A year from now, the Audit Commission will be abolished. With it will go an important principle of public life: the genuinely independent appointment of auditors to local authorities, and to a range of other public bodies

March 10, 2014 6:10 pm

Killing off the Audit Commission is bad for the taxpayer

By Nicholas Timmins

Sometimes it is better to reshape an agency than to light the gunpowder, says Nicholas Timmins

Ayear from now, the Audit Commission will be abolished. With it will go an important principle of public life: the genuinely independent appointment of auditors to local authorities, and to a range of other public bodies, in order to protect the taxpayer’s pound.

Its demise will come a mere five years after its abolition was first announced, and three years later than promised. To compound that, an “interim” replacement body will have to be created to limp on for another two years, possibly another five, before the big bad idea behind all this – that councils should be allowed to appoint their own auditors – takes effect.

That tortured history should tell you that scrapping the commission was not the coalition’s most brilliant decision. The reasons are set out on Tuesday in an Institute for Government study, “Dying to Improve”, which looks at the fate of the commission and other bodies set up to improve public services that have come and gone over the years.

The commission was founded in 1983 when Margaret Thatcher’s government was involved in a deeply political battle with a number of high-spending “loony left” councils; more generally, the average performance of local government was a long way short of good. The commission was built on a century-old principle that the audit of local authorities should be independent. Through simple transparency – publishing comparative data on performance, along with value for money and broader national studies – it made a big contribution over the next 25 years to the improved local government we see today. Even its fiercest critics concede that.

Critics had come to feel its national and value-for-money studies were not as good as they had been

Its role changed. Chiefly under Labour after 1997, it moved from being an organisation whose impact came principally from shining a harsh light on local government performance to being a full-on inspectorate. Its last labyrinthine assessment of local services may have been a bridge too far. Critics had come to feel its national and value-for-money studies were not as good as they had been. But rather than continue to hack it down to size – which the government has been doing for the past four years – Eric Pickles, the communities secretary, decided to abolish it. He did so in the name of “localism”, arguing that it had become “a top-down regulator of local government, micromanaging local services and imposing excessive and questionable red tape”. And, anyway, councils should be allowed to appoint their own auditors.

That last proposition is simply wrong. In a perfect world, private companies would not be allowed to appoint their own auditors (think Enron, Lehman Brothers, Royal Bank of Scotland) – but the bureaucracy of a national body appointing auditors across the private sector is unthinkable. In the public sector, it is not only thinkable but entirely do-able. The commission did it, using its purchasing power to get decent prices from private sector auditors, regulating their performance and then indemnifying them if a council was determined to take on in the courts the auditor’s view that it was misusing public money. As a result, that rarely happened. When it did, the auditor and the commission won.

When councils in future appoint their own auditors, the willingness of a private company to stand its ground will be diminished when faced not just with the potential loss of a given contract but also with the prospect of gaining a damaging reputation for challenging councils.

“Dying to Improve” examines why there is a tendency for ministers to overload the remit of improvement agencies, then lose patience and scrap them, only to have to recreate what they do elsewhere. Sure, some outlive their use. But there are times when ministers would do better to reshape them rather than reach instinctively for the gunpowder.

The one silver lining in the Audit Commission’s case is that – for reasons too complex to explain here – the current private-sector contracts for auditing local government run on well into the next parliament, with an interim body to oversee them. So, from the ashes of the commission, a phoenix could yet rise that would continue to guarantee the genuinely independent appointment of auditors.

Audit is a subject that lights few fires. But ensuring its independence does protect the taxpayer’s pound.

The writer is a senior fellow at the Institute for Government and a former FT public policy editor

 

The death of the Audit Commission and other improvement agencies

Date: Tuesday, March 11, 2014 – 18:00

This event is fully booked.

Event at 18:00 followed by a drinks reception for registered attendees at Institute for Government, 2 Carlton Gardens, London SW1Y 5AA

“The announcement landed like a bombshell. Yet it proved to be a silent explosion. Almost no-one leapt to the commission’s defence.”

Nicholas Timmins, Senior Fellow Institute for Government, Dying to Improve: The Demise of the Audit Commission and Other Improvement Agencies.

Governments of all colours want to improve public services. To do so they often create – but then destroy, recreate and then destroy again – improvement agencies of one sort or another.

These bodies carry out a range of functions from standard setting to inspection, regulation and direct practical support for improvement. But they often fall foul of the repeated “bonfire of the quangos” that governments launch.

At a time when two of the largest, the Environment Agency and Ofsted, are the subject of intense political debate, a new Institute for Government study Dying to Improve, written by Nicholas Timmins and Tom Gash, examines the fate of three very different versions of these organisations: the Audit Commission, the National Policing Improvement Agency and the NHS Modernisation Agency.

Dying to Improve sheds new light on the closure of the Audit Commission – a body that had enjoyed a high reputation for ensuring the integrity with which public money was spent. For many, the decision to abolish it came out of the blue. Yet it was met with remarkably little resistance. This insightful account leads us to ask in this event, what goes right and what goes wrong with these types of bodies?

Why do so many of them get destroyed only for their functions to continue elsewhere? Could the precise role they play and their effectiveness be changed – and money saved – without the costs and disruption of abolition? Just why are they subject to so much churn?

A study from the National Audit Office has shown that the coalition’s recent quango cull has indeed saved money. The IfG asks whether such culls in the areas of improvement are also value for money.

Our panel of speakers is:

Margaret Hodge MP, Chair of the Public Accounts Committee

Anna Walker, Chair of Office of Rail Regulation, former chief executive Healthcare Commission and deputy-director general for Oftel

Andy McKeon, Chief Executive, Nuffield Trust and former managing director for health at the Audit Commission and director of policy planning at the Department for Health

Nicholas Timmins, Senior Fellow, Institute for Government and former public policy editor of the Financial Times

Chaired by Tom Gash, Director of Research, Institute for Government

This event is fully booked.  To be added to the waiting list please email your full name and organisation / place of study details to events@instituteforgovernment.org.uk