Regulation issues, by David Walker

27 Mar 08
Twenty-five years on from the birth of the Audit Commission, is it time for a radical rethink on public sector inspection and regulation, asks David Walker

28 March 2008

Twenty-five years on from the birth of the Audit Commission, is it time for a radical rethink on public sector inspection and regulation, asks David Walker

Local government has improved, is improving and will go on improving. Believe that, and you have to ask whether we need the Audit Commission. The challenge on the lips of many in the sector, including Local Government Association chair Sir Simon Milton, Improvement & Development Agency executive director Lucy de Groot and a host of council chief executives, is: if localism works, then surely local government no longer needs the commission's tutelage.

That's too radical, as yet, to be said out loud. De Groot, in a recent pamphlet for the Solace Foundation Imprint, used code. 'New relationships between the inspectors and inspectorates require a fundamental reassessment of the way we work,' she wrote in Getting so much better all the time.

In the same paper, Clive Grace, formerly an auditor, now chair of the Local Better Regulation Office, suggested that the commission lacked 'a theory of improvement' and that the Comprehensive Performance Assessment was 'not well suited to encouraging experimentation and innovation'. In an article co-written with Professor Steve Martin of Cardiff University, he said that in future 'self improvement and peer learning' could play a greater role and (sotto voce) councils don't need the commission for that.

So far, direct questions about the commission's existence are being raised around 'Chatham House rules' seminar tables rather than public platforms. That's partly because the local government elite values the commission's chief executive, Steve Bundred. As former chief executive of the London Borough of Camden and briefly of the IDA itself, he is one of theirs.

Also, no one wants to rain on the commission's birthday parade. Its twenty-fifth anniversary will be celebrated by a glittery party at the BT Tower. An official 'biography' is being published amid high fives and self-congratulatory mood: 'pioneer', 'internationally acclaimed', 'magic powers' appear in the first two pages of Duncan Campbell-Smith's book, Follow the money.

Recent troubles at the commission's perennial rival, the National Audit Office, have also lifted spirits at the Millbank Tower HQ. The commission has had its own share of governance problems, with two of its recent chairs departing under a cloud, yet a certain schadenfreude is detectable over Sir John Bourn's expenses row and, now, uncertainty over the NAO's future direction.

Bundred, sitting in his office overlooking the Thames, dispels the thought that the commission's future is equally uncertain, localism or not. Its principal business was, and remains, financial audit. 'Nobody would argue that accounts should not be subject to audit, nor would anyone argue that financial management in local government is beyond the capacity for further improvement.'

For Bundred that is not tutelage but common sense. The commission's size and intrusiveness will shrink but its necessity is indisputable. 'Public money is special. It's absolutely right that the interests of the taxpayers are as much a consideration as those of service users. It's a mistake to imagine we can do without the assurance that public audit provides.'

Confidence is the word, because Bundred can remember an era when it was in short supply. The commission's anniversary is something of a 1980s-fest: in those years, elective local government came perilously close to being abolished outright by the Thatcher government, provoked by Labour councillors who saw local spending as a weapon for socialism, against Conservative oppression. Among them was a Greater London Council member who doubled up as chair of the Inner London Education Authority Finance committee called… Steve Bundred. (He later sanitised himself by qualifying as a chartered public finance accountant.)

Campbell-Smith's book is – at least for those in the loop – a sort of Ashes to ashes for the audit fraternity. As in the time-shift detective TV series, we are transported back to the heady days of flared lapels and Derek Hatton. The book dwells at admiring length on the swashbuckling style of the commission's first controller, the ex-McKinsey consultant Sir John Banham. It devotes considerably fewer pages to one episode in the 1980s that could have spelled the end for the commission and probably local government as well. That was the London Borough of Hammersmith & Fulham 'swaps' affair, when a single local authority's exposure to these potentially risky financial instruments rose to a staggering £4.2bn.

But history serves only to sharpen today's questions about regulation and the commission's role. The organisation was set up as a way of bashing (Labour) councils. Dissatisfied, then prime minister Mrs Thatcher and her ministers reverted to other means, capping and the poll tax among them.

Aggregate measures of the commission's success over the years are hard to pin down: was the very success of councils in squeezing out £6bn in efficiency savings under the Gershon drive a sign of how ineffective the commission had been over two decades? If all councils have improved their performance, why have relative positions in the league tables changed so little over the years, with Westminster and Wandsworth at the top, and Hull near the bottom?

'But,' Bundred counters, 'you can't say “because of” the commission, since we are not responsible alone. The commission has made a significant contribution to public service by identifying good practice and notifying public bodies of opportunities to become more efficient and effective. That function was absent before we were created. The commission would be missed.'

Regulators come and go, no one sure of their contribution. The commission was created by the Conservatives, who extended its remit to health, police and fire. In the 1990s, it was awarded NHS audit and – the then controller Andrew Foster and the Major government seeing eye to eye – was teed up to take on value-for-money work in health.

