Plans to effectively privatise the Audit Commission are destined to fail. Within five years we can expect something not dissimilar from district audit being recreated
Michael Heseltine must savour the irony. He created the Audit Commission in order to privatise district audit. Now a successor Tory is insisting on the privatisation of local government audit as a way of getting rid of the selfsame Audit Commission.
Yet the real puzzle behind the Cameron government’s announcement (technically it’s out for consultation) that councils will from next April be examined by private sector accountancy firms is why it’s taken them so long.
Why didn’t Eric Pickles say, last August, that he wanted audit transferred to the private sector? After all, David Cameron is a Thatcherite, albeit modified. The lady, and her active environment secretary, Michael Heseltine, saw audit as a field where the private sector could cut costs and improve efficiency.
Anoraks can read Hansard from the early 1980s and see them stating an explicit intention to have the new audit body appoint firms to the audit task. (A deeper irony is that they felt they could only achieve their purposes by abolishing the right of councils to choose their auditors, which they have had since earlier Tory legislation in 1972!).
So the wheels turn. At the risk of sounding like old Tiresias, I’m going to predict that the arrangements now being made for council audit won’t last, and within a relatively short space of time (five years) we will see something not that dissimilar from the old district audit being recreated, though not necessarily the lumbering Audit Commission.
That’s because the English/British system of public management, in which the media are so influential, can’t stomach scandals. And there is bound to be a financial scandal under the full audit privatisation model now being pursued. What’s happened in social care, with the collapse of private firms is instructive, not least because it now seems an upshot will be more of the intrusive inspection the Cameron government said it wanted to get rid of.
For the medium run however, what a scramble there’s going to be. At the moment the Big Four accountancy firms do the lion’s share of the 30% of local audit that the Commission has parceled out to the private sector. (It was only because Michael Heseltine moved on that the Commission was never forced to carry through the original privatisation plan.)
So who is going to do the 70% of the work, worth more than £100m? It wouldn’t be politically opportune for the Big Four to be so conspicuously favoured. Does the private sector even have audit capacity on this scale, let alone the appetite? The reputational risk of public audit will grow with the disappearance of the Commission.
So thoughts turn to the Commission’s own 1,000 or so professional staff. But how are they going to be brigaded or employed? Are they going to be rapidly recruited by firms? Increasingly the ‘buy out’ or ‘mutualisation’ options, which no one has ever spelled out in convincing detail, look unrealisable.
What sense would competition authorities in the UK or the European Union make of a public body appointing former members of its staff as contractors without competition?
The English administrative class has tremendous skill in muddling through and together CLG and the Commission may contrive some arrangement for April 2012 that gets councils’ books audited well enough. But on the timetable just announced, it’s going to be a close run thing.