DUNCAN CAMPBELL-SMITH

Illustrations

1. Senior auditors gathered at a District Audit Service dinner in March 1938

2. Michael Heseltine, newly installed as secretary of state in May 1979 (Hulton Archive/Getty Images)

3. The first chairman of the Audit Commission, John Read (Hemming Group Ltd)

4. The front page of the Local Government Chronicle, 31 March 1983 (Adam Smith)

5. John Banham behind his desk as the first controller of the Commission (Hemming Group Ltd)

6. A cartoon depicting the changing face of public audit, before and after 1983 (Claire Blackman)

7. A typically ingenious chart, on the cost to local councils of brown envelopes (Audit Commission)

8. How the first controller depicted the forces giving rise to an urban underclass (Audit Commission)

9. David Cooksey, chairman of the Commission from 1986 to 1995 (Audit Commission)

10. Howard Davies, controller of the Commission from 1987 to 1992 (Hemming Group Ltd)

11. Leaders of the so-called Loony Left on the streets of Liverpool, March 1984 (Liverpool Echo)

12. Cliff Nicholson, deputy controller and operations director from 1983 to 1991

13. Peter Brokenshire, the acting controller of the Commission for the second half of 1992

14. Andrew Foster, who became controller in 1993 and served for ten years (Audit Commission)

15. A scoop for the Guardian on a Commission report into the police, October 1995 (Guardian)

16. The building at 1 Vincent Square occupied by the Commission until 2004 (Duncan Campbell-Smith)

17. Shirley Porter announces her appeal against charges of wilful misconduct (Philip Wolmuth)

18. The Westminster auditor, John Magill, outside the High Court in March 1997 (PA Photos)

19. The third chairman, Roger Brooke, with Andrew Foster at 1 Vincent Square (Hemming Group Ltd)

20. Hilary Armstrong, Labour’s minister for local government from 1997 to 2001 (Hemming Group Ltd)

21. Helena Shovelton, who joined the Commission in 1995 and chaired it for three years from 1998 to 2001 (bill@MackenziePhoto)

22. Wendy Thomson, who set up the Commission’s inspectorate between 1999 and 2001 (Audit Commission)

23. Nick Raynsford, minister for local and regional government from 2001 to 2005 (Getty Images)

24. Adrienne Fresko, who was acting chair for almost a year from December 2001 (Audit Commission)

25. A cartoon of Paul Kirby, creator of the Comprehensive Performance Assessment (James Parker)

26. James Strachan, chairman from the end of 2002 to the start of 2006 (Mark Wohlwender/Hemming Group Ltd)

27. Michael Lyons, deputy chairman under Strachan and acting chair in 2006 (Mark Wohlwender/Hemming Group Ltd)

28. Steve Bundred, holder of the retitled chief executive role since September 2003 (Audit Commission)

29. A selection of the Commission’s reports since its earliest days (Audit Commission)

30. Michael O’Higgins, the chairman of the Commission since September 2006 (Mark Wohlwender/Hemming Group Ltd)

31. Millbank Tower, home to the Audit Commission since August 2004 (PA Pictures)

Foreword

Why isn’t it better? That is the question which sooner or later hits every student of British government between the eyes with the force of a well-swung halibut. Here is one of the oldest and best-established parliamentary democracies in the world, comparatively rich and stable, whose state and municipal bureaucracy has been the subject of waves of reforms from Victorian times to the present day, led by bright, well-educated, diligent and uncorrupted public servants… yet the prisons are more often than not overcrowded and dangerous, the public housing is too meagre and squalid to accommodate decently those who need it, the schools struggle to attain standards expected across the rest of Europe, and the National Health Service — that recipient of vast public affection and vaster still tax-levied income — cannot satisfy demand. Whose fault is this?

