret the parliamentary record in future when checking the Government’s intention and how the term was defined in debate. I must tell the Committee that I was incredibly disappointed to find that there was no such debate on the matter during the Committee stage of the 2011 Act. The term was slipped into the Act through regulations that were never debated and that contain no definition of “close friend”. That is the advice that I received from the Library, which is a source of great expertise, but perhaps it just did not spot the guidance somewhere in the legislation. I hope that the Minister will be able to tell us that the definition does exist or, if not, that he will commit to defining the term.

The problem is not in the principle but in the practice. We can all understand the principle that a close friendship might be a disqualifying interest for someone to serve on an independent audit panel. We would all agree that, for example, a long-term, close friend of a senior officer of a local authority may not be an appropriate person to serve on the independent panel. They may not be able to bring that measure of independence that we would all want to see in this process if it is to work effectively and to safeguard the independence in the new arrangements relative to the independence afforded by the Audit Commission, which was its driving purpose when established by Lord Heseltine. How would a Minister define a close friend in that context? I hope that he will make that clear both in this debate and by tabling an amendment or new clause. My local authority, Corby borough council, has approximately 500 employees. I imagine that the local population includes many thousands of people who, by virtue of their day-to-day connections—perhaps they are neighbours or they attend the same social clubs—know, are on good terms with or have a personal relationship with officers and members of the council. Members of local authorities have to be active in their communities and develop good working relationships, which could be defined as friendships, with people in their community, in their ward or across the town or city that they serve.

To take my point further, would a Facebook friend be considered a close friend? After all, an officer or elected member of the council might communicate with that person daily. They might share details about their children’s life events, such as their exam results, their starting at university, their working lives, their achievements and other significant happenings in their lives. They might even share details of the sports teams that they support. A friend of someone who works at the local authority, whom they may not consider to be a close friend, might like, comment on or share one of their posts on Facebook and thus make a connection with them. Someone who lives in the same local area or city as an officer of the council and shares their interest in many aspects of life in the city might well retweet a tweet from that officer. Would that make them a close friend?

The Labour club in Corby has many hundreds of members—sadly, so does the Conservative club—and they could be said, by association, to be close friends. The question of political connection and association was mentioned in the other place. There are more than 350 members of the Labour party in Corby and east Northamptonshire, and that number grows all the time  in response to the political comings and goings in this place. I know that there are far fewer members of the Conservative party in my constituency, but I imagine that there are some tens. Those people will be friends with or connected to officers of the council. They might be providers of audit services or bidders who might bid to provide audit services. Then there are connected parties of the council, for example, through substantial shared services arrangements or through procurement arrangements that are made by the local authority. As a connected party, would the person who works in the bakery that provides the council with sandwiches for its meetings have to tell her friends that they were excluded from taking part in the process because they could be defined as close friends? I have set out a few examples, and I am sure that colleagues can think of many other areas where the term might apply.

Photo of Roberta Blackman-Woods Roberta Blackman-Woods Shadow Minister (Communities and Local Government)

My hon. Friend is making a strong case. Does he accept that we have no idea how a close friendship might be severed, or what would count as a severance of a close friendship to allow a person to be an auditor?

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

Indeed, that is a further complicating factor. If I were to “unfollow” my hon. Friend on Twitter—I cannot imagine any circumstances in which I would want to do so—or “unfriend” her on Facebook, would that be considered sufficient evidence that we were no longer strongly enough connected to be considered, for the purposes of the Bill, as close friends?

I hope that I have demonstrated to the Minister that further work and definition are needed. The letter of the law might mean that almost nobody within a reasonable distance of the civic centre or the county hall in my constituency could bid to provide audit services, because one way or another they will almost certainly be connected to the local authority, somebody who works in the provision of services to the local authority, an auditor of the local authority or a member of the local authority. We completely understand the motivation—the need to ensure independence—but we cannot support the way that is expressed, because we think it is so empty and ill-defined a phrase as to be meaningless. Therefore, we ask the Government to think again.

I turn to amendment 82, which would delete paragraph (c). We believe that the word “independence” is already well defined and does not need definition at some future time by regulations from the Secretary of State. The words of Humpty Dumpty come to mind when I think about how, in future, this power could be used in regulations. As I was told earlier, in Lewis Carroll’s novel, “Through the Looking Glass”, Humpty Dumpty said:

“When I use a word…it means just what I choose it to mean—neither more nor less.”