But under Labour, its bureaucratic fortunes have been more mixed, with the government at one time vowing to abolish it. And it has been rebuffed on health. Labour established a new body, the Commission for Health Improvement, to inspect and rate NHS trusts. Then the short-lived Commission on Healthcare Audit and Inspection took over, which has now morphed into the Healthcare Commission, while another body, Monitor, handles financial regulation for the foundation trusts.

That Bundred talks regularly to Healthcare Commission chief executive Anna Walker does not assuage the tensions. These will persist after the emergence of the Care Quality Commission, which next year takes over the functions of the Healthcare Commission, the Commission on Social Care Inspection and the Mental Health Act Commission.

You might say, as Bundred does, that the remarkable thing about the Audit Commission is that it is still here. Labour has had several bites at 'deregulation' and when Tony Blair was prime minister and Gordon Brown was chancellor they appeared to believe that less is more. A grand plan was announced to shrink the regulatory empire, brigading the criminal justice inspectorates into one, the local and children's regulators into a single body and so on. The scheme was only partially realised and since then the regulatory landscape has grown a hillock or two. Last year, the government turned down a bid by the Audit Commission to take on the regulation of social housing once the Housing Corporation is killed off. Instead, a completely new regulator, the Office for Tenants and Social Landlords, is being created, with the Audit Commission retaining financial supervision of the sector.

It is an 'overcrowded landscape'. That phrase marked the review of regulation for the Scottish Executive from the Glasgow solicitor Lorne Crerar, published last autumn. Scotland would do better with a single regulator. It has 40 separate bodies regulating and auditing, and 11 of them have been created since devolution. The nationalists in power in Edinburgh since last May agree. In the short run, the Accounts Commission has been asked to co-ordinate scrutiny of council functions. In England, the local impact of regulation – by councils and such bodies as the Health and Safety Executive – is now being invigilated by a newly created quango, Clive Grace's Local Better Regulation Office.

Public sector regulation in Wales was partially rationalised with the amalgamation of the Welsh arm of the Audit Commission with the National Audit Office's interests in the country. The Welsh Audit Office now operates alongside the Welsh educational inspectorate, Estyn, and the social services inspectorate.

John Maitland Evans, chief executive of Vale of Glamorgan Council, surveyed colleagues on behalf of the Welsh branch of the Society of Local Authority Chief Executives and Senior Managers. The majority responded that regulation and inspection in Wales was not only far from joined up but also disproportionate. Neither did the chief executives have much regard for the skills and knowledge of inspectors, especially WAO value-for-money inspectors.

In England, both Labour ministers and the opposition parties are keen on more 'personalisation' of services, with individual budgets being rolled out in social care and talked up as a possibility for NHS patients with chronic health problems. It is uncertain what role, if any, there will be for traditional audit, let alone for value-for-money inspection, in these changed circumstances.

For the Audit Commission, the CPA's success is no guarantee that the Comprehensive Area Assessment regime, due to kick in next year, will have anything like its bite. Grading councils on their influence over other bodies and their skills in 'place shaping' raise profound questions of method and judgement.

Two years ago, the commission published a forward look called The future of regulation in the public sector, promising at the end 'further contributions'. Their absence is partly to do with resolving housing and health regulation but also with the great unmentionable in regulation, the NAO.

Coincidentally, it's also a quarter century since the NAO was created but, curiously, there is no book, no jamboree nor proud boasting about achievements. The reasons are not hard to find. The Bourn episode cast a shadow and NAO staff are unquiet over its role and functioning. The shadowy House of Commons committee that approves the body's budget, the Public Accounts Commission (a different animal from the Public Accounts Committee, chaired by Edward Leigh), looked at NAO governance as the Bourn affair unravelled. It commissioned John Tiner, the former chief executive of the Financial Services Authority, to review its corporate governance arrangements.

Tiner reported back a month ago. At first sight, his recommendations are low level: to give the NAO non-executive directors and, for the first time, regularise the appointment and pay of the comptroller and auditor general. But between the lines big questions obtrude. The NAO is, constitutionally, an arm of the legislature but often behaves as if it were an arm of the executive. Is it to be an independent value-for-money scrutineer of Whitehall? What sense might that make when the problems of public service delivery usually relate to the chain linking the centre to local delivery – which is regulated and inspected by the Audit Commission, Ofsted, the new Care Quality Commission and so on?

Tiner diplomatically says that a merger between the NAO and Audit Commission would look rational, but that's a matter for another day.

Will that day ever dawn? The government looks to be in no hurry to open out discussions about the quality or structure of audit and regulation, despite its earlier enthusiasm for sharper and cheaper regulation.

That does not mean the status quo will prevail elsewhere in the regulatory world. It would be brave to predict the Audit Commission has another 25 years to go. Even Campbell-Smith, at the end of his book, talks about 'handing power back' to councils – by implication taking it from the commission. The organisation was born out of political whim and – pending some grand resolution of the battle between central and local government – a shift in politics could see it replaced or fundamentally altered in the years ahead.

David Walker is the editor of the Guardian's Public magazine


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