At Westminster, covered daily by a special squad of full-time journalists, the elected political classes blame each other and recommend new legislation to improve things. The public is sold a model of the world in which the NHS, for example, would be a gleaming national success story were it not for the callous and ignorant high-handedness of market-obsessed Conservatives or, alternatively, the sentimental Stalinism of unreformed socialists. ‘Government’ is reduced to a hatchet-duel of received opinions in the House of Commons, where success is measured by votes won and bills passed, not by the daily reality of well-administered services in distant suburbs. And much the same happens at local level, except that there the relative lack of power and accountability has produced such apathy that any reporting is meagre.

In recent years most reform-minded observers have concluded that the essence of the problem is an over-centralized, over-interventionist state apparatus, and that the best way of improving public services is radically to devolve power back to the very same boroughs, counties, hospital areas and schools from whence it was sucked during the twentieth century. Only then, perhaps, might we see again the practical transformations in education, town planning, hospital building and amenities that the Victorians of Chamberlain’s Birmingham or the Edwardians of LCC-dominated London came to take for granted. After more than a decade of New Labour government, and after the centralizing changes of the Conservative administrations of Margaret Thatcher and John Major, this is the mood of the times. It is heard from David Cameron’s opposition and it echoes inside Whitehall, too. Right at the end of this monumental and revelatory history, Duncan Campbell-Smith launches the Audit Commission in the same direction.

Yet his book is in itself another kind of answer to that question — why isn’t it better? He plunges deep in tracing the recent history of that greater part of the job of government which is rarely talked about at Westminster and barely mentioned in the media, yet which is utterly essential to well-organized modern life. What happens after the legislation has passed, the dust has settled and the politicians have moved on? How do you actually make a council, or a health authority, improve in the hundred small ways which, to the rest of us, may make the difference between a successful minor operation and a life-threatening infection, or living in a clean housing estate as opposed to a dangerous, damp-infested modern slum? After the crisp-sounding headlines and the rousing political prose, where are the levers, inducements, measurements and encouragement that translate aspiration into achievement, in offices, streets, police stations and so on? In short, after you’ve spoken, how do you do? Here we find the seven-eighths of the iceberg that doesn’t gleam brightly but tends to sink the ship.

There are titanic tales in this book, ranging from the struggle to bring to account the ‘Loony Left’ councils of the 1980s and Shirley Porter’s Westminster regime, selling off cemeteries for pennies and attempting to use housing policy as a form of gerrymandering, through to the fascinating (and new to me) story of how apolitical auditors, aghast at the proposed poll tax, tried to rescue Margaret Thatcher from herself, and failed. Some of the individual episodes recounted here are less familiar today but were potentially devastating in their time, notably the rescue of Hammersmith council from its incredibly dangerous entanglements with the global derivatives markets. In these pages, you will find some very well-known characters, from Michael Heseltine, the true originator of the Audit Commission, to Michael Lyons, now chairman of the BBC Trust and recently inquirer-in-chief for Gordon Brown. Alongside them is a range of strong characters running the Audit Commission itself, from the outspoken and publicity-minded John Banham, through the politically well-connected, colourful and radical Howard Davies, to later characters, less colourful but highly effective, such as Andrew Foster. This being, in essence, an institutional history, there is plenty of office politics too, culminating in what the author calls the Audit Commission’s ‘annus horribilis’ and the emergence in 2000 of inspectors to work in parallel with time-honoured auditors.

But the essence of the story of the Commission is really a 25-year debate about the meaning of audit, and how to achieve better government for the country. It takes us from the early days of painstaking box-ticking and column-counting by the copperplate nib-wielding accountants of old, to the growing idea that audit should involve looking at the effectiveness of systems and policies. If this seems obvious now, it was much resented in the early days of the Audit Commission and, as Duncan Campbell-Smith points out, has made councils subject to far more invasive and independent appraisals than most companies listed on the stock market would tolerate. The difference between councils and companies, to quote perhaps the best epigram in this book, is that ‘Private businesses do something with a view to making money; but public bodies spend money with a view to doing something.’ As the meaning of audit widened, individuals from some distinctly non-municipal backgrounds — and especially from the McKinsey culture — spread their influence and the range of the Audit Commission grew apace. On the way, plenty of mistakes were made and there were moments when the future of the Commission seemed to hang by a thread. Yet, enjoying (if that is the word) a higher profile than its central-government sister, the National Audit Office, the Commission established itself as one of the most trusted and enthusiastically exploited weapons in the armoury of intelligent ministers.