In the future, whether we find—as I hope we will—my right hon. Friend the Member for Leeds Central (Hilary Benn), or indeed the current Secretary of State, in the position to define the term, they will be able to decide what they think the term means without any recourse to the Oxford English Dictionary or the Collins English Dictionary definition. In the Collins English Dictionary, “independence” means

“free from control in action, judgment, etc; autonomous… not reliant on the support, especially financial support, of others… capable of acting for oneself or on one’s own”.

To me, those seem to be sufficient ways of defining independence in so far as we would all share a view of what the term means.

The Oxford English Dictionary describes independence as:

“The condition or quality of being independent; the fact of not depending on another; exemption from external control or support; freedom from subjection, or from the influence of others; individual liberty of thought or action.”

Those seem to be good, accepted definitions. If, though, we wanted to go further than that, we should do in the Bill what the Government, and other Governments, have done elsewhere in legislation. Section 28 of the Localism Act 2011 gives a definition of, for example, an independent person and it outlines what makes someone independent. I refer the Minister to that definition and ask him to consider whether such a definition could be included either by reference to section 28 of that Act or specifically in the Bill, rather than giving such extraordinary power to make changes by regulations to the Secretary of State.

The Localism Act has a far briefer definition of independence as regards independent planning examiners, for example: a point that my hon. Friend the Member for City of Durham will be aware of. It says:

“The person appointed must be someone who, in the opinion of the person making the appointment: is independent of the qualifying body and the authority; does not have an interest in any land that may be affected by the draft order; and has appropriate qualifications and experience.”

That seems to be an appropriate definition of independence that we could easily and readily adapt here; we could substitute “land” with “financial transactions”.

Photo of James Morris James Morris Conservative, Halesowen and Rowley Regis

I do not want to get into an argument on semantics, but would the hon. Gentleman not agree that there might be something more specific to the independence required to sit on an audit body than some generic definition of independence extracted from the dictionary?

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

The hon. Gentleman, as ever, makes my point for me eloquently. Of course, we can begin with a general understanding of the definition from the Oxford English Dictionary and the Collins English Dictionary, but then, in carrying out our role of scrutinising legislation, we should go further than that when necessary to ensure independence in the appointment of an individual to carry out an important public role. We made that clear in relation to the draft Bill and the Localism Act, with its specific clauses. The Independent Police Complaints Commission has a useful definition of independent that could be drawn on here. The Police Reform Act 2002 provides a clear and straightforward definition of independent custody visitors that I think everyone would be able to understand. Indeed, the independence of members of the Independent Parliamentary Standards Authority—if hon. Members do not mind my mentioning its name this afternoon—was defined and set out when that body was created.

It therefore seems to me that there is a clear precedent, in terms of what is good law-making and good practice in this place, for us to request that the Government think again on having this sweeping power for the  Secretary of State to act rather as Lewis Carroll’s Humpty Dumpty may do and just decide that independence means whatever he wants it to mean at any future point, according to his world view. That is not the right way to make legislation.

Our other amendments make similar points about definitions in the schedule and are, I hope, fairly self-explanatory and straightforward. Amendment 83 is consistent with our previous proposals, asking for a commitment that the Secretary of State will consult relevant bodies before changing regulations. I think that that is a reasonable request to make of the Government, given how many powers are being taken, disappointingly, in regulations.

The purpose of amendment 84, on which I hope the Minister will comment, is to ask him what he considers to be an appropriate level of remuneration or allowances. Perhaps he is looking this up on his phone to see what comparable bodies there may be in local authorities. I know that he will recognise the importance of this point, given the concerns that he will have about the costly burden that could be placed on local authorities as a result of this process. Therefore, might he set out for us how many times he imagines an independent audit panel might meet and how extensive its role might be? It would be helpful to have that on the record. Frankly, we do not necessarily seek that detail in the Bill. In the interest of not being over-prescriptive, we would not necessarily consider all that detail to be necessary or, indeed, helpful. However, to understand the Minister’s thinking about this provision and his intentions would be very helpful not only for the drafting of future guidance and regulations, but for independent audit panels in ensuring that they are carrying out their role effectively.

Let us consider, for example, the conducting of a procurement exercise that in all likelihood, the Minister assures us, will be an EU procurement exercise. How many meetings might there be and how long might it take in those meetings to frame that procurement exercise, to draft the tender? Would he envisage there being substantial meetings in the process of longlisting, which could be important in terms of all the competition that he tells us there will be? We think that it may be a brief process to longlist from the two or three bidders, if you are lucky, that there will be, but in the Minister’s world, there is huge competition.

