By Lucy Phillips
1 March 2011
The chair of the Audit Commission has rebuked the government for delaying its abolition, sentencing the watchdog to a ‘living death’.
Speaking to Public Finance a week after it was revealed that the commission was preparing to remain open until at least 2014 because of delays to legislation, Michael O’Higgins said: ‘There’s no point in having a living death so we’re anxious to wrap things up as soon as possible.’
Anything which could speed up the process of abolition ‘would be a great relief all round’, he added.
Local Government Secretary Eric Pickles pledged to close down the commission in 2012 when he announced its abolition in August. But it has since emerged that an abolition Bill will not start its passage through Parliament until 2012 and the Audit Commission is preparing for ‘business as usual’ for three more years.
The government is also dragging its heels on proposals to transfer the in-house audit practice into a mutual or the private sector.
O’Higgins added: ‘We are assisting [the Department for Communities and Local Government] as much as we can but ultimately that horse has to drink the water itself. We can show it where the water is but it has to make the decision.’
He hoped the government’s consultation on the future landscape of local government audit, due to be published in March, would give staff ‘some more certainty’.
O’Higgins also revealed to PF that it was likely that the commission’s pensions liabilities would be valued at about £300m if it ceases to be a going concern. An option would be for government to take on the pension scheme as a going concern (it is currently 98% funded). The other option was ‘some form of guarantee which would mean we don't crystallise the liabilities’, he said.
This would take out a considerable sum of the £450m ‘worst case scenario’ estimate the commission was expecting to pay out for its abolition. About £100m of the assumption was based on all staff being made redundant and the remaining £50m is the cost of breaking building leases.O’Higgins agreed that transferring as many employees as possible to other audit firms or a mutual would be the ‘cheapest option’ for the taxpayer.
The chair’s comments came as the Audit Commission announced it was cutting its audit fees by up to 20% in 2011/12 and would be making £9m worth of rebates to local authorities.
In the fees consultation, councils had called for even greater reductions given the scale of budget cuts they are experiencing. They also said the commission’s abolition costs should be met by central, not local, government.
O’Higgins said: ‘We have a duty to ensure that we can operate and the cost of the abolition comes from the public purse. We have made a judgement about what we need in order to continue to exist and we’ve also done it on the basis that we’re going to be in business for several years yet.
‘We’ve achieved almost £40m savings over 3 years, fees are dropping between 5% and 20% in the coming year and we’re looking to take a further 15% out in 2012/13. As we go through the coming year when we’ve had a chance to see what’s actually happening to us if we can give further rebates we’ll do that, but we have to be prudent in advance.’
The Local Government Association said future rebates should ‘reflect shrinking budgets to ensure councils do not end up paying proportionally more for audits’. LGA improvement board chair David Parsons said: ‘There’s no doubt councils would have liked more of their money back so the onus is now on the Audit Commission to clearly explain how it has calculated the rebate, as well as let councils know what they will be getting for their money.’
O’Higgins added that the commission’s running-cost savings were a result of planning over several years and would have happened regardless of the decision to scrap it.
He warned that government plans to allow each local authority to appoint its own auditor would be likely to lead to further fee reductions for large authorities but ‘smaller councils might find that audit firms are not chasing after their business and might have to pay quite high fees’.