This caused problems, of course. Under New Labour, the command-and-control enthusiasms of ministers embroiled the Audit Commission in what became a mind-dazzlingly complex array of targets. This culminated in the ‘Best Value’ comedy, when inspectors were scurrying round the country measuring ludicrously small things at inordinate length — everything from pest-control services to public toilets in Scarborough. As a caricature of an overweening centre which had become deluded into thinking it could run everything, this takes some beating.

But this is much more than a morality tale for localists. Not only did the Commission survive the excesses imposed by its political masters, and thrive, but it built up an impressive range of real achievements to look back on. This is not just a story about budgets, waste, the law, or the behaviour of freeloading councillors in Doncaster. It is also about the attempt to use numbers and comparisons to improve the lives of everyone from rough sleepers and victims of crime to prosperous but frightened heart-attack victims. Duncan Campbell Smith has shone a light on a major part of the story of modern British governance that has been almost completely ignored by political writers. By its nature, it is not a light, easy read but this is an important subject, not an easy one. Thanks to this painstaking, comprehensive account, nobody will ever again be able to answer that question – ‘Why isn’t it better?’ –without addressing the achievements and failures of the Audit Commission.

Andrew Marr

Sources and Acknowledgements

I would first of all like to thank the present chief executive of the Audit Commission, Steve Bundred, and his colleagues on the Board of the Commission for committing themselves to an authorized history without seeking to exercise editorial control. Their support gave me access to a wide pool of interviewees, including many past and present employees of the Commission whose personal recollections comprised an essential source for the book. I talked, in several cases more than once, to seventy people over the course of nine months. The interviews, most of them lasting a full couple of hours and a good few rather longer than that, were conducted under the Chatham House rule and produced a rich trawl of detailed memories. Relying heavily upon such material has not been without its dangers, of course. But I hope readers will feel the outcome is a balanced account, corroborated and amplified wherever possible from other primary and secondary sources. Direct quotes from the interviews are generally introduced with ‘He/she recalled…’, and have all been agreed with those responsible for them.

I am extremely grateful to the following interviewees, for their time and patience: Hilary Armstrong, John Banham, Mike Barnes, Jeremy Beecham, Mollie Bickerstaff, Greg Birdseye, Jonty Boyce, Peter Brokenshire, Roger Brooke, Sandy Bruce-Lockhart, Steve Bundred, Bill Butler, Tony Child, Bob Chilton, David Cooksey, Michael Dallas, Gareth Davies, Howard Davies, Ruth Davison, Doug Edmonds, Derek Elliott, Martin Evans, Steve Evans, Charlie Fisher, Kate Flannery, Andrew Foster, Adrienne Fresko, Gill Green, Jenny Grey, Roger Hamilton, Terry Hanafin, Terry Heiser, David Henderson-Stewart, Noel Hepworth, Michael Heseltine, Chris Hurford, Roy Irwin, Roger Jarman, Ian Kennedy, Peter Kimmance, Neil Kinghan, Paul Kirby, Tom Legg, Trish Longdon, Michael Lyons, John Magill, Mavis McDonald, Andy McKeon, Martin McNeill, Jim McWhirr, Cliff Nicholson, Michael O’Higgins, Jeremy Orme, Kash Pandya, David Prince, Nick Raynsford, Geoffrey Rendle, the late Roy Shaw, Helena Shovelton, Brian Skinner, Peter Smith, James Strachan, Peter Thomas, Wendy Thomson, Tony Travers, Ross Tristem, Chris White, Harry Wilkinson, Peter Wilkinson and Peter Yetzes. There are many other individuals who played a very significant part in the Commission’s history and whose recollections would undoubtedly have been valuable: their omission is only a reflection of my own poor planning, for which I hope they will forgive me. It will also be apparent from this list that I have omitted all titles. So many of the people mentioned in this book acquired titles during the course of the story that appending them appropriately would have been tiresome for the reader and often distracting. I hope it will not cause any offence that I have therefore avoided the use of titles throughout.