Then we get to the process of shortlisting from the highly competitive bids that the Minister imagines will come forward. Again, we think that unlikely, but in that process of shortlisting, surely it would be appropriate, in terms of the independence of the auditors and the quality of the provision that they are offering, to have meetings between the independent panel and the shortlisted bidders. How long might those interviews or meetings take? Subsequent to those interviews and meetings—I have conducted audit tendering exercises and have met the companies bidding and asked others, including those involved in the governance, to meet them—we would have a reasonable expectation that the independent audit panel would meet to discuss the bids that it had received and the shortlisting interviews that had taken place and to judge them against appropriate scoring metrics. No doubt it had had a meeting to discuss and decide the appropriate scoring metrics to achieve its objectives. It will have the shortlisting meeting. It will  then have, I assume, the meeting with the local authority to share its findings. Then it may have scoping meetings with the appointed independent auditor to ensure that the independent auditor will carry out their role effectively. It then, of course, may have review meetings with the independent auditor. Those meetings may take many hours; they may take all day. It may be necessary to have an away day to consider how to structure all this important work that the independent audit panel is doing. The away day may be, as some of the free schools and academies have decided, abroad. It could be in Bermuda for all we know.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government 2:30 pm, 7th November 2013

When the hon. Gentleman suggests that the panel might go to Bermuda, is he thinking back to the old days in the DCLG, under the previous Labour Government, when there were away days in very expensive restaurants around the world?

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

No, I certainly was not invoking the DCLG’s financial management, because of course that would not be a good model for us to follow, given, for example, the recent National Audit Office condemnation of its unauthorised £217 million overdraft, for which it was fined.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

Does the hon. Gentleman want to point out our 60% saving in the DCLG, compared with what it was under the previous Labour Government, when—

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

Order. That is enough. Let us calm down and get back to the point.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

Of course, I will follow your guidance on how helpful or otherwise this part of the debate may be, Sir Edward. The point I am making to the Minister, which I am sure I have made well enough now, is that there could be a substantial commitment from the independent audit panel, and we would like to know how he envisages the audit panel carrying out its role, in terms of the level of commitment, and what remuneration might be appropriate. We would not want him to prescribe remuneration, because it may need to fit appropriately with whatever scheme applies within a local authority, and that would need to be considered, but clearly substantial costs could be involved. Will he tell us his intentions in that regard?

If the Minister could assure us that he will go away and think about that point, and perhaps come back to us with a guidance note on how an auditor might carry out its role, in terms of the time commitment that may be involved, that would be very helpful. The amendments are, I believe, otherwise self-explanatory and I do not intend to go into them further. I am sure that my hon. Friends may have comments to add.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

I want to address amendment 82, which would leave out schedule 4(3)(c). At an earlier Committee sitting, I mentioned my concern about Henry VIII clauses and the extent to which they were creeping into the Bill. I am not sure that this is a Henry VIII clause exactly, but as my hon. Friend the Member for Corby just mentioned,  it certainly is a Humpty Dumpty clause, which may lead to further discussion in the constitutional press about such clauses.

It is clear, for two reasons, that it is a very strange schedule indeed. First, as my hon. Friend mentioned, the schedule appears to be saying on the surface that the Secretary of State can define independence in any way he thinks fit. If he decides that “independent” means the newspaper, he can do that according to the legislation, and he can do so because nothing else in the Bill seeks, in the context of that schedule, to define “independent” further.

What one normally goes to, when looking at a piece of legislation, is the clause at the back of the main body of the Bill, which is usually the one that no one raises any objections to and which the Committee steams through at the end of proceedings, before everyone thanks everyone for being in attendance. It is on the interpretation of the Bill, and in this instance, it is clause 41. In that clause, we see 26 different definitions, from “combined authority” to “expenses”, to “functional body”, to “item of account”, to “police area”, to “recognised supervisory body”. Everything is defined, and so it should be, so that we are clear when referring to legislation what particular things in it mean.

Conspicuous by its absence is the word “independent”. It is not defined in that clause. However, earlier in schedule 4, in sub-paragraph (2) of paragraph 2 on “Constitution of auditor panels”, there is a definition of “independent”:

“A member of a relevant authority’s auditor panel, other than a health service body’s auditor panel, is “independent” at any given time if”— and various things then follow.

