Ministers 'cooling' over mutual for Audit Commission

7 Dec 10
Plans to mutualise the Audit Commission's in-house audit practice are at risk of stalling because of waning support from government, Public Finance has learnt
By Lucy Phillips

8 December 2010

Plans to mutualise the Audit Commission’s in-house audit practice are at risk of stalling because of waning support from government, Public Finance has learnt. 


The fate of the audit practice following the abolition of the commission in 2012 is currently under review. Options being considered include selling it to the private sector and setting up an employee-owned mutual, the preferred option of the commission’s 900 staff. Local Government Secretary Eric Pickles will make his decision after final proposals are presented in January.

Pickles initially gave vocal support to mutualisation, and the move would sit well with the government’s plans to establish more social enterprises in the public sector. But ministers are understood to be cooling on the idea. The mutualisation would be unlikely to generate an immediate financial return to the government, unlike a straight sale. Its viability as a business has also been thrown into doubt.

Andrew Love, Labour and Co-operative MP for Edmonton, said Pickles’ replies to his questions about the mutualisation option were ‘very non-committal’. Love suggested that all the talk about mutualisation had been ‘not much more than talk’, paving the way for a possible management buy-out or sell-off to the highest bidder in an attempt to generate a good return for the taxpayer.

But Audit Commission chief executive Eugene Sullivan robustly defended proposals for a mutual. He told PF: ‘A mutual is very much one of the options being considered. I have no awareness that anybody anywhere is talking about having gone cold on it.’

He said staff had not been deterred by the fact that their pension conditions would have to be renegotiated in the new organisation.  ‘The whole concept of the mutual will be about a total rewards package and there’s every indication that the staff are keen,’ he said.

He also revealed that staff deciding not to join the mutual might have the choice to transfer elsewhere, if the practice were divided between a range of providers. He added: ‘Any redundancies in the audit practice will be as a result of changes in the workload not in terms of status of the practice.’
Sullivan ruled out a management buy-out, an option supposedly still being considered by government.  ‘The secretary of state has, I think, made a strong view that this should be an employee option, not just something for the bosses.’

Prospect, the union representing the commission’s audit staff, has yet to be consulted on issues of employee transfer. However, a series of informal meetings have taken place between branch officials and Gareth Davies, the watchdog’s local government chief who is overseeing the mutual bid. Negotiator Richard Hardy said there was ‘no great appetite’ for the idea from ministers.

‘It won’t be done. It’s smoke and mirrors by Pickles to get away from answering questions about the costs of closing the Audit Commission and costs of pensions.’

The union estimates that the new entity would have to take on up to £70m of pension liabilities and up to £15m in redundancy for the audit practice staff unless these costs were subsidised by the public purse. Hardy added: ‘I’m sure Gareth Davies is very keen to make this work but I will believe it when I see it and we will deal with the back-door privatisation when it happens.’

He described mutualisation as ‘the least worst option’ but warned that the ‘Big Four’ private audit firms might ‘squash’ the new entity anyway, unless the government guaranteed it work. This would distort its objective to create a competitive market and allow councils to freely appoint their own external auditors.    

A Department for Communities and Local Government spokesman said: ‘We are currently developing a range of options for the future of local audit. We will be assessing the costs and benefits of each in due course.’

The new system of audit is due to be in place in 2012/13, with legislative changes being made in this parliamentary session.

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