Personal recollections have been especially important in the absence of any significant historical records within the Commission. It handles an astonishing volume of papers for an organization of its relatively modest size — in 2007 it had over 13 million electronic documents on its data network — and it retains an archive large enough today to fill 34,000 carton boxes. But most of their contents comprise audit records, held for legal purposes, and no index has been kept to other, non-audit documents. The result, anyway, is that most of the Commission’s own confidential papers — aside from its Minutes Book, with a record of the Commission members’ monthly meetings since February 1983 – have been impossible to trace and may no longer survive. In these circumstances, I am especially indebted to those interviewees who also lent me documents in their own safe keeping. Harry Wilkinson turned up for our interview session with a small suitcase of papers that included the earliest Board papers submitted by John Banham — with the first controller’s initial blueprints for the detailed workings of the Commission — and a set of copies of the Commission’s internal newsletter, Audit News, covering many of the months between 1983 and 1987. Helena Shovelton kindly made available three dozen files with all of the Board papers for the difficult years of her chairmanship from 1998 to 2001, as well as a number of national reports from a handsome collection that she has retained. Derek Elliott lent me various court filings and public interest reports from the 1990s, as well as papers on the battle against fraud that has been his passion for so many years. James Strachan provided copies of his past speeches and press articles that helped me track the changing direction of the Commission in 2003–05. Other miscellaneous papers were lent to me by Mike Barnes, Bill Butler, Adrienne Fresko, Jim McWhirr, Geoffrey Rendle and Peter Wilkinson. Above all, Howard Davies came up with a set of file notes relating to his meetings and discussions between February 1987 and July 1991, which were dictated by him on the same day or very shortly afterwards. This valuable and often entertaining collection of 128 individual items by the second controller of the Commission is referred to throughout as the Davies Papers.

Many past and present members or executives of the Commission were kind enough to read early drafts of the history, in whole or part, and all offered important amendments. I would like to thank the following for helping me well beyond the interview stage: John Banham, Mike Barnes, Steve Bundred, Bill Butler, Tony Child, Howard Davies, Derek Elliott, Kate Flannery, Andrew Foster, Roger Hamilton, Cliff Nicholson, David Prince, Helena Shovelton, James Strachan, Peter Thomas, Ross Tristem and Harry Wilkinson. Special thanks are due to Jonty Boyce, who clarified many points about the structure and operations of the National Health Service through the 1990s; Jeremy Orme, who took enormous trouble to clarify for me the singular nature of the auditor’s role in the public sector; Peter Wilkinson, who in addition to sharing his own long experience of working at all levels of the Commission also read drafts of the book, correcting many errors and alerting me to important themes I had missed or misconstrued; and Martin McNeill, who read every chapter with meticulous care, pointing out structural and stylistic infelicities as well as factual errors with a forensic thoroughness.

Beyond the Commission itself, I must thank several other individuals for their help. John Magill, the former auditor to the Westminster City Council and scourge of those eventually found guilty at Westminster of abusing their political powers, read successive drafts of the book’s passages on that episode and offered a series of amendments with an eye for detail that the years have done nothing to dim. The Commission’s in-house solicitor from 1987 to 1995, Tony Child, also provided documents with key arguments and court rulings on the Westminster case — and on the Hammersmith and Fulham case, too — which were a huge help to me in navigating the complexities of the Commission’s biggest legal battles. I am indebted to the former permanent secretary Mavis McDonald and the writer and academic Rudolf Klein for sparing the time to read and comment on a late draft. And in the later stages of my work on the book, Tony Travers and Malcolm Dean generously shared with me their reflections on the Commission’s story to date and its overall impact on the public sector. For the views finally expressed in the book, of course, I alone bear full responsibility.