“Independent”, interestingly, is defined as what is not independent, but nevertheless, “independent” is defined. If someone wishes to be on the relevant authority’s auditor panel, as defined previously, they must not have been certain things. Some of those things are defined further down in the schedule. For example, sub-paragraph (8) defines what it is to be a “relative”. We have already discussed the question of close friends and friends, but clearly, “relative” is closely defined. Up until this point in the Bill, some attempt seems to have been made to define “independent”. At that point, either the drafters of the Bill went to lunch and forgot that they had to add to the Bill, or there are reasons why the auditor panels of health service bodies do not need to be independent. If they need to be independent, it seems that they need to be so in a new and mysterious way that can only be defined by the Secretary of State, about which we know nothing at the moment but perhaps we will in the fullness of time, if and when the Secretary of State decides to pass secondary legislation telling us what independence is for the purpose of those auditor panels.

That is another dreadful bit of drafting, which deserves to be removed, as the amendment suggests; taken away and tucked into the interpretation clause; or aligned with the attempt earlier in the Bill to define independence. Alternatively, will the Minister explain why, uniquely, the members of health service auditor panels do not need to be independent in the same way as those of  non-health service panels? If they need to be independent, can he tell us what definition of independence for those panels might be in the Secretary of State’s mind?

Photo of Chris Williamson Chris Williamson Labour, Derby North

I congratulate my hon. Friends the Members for Corby and for Southampton, Test on their razor-sharp and scathing critique of the weaknesses and inconsistencies in schedule 4. Without a definition of “close friend”, we are open to all sorts of flights of fancy, depending on what happens to float the boat of the Secretary of State at the time. While my hon. Friend for Southampton, Test was speaking, I looked on the internet for the definition of a close friend—who knows, the Secretary of State may consult the internet when he comes up with his own definition—and this is what I found:

“A close friend is a friend that you can talk about anything with, and never worry that they will judge you. They will always be there for you, and you feel so comfortable at each other’s houses that it is like they are a second home to you.

A normal friend would just be someone that you go to the mall with, talk on the phone with, and hang out with at school or something.”

My hon. Friend the Member for Corby has given some examples involving Facebook and Twitter. Another person said:

“A close friend is one that you see on a regular basis”—

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

Order. It is not the normal practice to read straight out from mobile phones, even between friends. Be my friend, and just make it up as you go along. That usually works quite well with you anyway.

Photo of Chris Williamson Chris Williamson Labour, Derby North

Thank you for that guidance, Sir Edward. I do not have a tablet or an iPad, so I have to rely on my small mobile phone to assist me as an aide-mémoire.

Photo of Duncan Hames Duncan Hames Liberal Democrat, Chippenham

The hon. Gentleman demonstrates some of the perils of over-reliance on definitions. Given that we are debating the Local Audit and Accountability Bill, is he familiar with the accounting principle of substance over form and does he think that that principle might prove beneficial in trying to understand those issues in practice?

Photo of Chris Williamson Chris Williamson Labour, Derby North

Well, if I could understand what the hon. Gentleman was talking about, I might be able to give him a considered response. I am reminded of when a colleague in a previous Parliament talked about neo-classical endogenous growth theory and was dismissed as talking gobbledegook. I get a sense that the hon. Gentleman was, to some extent, talking gobbledegook. All we are trying to say in our criticism of this part of the Bill is that unless there is a definition of what a close friend is, it is left open to all sorts of different interpretations along the lines that I have outlined.

In all seriousness, it is incumbent on the Minister to take on board what my hon. Friends the Members for Corby and for Southampton, Test have said today and come back with a proper definition. There are plenty of definitions available. My hon. Friend the Member for Corby spoke about the definition of independence that  applies to people serving on the IPSA board. It cannot be beyond the wit of the Secretary of State or the Minister to come back with an appropriate definition; it is unacceptable to leave it hanging and vague. I hope it is simply an oversight and that the Minister will reassure us that he has taken on board our criticism that there is a glaring omission and a weakness in the drafting of the Bill and will do something to correct it. That would give the Committee confidence that he has taken this issue seriously and, more importantly, give the public confidence that it will be appropriately addressed. We do not want abuses to occur in the future.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

Thank you, Sir Edward. I will do my very best not to fall off the wall this afternoon.

I am rather disappointed that the hon. Member for Corby, in his comments about close friends, did not mention the fact that on Tuesday he said he hoped we would become close friends during this Committee. The concept of close friend is already included in section 28 of the Localism Act 2011. There is a view that we should consider providing guidance to local authorities on this if we are considering issues such as whether people socialise on a regular basis. The term “close friends” is already used in Government regulations on benefits. Clearly, the context here is different, but it is sensible and reasonable to take the view that it is possible to recognise whether somebody is a close friend for the purpose of independence, and what probity is in a professional relationship, in the context of councils’ standards of conduct. I will return to that issue in a few moments.

