With this it will be convenient to discuss the following:
‘(f) the right of the local auditor to make representations to the authority’s audit panel, prior to being removed.’.
Amendment 122, in clause 16, page 12, leave out lines 10 to 15 and insert—
‘(5) The relevant authority shall be responsible for the replacement of a local auditor in accordance with the process set out in sections 7 and 8.’.
Clause stand part.
I think this debate could be brief. There is a pattern forming, as we have tabled amendments to earlier provisions that were similar to amendment 120. Whenever we have seen the Secretary of State taking the power to make regulations in relation to the Bill’s operation, we have sought reassurances from the Minister that before those regulations are made there will be “consultation with relevant authorities”; the amendment would add that requirement to the clause. The Minister may suggest that that will happen, and that we do not need a reference to consultation in the Bill, but I hope he will understand why we feel the need to emphasise that there should be reasonable consultation about the regulations.
Our other amendments are designed to question the Secretary of State’s role as the default person to step in when there is a failure by a local authority to appoint an auditor or when an auditor resigns or is removed, which the clause specifically provides for. An auditor could resign for many reasons. For example, the auditor may be a small firm—we all hope small firms will be able to bid for this work—that finds it is unable to continue trading and operating as a provider of audit and so needs to resign its role as auditor to a local authority. We suggest to the Minister that in that sort of situation the responsibility for appointment should revert to the processes set out in the Bill—the appointment of an auditor through recommendations by the authority’s independent local audit panel, for example. If an auditor that is part of a national scheme resigns we might revert back to the national providers; the authority affected could say to them, “For whatever reason”—it may be that a company has ceased trading—“our auditor has resigned; we therefore look to you to work with us to make arrangements for a replacement.”
The argument could be made that, were an auditor to resign mid-audit or at a critical point just before the start of an audit, or if it had not been carrying out its role effectively—we all hope that that will not happen and have discussed the standards we hope auditors will work to—and resigned under a cloud, the Secretary of State might want some powers. We can see the validity of that argument, but would ask the Minister to consider whether amendments could be tabled, perhaps on Report, that allowed that to happen by exception rather than by default.
To allow us to probe that possibility, we tabled amendment 122, which would specifically remove the ability of the Secretary of State to appoint or direct the relevant authority to appoint, and would leave that power with the local authority. However, it may be that the Minister can suggest another, perhaps clearer way of achieving our objective of ensuring that powers are taken by the Secretary of State in extremis rather than as the general rule when there is a resignation or removal.
The amendments seek to make various changes to the provisions in the Bill regarding the resignation or removal of auditors. Amendment 120 would add a requirement for the Secretary of State to consult the relevant authority before making regulations about the resignation or removal of an auditor. Amendment 121 would enable those regulations to make provision about the right of an auditor to make representations to the authority’s audit panel before being removed.
On amendment 120, I am pleased to confirm to the Committee that we will shortly be consulting publicly on the relevant regulations, and I have already shared copies of the draft regulations with the Committee. We expect to publish the formal consultation document before Christmas.
On amendment 121, I reassure the Committee that the draft regulations deal with exactly the amendment’s subject matter; indeed it goes further than the amendment in providing for scrutiny of any proposed removal of the auditor. The draft regulations provide the auditor with the right to respond in writing to any proposal by an authority to remove them and require the authority to forward the auditor’s response to the independent audit panel.
Under the proposed regulations, the audit panel must take that response into account and advise the relevant authority on the proposal to remove the auditor. The authority must take into account that advice before making a removal decision. If the authority decides to proceed with the removal, it is required, under the draft regulations, to issue a public statement confirming that decision.
To ensure full transparency over the decision, that public statement will include a copy of the auditor’s response; a copy of the audit panel’s advice to the authority; and, if the authority has not followed that advice, the reasons why. In addition, the draft regulations provide the auditor with the right to attend and speak at any meeting of the authority that considers the proposal to remove the auditor.
Amendment 122 would remove the power enabling the Secretary of State to appoint, or direct the appointment of, an auditor by regulations. The amendment would replace the Secretary of State’s power with a provision that the authority shall be responsible for the replacement of their auditor. I agree with the hon. Member for Corby that, where an auditor resigns or is removed, it should be for the authority itself to appoint a replacement. The draft regulations therefore require that where an auditor resigns or is removed the authority must appoint a new auditor within three months of the previous auditor’s departure.
Subject to the outcome of the consultation on the draft regulations, the Government have no intention to make further regulations to enable the Secretary of State to override the authority’s decision and make an appointment for it. However, the provision has been included as a backstop measure, should further experience under local appointment suggest that it may be necessary in some cases for an auditor to be replaced sooner than the proposed three months.
In such cases, we may wish to consider a potential role for the Secretary of State, for example in putting an interim auditor in place more quickly. Currently, we do not think such measures are necessary, but it is right that we retain the ability to make appropriate provision in the future should it be needed.
Given that the regulations are only in draft, we will consider any relevant responses when they are published for formal consultation. The draft regulations on resignation and removal will achieve the desired effect of all the amendments, so I hope that the hon. Member for Corby will be willing to withdraw them.
I thank the Minister for that extremely helpful response. It is good to hear that draft regulations are being developed. We have been encouraging him to introduce regulations in areas where they are required as early as possible, given that the Bill has been three and a half years in the making. It is therefore good to hear that there has been substantial progress.
We welcome the reassurance on consultation, which meets the point raised by our first amendment, so I will withdraw that. We also welcome the Minister’s reassurance that the regulations will mean that the auditor has a right to speak at any meeting of the council where the decision is made. Although that is not the specific provision that our amendment would provide for, the Minister has provided a sufficient reassurance for us not to press amendment 121.
The Minister’s response to amendment 122 is reassuring and allows us not to press it. He has indicated that the power will be used by the Secretary of State only in extremis rather than as a matter of course, and that local authorities will have three months to upgrade. However, it is slightly worrying to hear the Minister’s uncertainty about how the market will operate. He identified a need for reserve powers in case the Secretary of State needs to step in. That speaks to some of the points we have made in this debate about how the market will operate.
It is probably useful to clarify that that was not a statement about how the market will operate. The backstop is to ensure that a local authority has appointed in good time and gone through the process in an appropriate way; it is not about the market.
I thank the Minister for his clarification, but we are still concerned about how the market will operate. However, we welcome the assurance that the power will be used only in extremis. We recognise the clear statement of intent that the Minister has put on the record. He indicated that the regulations would give the power to make the appointment to local authorities in the first instance, rather than to the Secretary of State. On the basis of the Minister’s helpful assurances, I beg to ask leave to withdraw the amendment.