Audit Commission chiefs dispute scale of abolition savings

15 Mar 11
Abolishing the Audit Commission will save less than £10m a year, a fifth of the amount claimed by government, the spending watchdog's chiefs have told MPs

By Lucy Phillips

15 March 2011

Abolishing the Audit Commission will save less than £10m a year, a fifth of the amount claimed by government, the spending watchdog’s chiefs have told MPs.

The revelation came last night as Audit Commission chair Michael O’Higgins and chief executive Eugene Sullivan gave evidence to an inquiry into the audit and inspection of local authorities by the Commons communities and local government select committee.

O’Higgins told the group of cross-party MPs that the only savings to be made from scrapping the watchdog would be £5m from its ‘studies function’ and £5m from its regulation and quality assurance function. The £10m total would be ‘less whatever costs might be transferred elsewhere’, he added.

Local Government Secretary Eric Pickles has claimed the abolition would save £50m a year. But O’Higgins said the only figure that corresponded to this was the commission’s total corporate costs, which ‘include the costs of supporting the audit practice, so those costs will continue in some guise or another’.

He did not consider the £30m–£35m of savings made from scrapping Comprehensive Area Assessments as part of the overall abolition savings because the decision about the CAA was made before the announcement about the commission.

A Department for Communities and Local Government spokesman later told Public Finance: ‘The £50m figure was taken from the Audit Commission's accounts and represents the total costs of the commission's corporate centre including the grant paid by government to the commission (£28m last year) and potential reductions in audit fees once the commission is not adding a 20% overhead.’

O’Higgins also revealed that redundancy costs for the commission’s staff would be at least £40m, on top of the £27m already paid out because of ending the CAA. He said that these could rise to £105m if all employees from the audit practice were made redundant. 

The Audit Commission chair had earlier told the MPs that there had been ‘absolutely no consultation’ with ministers in advance of Pickles’ announcement to abolish the watchdog in August. 

Meanwhile Eugene Sullivan described the coalition’s decision to change the local government audit regime at the same time as all the other changes going on in the sector as ‘a bold move’.

He outlined to the committee the three options that the government is ‘seriously considering’ for the future of the commission’s in-house audit practice.

The options are: straightforward outsourcing, where private firms compete for work and employees are transferred accordingly; setting up a government-owned company where the practice competes on a level playing field with other providers; and retaining a ‘residual body’, which would manage and regulate the market.

O’Higgins said the final option, which would cost £4m a year to run, would mean local authorities were given a choice of auditors from a ‘framework selected by the centre’, thus achieving most of the government’s aims.

He said that either the second or third option would allow for a mutual model. He warned that while ‘straightforward outsourcing would seem an easy thing to do’, it would take 18 to 20 months under European Union competition rules, during which time many of the best staff could leave.   

Pickles is expected to make a decision on these options in April or May. There has already been an internal restructure of the audit practice to enable it to operate more like a single business entity.

The Audit Commission heads both expressed concern about the Local Government Association’s proposal to take over regulation of the sector. O’Higgins said this raised questions about authorities that were not part of the membership organisation, while Sullivan added: ‘There’s a need for someone independent to give a bit more grit on the oyster than what could look like a family looking after its own behind closed doors.’

Similar fears were raised by other witnesses earlier in the evidence session.

Jessica Crowe, executive director of the Centre for Public Scrutiny, said: ‘I think anyone would share concerns that the LGA is a membership body and unless you have a medium for expelling people the levers you can pull are going to be limited.

‘The LGA has legitimacy, the credibility is where it needs to strengthen its arm to make the system work.’

Simon Parker, director of the New Local Government Network, concluded his evidence by warning the MPs that one of the most ‘worrying’ issues facing the sector was the likelihood that a council was going to go insolvent because of swingeing cuts from Whitehall.

 

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