The amendments relate to provisions about independent auditor panels. Amendments 81 and 82 deal specifically with the definition of the independence of auditor panel members. Amendment 81 would require that regulations making further provision on members of an auditor panel who are and are not independent shall, in particular, provide that a person

“shall be ineligible to act as a member of an audit panel if that individual has any disqualifying interest.”

Amendment 82 would remove the Secretary of State’s power to define the meaning of independence for auditor panels of health bodies in regulations. The definition of independence for local government bodies is in schedule 4, paragraph 2(2), and it is based on section 28 of the Localism Act. The amendment addresses the Secretary of State’s power to make a different definition for health bodies. We are currently consulting on the definition publicly. I will turn to that in a few moments.

I will begin by addressing the reference to persons with a disqualifying interest. I reassure the hon. Member for Corby that the Government intend to make further regulations in this area. In fact, we have now shared draft regulations with the Committee which set out a range of disqualifying interests. Any person holding one of those interests will not be able to count as an independent member of an auditor panel.

In particular, the draft regulations address two important issues raised previously during earlier consideration of the Bill. First, they provide that persons with significant commercial links with an authority may not be considered independent members of an auditor panel. Secondly,  they ensure that any employees of any firm that is, or is bidding to become, the auditor of an authority may also not be considered independent. The Government will consult on those draft regulations in the coming months.

Although the Government’s draft regulations will define persons with a disqualifying interest as non-independent, they will not prevent such persons from being members of the panel. The amendment would require that persons with a disqualifying interest are ineligible to act as a panel member. The Bill already provides that the panel will need to have a majority of independent members and be independently chaired. Local authorities may choose to have non-independent members, for example elected councillors, but given that they will always be, by definition, in the minority, we see no reason why we should prevent such persons from being members of the panel, should an authority find it helpful.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

I thank the Minister for his assurances. There is absolutely no difference of view between us on the importance of the panel being independent and of there being independence in the audit process. He is preaching to the converted when he talks about the motivation. We are not questioning that; we are saying that if that is so important, it should be defined. There is some attempt to define independence in later clauses, but we are concerned, for example, about the Secretary of State’s taking this sweeping power and redefining independence again. It is not the principle that the Minister is talking about that is at stake; there are specific clauses that we are concerned about.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I appreciate the hon. Gentleman’s point. In just a moment, I will speak about the Secretary of State’s power. My point, as I have already outlined, is that independence is defined in the Localism Act 2011. I reassure him that we intend the regulations to provide that a meeting of the panel will be quorate only if a majority of independent members are present.

Amendment 82 would remove the Secretary of State’s power to define “independent” when making regulations on whether any of the members of the auditor panel of a health service body must be independent. It would effectively create a legal limbo. Without paragraph 3(c), the Secretary of State could make regulations about whether any of the members of the auditor panel of a health service body—including the chair—have to be independent, but would be unable to define “independent” for those purposes. That touches on points my hon. Friends made earlier.

The Department of Health is consulting on proposed requirements that could be created under paragraph 3 of schedule 4, subject to the passage of the Bill through Parliament. The consultation proposes:

“The governing board will determine if a prospective audit committee member is independent. They will do this by taking into account if s/he: has been an employee of the Health Service Body within the last five years; has, or has had within the last three years, a material business relationship with the Health Service Body either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the Health Service Body; has received or receives additional remuneration from the Health Service Body apart from a ‘Governing Board member’s fee’, participates in the Health Service Body’s performance related pay scheme, or is a member of the Health Service Body’s  pension scheme, other than the NHS Pension Scheme; has close family ties with any of the Health Service Body’s advisers, directors or senior employees; holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; has served on the board of the Health Service Body for more than nine years from the date of their first appointment; or is an appointed representative of the Health Service Body’s university medical or dental school.”

The Bill provides that the Secretary of State can regulate to define independence for health service bodies, so that the sorts of requirements that I have set out can be created. Without paragraph 3(c), the meaning of any regulations that the Secretary of State made under paragraph 3 would be unclear and the regulations would be unclear in practice.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

I take from that that somewhere there is an exhaustive definition along the lines of the definition in an earlier clause on non-health service audit bodies. That exhaustive definition would establish what it means not to be independent and therefore to be excluded from membership of that health service body, but it is not in the Bill. Is the Minister saying that, unlike the definition on non-health service audit bodies, which is in the Bill, it is good enough that the Bill proceeds without the exhaustive definition, because a consultation has not been concluded, and the Secretary of State can be left to have discretion over what goes on or otherwise? I am not particularly comforted that a consultation is under way if it is not eventually related to what is in the Bill.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

I have to say to the hon. Gentleman that the provision, as I am sure he will appreciate, given all his experience in the House, will be detailed and technical. We also expect there to be minor differences for each sort of health service body, reflecting their different constitutions. That is why the matter is for secondary, not primary legislation.

