Pickles faces 'urgent question' in Commons over future of Audit Commission

Labour warned today that scrapping town hall spending watchdog the Audit Commission will lead to a "cosy, incestuous relationship" between councils and the firms inspecting their books.

Communities and Local Government Secretary Eric Pickles was forced to answer an urgent question in the Commons to explain his decision, claiming abolishing the commission would save taxpayers £50 million.

But his Labour shadow John Denham said letting councils appoint private sector auditors "may end up costing local taxpayers far more" than was saved.

Mr Denham said the Audit Commission, which inspects English councils and other public bodies such as health authorities, had played a "significant role" in improving efficiency.

He said Mr Pickles' decision had been taken "in secrecy" and rushed out "without consultation" while Parliament was in recess.

The commission was set up by Lord Heseltine in 1983 to end suspicions that audit by council-appointed firms was "not obviously seen to be independent of local government".

Mr Denham said: "Isn't the Government recreating the cosy, incestuous relationship between local councils and auditors that also failed Enron and more recently the banking system?"

The commission allowed taxpayers to compare the value for money they got from area to area, Mr Denham said.

Stopping this work could allow an "unfair postcode lottery" to develop.

He added: "The Conservatives said at the election that the independent Audit Commission would judge whether changes to local government finance were fair."

Mr Denham said Mr Pickles had now "abolished that body so that he can make changes with no effective scrutiny".

He warned: "The House may share my fears this move may end up costing local taxpayers far more than it will save."

Mr Pickles said the Audit Commission had already worked on putting its audit function into the private sector before he made his announcement.

"It was once a great organisation. It did make a change to local government but local government has changed itself and it's time to move on," he added.

Mr Pickles was forced to come to the Commons despatch box to respond to a question from Labour Clive Betts, chairman of the Communities and Local Government Select Committee.

He told Mr Betts the changes will "replace bureaucratic accountability with democratic accountability" and "save the taxpayer £50 million a year".

Under the plan, councils and other bodies will be free to appoint their own auditors.

The commission's in-house audit practice will be moved into the private sector to compete for business - with Mr Pickles stressing he was keen that the possibility of it being a staff-owned mutual should be explored.

Mr Pickles said: "While the corporate centre of the commission may have lost its way, the well-respected in-house audit practice has consistently done a good job and it is to protect the future and to increase competition in auditing that we seek to put it in to the private sector.

"The Government will be happy to see a mutual set up by existing staff.

"My intention is that these arrangements will be in place from 2012-13."

Mr Betts questioned the timing of the announcement and said the commission carried out important "value for money" studies comparing authorities.

He also criticised Mr Pickles for not consulting councils and the Local Government Association before making his decision.

Mr Pickles said: "The Audit Commission themselves were thinking on identical lines to this and had already started to engage with some of the larger practices with regard to a potential sale long before I talked to the chairman."

He said he expected audit fees in the private sector to be "a lot cheaper" for public bodies.

Labour's Margaret Hodge, chairwoman of the Commons Public Accounts Select Committee, said Mr Pickles could not "instruct" the National Audit Office to play a role overseeing the new regime.

"The National Audit Office is actually not a department of Government but it is accountable to this House, to Parliament," she said.

She also criticised the timing and lack of consultation about the change.

Tory Margot James (Stourbridge) said the commission had hired a PR firm to lobby MPs and ministers.

She asked what Mr Pickles was doing to end the "scandal" of quangos using public money to lobby other arms of Government.

Mr Pickles said: "It's clearly inappropriate at a time when money and resources are short that public bodies should use public money in order to lobby other public bodies.

"Indeed my department has issued instructions to all our bodies, including arms-length bodies, to cancel all existing contracts with lobbyists."

Guidance would shortly be issued to all public bodies on the use of lobbyists, he added.