Amendment 83 would require the Secretary of State to consult the relevant authorities before making regulations to make further provision on the constitution of auditor panels. I reassure the hon. Member for Corby—I should say “my hon. Friend” in the light of our earlier discussion —that the Government fully intend to consult before making the regulations. I have shared the draft regulations with the Committee and the Government intend to run a formal consultation on them later this year. The regulations make minor practical provisions about the constitution and operation of panels, with the aim of ensuring that they are properly run and fully transparent. For example, the draft regulations require panels to have a minimum of three members and that local authorities must have a properly open approach to the recruitment of independent panel members.

Amendments 84 and 85 deal specifically with any costs associated with auditor panels. Amendment 84 would remove the provision that allows the Secretary of State to make regulations on the payment of remuneration or allowances to members of an auditor panel. Amendment 85 would remove the duty of relevant authorities to meet the reasonable expenses incurred by its auditor panel.

On amendment 84, I can assure the hon. Member for Corby that the Government’s intent is simply to put beyond doubt that authorities will be able to pay members of their independent auditor panel if they want to. I  have shared draft regulations on the matter with the Committee that confirm that the authority may pay allowances to panel members, but that they are not required to do so. It is right that it is for the authority to decide what provisions should be in place. Auditor panels and councils that are looking at this may want to ensure that they learn from the Audit Commission to ensure that its mistakes are not repeated. The hon. Gentleman touched earlier on the potential for profligate expenditure on away days in the various wonderful places that he named. He may well have taken that example from the awful things that we have learned about the Audit Commission, which used to enjoy fine dining at some of the most expensive restaurants in London, such as L’Escargot, Coq d’Argent, Cinnamon Club, Smollensky’s and Brasserie Blanc. Other wasteful spending included shopping at HMV, buying doughnuts and spending nearly £5,000 on a drinks reception at the Royal Horseguards hotel for past and present quangocrats that was attended by just 34 people, which probably shows how many friends the Audit Commission had.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

The Minister is unnecessarily trying to score a point. We all agree that the Audit Commission lost its way. What is necessary, however, is that we tell an independent auditor panel in Cornwall, for example, which has absolutely no intention of dining at Smollensky’s or the other restaurants that he mentioned—I am not familiar with them, but he may be—what we broadly expect of it. When it looks to today’s record, it will get no help from the completely unnecessary points that the Minister makes about the Audit Commission’s past practice, because it will be looking for guidance on how to carry out its role effectively and what is appropriate. It would be much better for such panels and for the British public were the Minister to address the point.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

That was exactly the point that I was addressing. It is important that people learn from the mistakes of the past, such as the Audit Commission’s profligate expenditure, which was rather like the previous Government’s profligate expenditure at the Department for Communities and Local Government that we stopped. Rather than having a top-down approach from central Government that dictates what panels should pay for things, it is right that we can trust local authorities to look at what is right for them. That trust exists among Government Members.

On amendment 85, it is right that an authority should, as it would do with normal committees of the authority, meet any reasonable expenses. The clause does not necessarily require the authority to pay any remuneration to panel members. It specifically deals with expenses incurred by the panel in carrying out its duties.

The hon. Member for Corby may have more general concerns about the anticipated costs to local authorities of maintaining an auditor panel, so it may help if I highlight a number of key points. First, I have mentioned that authorities will not be obliged to pay auditor panels any remuneration and that rates will not be set centrally. It will be for authorities themselves to decide. Secondly, I expect auditor panels to be small, so that many authorities will need no more than two independent members. The cost of remunerating such members, should an authority choose to do so, would not be sizeable.

Photo of Mark Pawsey Mark Pawsey Conservative, Rugby

The Minister suggests that the minimum number of independent members should be two, but does he have a view about the recommendation of the Select Committee on Communities and Local Government that independent members should have a majority on auditor panels?

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government 3:00 pm, 7th November 2013

The Government have taken that on board. As I made clear a little while ago, there should be a majority of independent members. That is why the panel members who are not independent are not an issue, because they will be outnumbered by independent ones. If a sector-led body goes ahead, for many local authorities the issue will in effect become redundant, because the matter would be dealt with by the sector-led body’s independent panel.

Finally, a separate Government amendment will provide for sector-led procurement. If such arrangements are put in place, an authority opting in will not be required to have an independent panel at all. With those assurances, I hope that the hon. Member for Corby will withdraw the amendment.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

I thank the Minister and emphasise how helpful it was that, towards the end of his remarks, we got to some of the clarity that will be helpful to organisations out there looking at implementation, not least the independent panels. Taking the five amendments in turn, he may not have anticipated the guidance that I received from the Library on “close friend”, because he gave us the same response that Baroness Hanham gave in the other place. That response, on the face of it, was that this debate had already taken place during the passage of the Bill that became the Localism Act 2011, in which there is a definition to allay our concerns, and so on. That, however, simply does not satisfy us, because the advice from the Library is that there was no such debate—we cannot find it and they cannot find it.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

If the hon. Gentleman looks in Hansard later, he will see that I went further on the point made by Baroness Hanham in the other place. In addition, the term is already used by local authorities when looking at close friends and independent panels during recruitment of the independent standards person. There have been no problems, as far as we are aware.

Photo of Neil Carmichael Neil Carmichael Conservative, Stroud

The term “close friend” is mentioned in the Localism Act.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

I thank the hon. Gentleman, but suggest to him that he might have been looking at his iPad—contrary to Sir Edward’s advice—while we had the substantive debate about that very issue of whether the term being in the Localism Act 2011 is sufficient. That assurance—that the term is in the Act—was given in the other place, and it was satisfactory to my noble Friends at that stage, so, on the basis that there had been substantial debate and a definition, they withdrew their objections. On looking into things, however, we found that the provision was slipped in right at the end of the Bill’s passage through the Lords, so there is no definition and there was no debate to provide guidance as to the meaning.

In respect of local authorities looking at “close friend”, we are encouraged that the Minister has done some research into how the term might be defined, so we suggest—in response to clear evidence of how meaningless it is until it is defined—that he might draw on that research, although he has not shared it with us, to come up with a definition and include it in the Bill, because of course one is needed. This is not only about the Bill, but about the future and what will be in law—this place having debated and sought to define “close friend”. In fact, having now debated the term and shown that it can have such a broad definition, surely the courts will be able to take only that interpretation, so it risks being so broad a term that people are ruled out of participation in the independent audit panels. It is incumbent on the Government to come back with a definition, and I hope that they will. On that basis, we will not press the amendment.

On independence, the Minister tells us that it is needed because of the position with health service bodies. Later in the Bill’s passage, we will return to the matter, which my hon. Friend the Member for City of Durham is looking at. She will ask some questions of the Minister about how health services are treated in the Bill, because frankly it is a real mess—it is a dog’s breakfast of a Bill in the sense that we have clauses that are thought through and worded for relevant authorities, and concepts that are framed for them, but then exemptions are made for health service bodies on such vital issues as independence, although we all agree that that point is so fundamental that it should apply to health service bodies and to all relevant authorities.

I would have hoped that the Minister might have spoken to the Department of Health about the consultation. Having seen such strong condemnation earlier this year from the ad hoc Committee, which said how disappointing and unsatisfactory it was that the Department of Health had not brought forward the consultation—it did not even respond to that Committee so that it could look at the impact on health care bodies—I would have thought that the Department of Health could have done the consultation earlier to provide clarity in relation to the Bill. That is so disappointing, but as I have said, we will have to return to and explore that issue.

On amendment 83, I welcome the Minister’s assurances about consultation, and I am happy not to press that amendment. The point has been made that although we are disappointed about the breadth of future regulations, if they are to be covered by the Bill and to be used, people affected by them should clearly be consulted.

On amendments 84 and 85, with regard to the functioning of audit panels, I have to say that the Minister’s response has made me more, not less, concerned about the lack of thought and consideration given to how those bodies may operate. For example, he said that they may be voluntary, but I do not envisage their being voluntary. An independent audit panel will invariably be set up by a much larger local authority because, in our assessment and that of all the organisations that have looked at the Bill, only larger local authorities will be able to follow the independent route in a reasonably cost-effective way, compared with using the national procurement opt-in. If an authority spends £1 billion of public money, it is not acceptable for its audit committee to rely on voluntary effort. If it can find people who are willing to be unpaid in carrying out so vital a role,  the local authority may not want to look a gift horse in the mouth, but that should not be the approach towards the vital role that panels will play.

Photo of James Morris James Morris Conservative, Halesowen and Rowley Regis

Is not the key point that it is for local authorities to determine how the panel is comprised, as is underpinned in the Bill? Is it not up to them whether the panel should be voluntary and whether there should be the relevant remuneration, without that being prescribed in the Bill?

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

I thank the hon. Gentleman for his characteristically helpful intervention. He points out that local authorities will obviously want to interpret the Bill and make sure that they put it into effect in the most appropriate and proportionate way for themselves, but in keeping with its spirit, certainly in relation to the crucial role of the independent audit panel as the guarantor of independence.

In his work on the Select Committee on Communities and Local Government, the hon. Gentleman will no doubt have been involved in the production of its report, and he will have looked at the report on the draft Local Audit Bill, neither of which was convinced that the new arrangements provide the required independence. The overarching concern is about whether there will be independence in the system, and we will return to that point in subsequent debates.

The Government assure us that the independent audit panel is the guarantor of independence, and that its role is perhaps the most crucial part of the whole Bill in guaranteeing the independence of the system. Yet the Minister has nothing to say on how the panel might conduct its business and carry out its role. It seems that he is entirely happy to be overly prescriptive towards local authorities about the duties placed on them to publish information and notices from the panel. Such is the importance of the guidance that the Government have set out, in extraordinary detail, exactly how relevant authorities should publish what guidance they receive. However, no guidance in Committee—or in the transcript of our discussion—has been given by the Government about how the independent panel is to arrive at its crucial role.

That is incredibly disappointing, and I hope that the Minister will go away and reflect on the need for further thought about how the panel will conduct its role. The crucial point to highlight about remuneration is that substantial costs will inevitably be involved in its work.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

Surely the hon. Gentleman can distinguish between the need to make sure that there is transparent information for members of the public about the probity of the audit panel—hence the issues he is outlining—and the Government dictating from the top whether a local authority offers remuneration and pay, and what level they are set at. As my hon. Friend the Member for Halesowen and Rowley Regis said, the point is to allow local authorities the flexibility to look at what is right for them locally—to get the right people in, and to have the power to recompense them and cover expenses—should those local authorities think that they need to offer remuneration. That is surely a matter for local councils, rather than central Government putting extra cost on them that will put up council taxes, which this Government have gone so far to keep frozen to help hard-working people.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

The Minister hits the nail on the head with that final sentence. Extra costs clearly will be imposed on local authorities and taxpayers will rightly be interested to know what those costs might be. While we do not want the measure to be overly prescriptive and have not sought to include in the Bill a level of prescription for how authorities conduct their affairs, because we recognise that the proposal must be proportionate and that the size of the authority and its turnover matter, the costs involved are a matter of public interest. That is why are seeking to draw out from the Minister—it should not be this hard—some indication as to how the committees will work.

On the substance of the Minister’s intervention—I will answer it before he makes another—his second point does not follow the other. The Minister says that the guidance is so important that we must set out in primary legislation how and where it will be published and that that is relevant and proportionate prescription. That guidance, however, may be entirely without use or value to the local public if three people and a dog have met once in the course of this process for half an hour on a voluntary basis and done little to provide the measure of independence to local public audit that is required to safeguard the public purse. The Minister’s points do not follow each other. In fact, he points out a massive contradiction in the Government’s approach to the amendment and I regret that he has not provided more information. If he wants to do that in a further intervention, I will of course give way.

Photo of Brandon Lewis Brandon Lewis The Parliamentary Under-Secretary for Communities and Local Government

The hon. Gentleman is keen to ensure that the public purse is looked after, but can he explain why it would be appropriate for central Government to enforce an extra cost on local authorities, who are locally democratically accountable, by telling them how much they must pay in remuneration as opposed to trusting them to decide what is right for them and to deal with remuneration themselves? We have to trust local councils to make those decisions. The difference here is that the Opposition are again looking for a top-down, prescribed approach while the Government trust local government and local people to make such decisions.

Photo of Andy Sawford Andy Sawford Shadow Minister (Communities and Local Government)

It is worrying that the Minister, leading for the Government on such an important matter, is wilfully misinterpreting our points. He can read the amendments and will have advice from his officials or the Public Bill Office that says that the effect of our amendments is not to prescribe in the Bill how audit committees will work. We are simply trying to draw from him—we could have had it in the past half an hour—how the committees will work, but he seems so interested in making political points that he has done nothing to help the public understand. It is disappointing. I hope that he goes away and thinks further and comes back with a little more clarity, perhaps on Report or by letter, on how such a committee might go about its operations, so that the public might understand. That would be a reasonable thing to do. It is certainly a reasonable request. I am disappointed that the Minister has not responded, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 4, as amended, agreed to.