Several individuals assisted me in the course of their work for the Commission and I would like to thank all of them here. Supported by Bethan Waters, Stuart Reid in particular gave me invaluable support, especially in clearing the use of direct quotes with my interviewees and in preparing the appendices and illustrations. Charlie Fisher, Gareth Sully and Paul Dodd assisted with design work for the cover and illustrations. In the library at Nicholson House in Bristol, Ann Cox and Dawn Witherden helped me to retrieve many reports and papers, and Julie Robinson tracked down a large number of periodical articles on my behalf. Fiona Coton scheduled many of my interviews and coped with occasional pleas for help in averting word-processing disasters. The interview tapes were expertly transcribed by Nicki Brown and Cat Taylor, whose invariably cheery response to some ridiculous deadlines was always much appreciated, and I am also much indebted to Janet Tyrrell for her wonderfully patient copy-editing skills. I am very grateful to Stuart Proffitt at Penguin for his encouragement en route and editorial suggestions as the book neared its destination. Finally, it is no formality to say it would never have arrived without the support of my wife Anne Catherine. This book is dedicated to her, and to our sons Henry, Charlie and Jimmy for their stoic acceptance of the fact that, for well over a year, there was a hermit in the house.

Abbreviations

Introduction

In response to idle inquiries about the subject of this book, the author learned long before its completion that almost any answer including the word ‘audit’ or ‘auditors’ –or even, sad to say, the words ‘council’ or ‘local government’ –could generally be relied on to prompt a glazed eye and rapid change of topic. So why a whole book devoted to the Audit Commission? The case for an ‘institutional biography’ of such a little-understood body is easily summarized. It has pulled off some remarkable, yet mostly unremarked, feats over the past twenty-five years. Tracing the story of the Commission offers a revealing glimpse of Whitehall and town hall at work through a period of extraordinary changes. It is also the tale of a hybrid organization, set up to combine an innovative and highly creative culture on the one hand with a by-the-book quasi-regulatory culture on the other. That was never to be the recipe for a dull bureaucracy.

The Audit Commission has been a pioneer, in ways that seem almost to have been taken for granted in Britain even while being widely acclaimed overseas. It has also found itself at the centre of an often bitter controversy over the impact of an indisputable drift towards centralized government. Many commentators have blamed this greater centralization in Britain for a corrosion both of local democracy and of the integrity of the professional classes working in the public sector. Some among them have eyed the Commission as one of the arch-culprits. The reality that emerges in this book is much more complicated. Arguably the Commission has been guilty on occasions of acting naively. But to see it simply as a vehicle of centralization would be to stand the story on its head. The Commission was driven from the outset by a fierce belief in the need to lift the public sector’s performance, not least to buttress it against the encroachments of central government. How this stance has shifted to and fro over the years, in response to increasingly directive government policies, is a key theme of the book.

The Commission was established a quarter of a century ago, during Margaret Thatcher’s first administration, thanks entirely to the drive of one of the very few effective government ministers in recent times to have enjoyed a successful career in business, Michael Heseltine. He had learned from his business life that structures and processes can be as important as strategy and policy. It gave him a natural interest in the machinery of government — which always rather bored Margaret Thatcher, as it did Tony Blair later — and he was ready to take an inventive approach. As secretary of state at the Department of the Environment, he wanted to find new ways of opening up the public sector to the disciplines of the private market. In one of several initiatives to this end, he took up an esoteric branch of officialdom, staffed by ‘district auditors’ and essentially responsible for probity in the local government of England and Wales. Then he rewrote their rule-book, opened up their franchise to competitors from the private sector (whose access to date, while established since 1972, had in practice been problematic) and created a new body to preside over them. This was the Audit Commission, comprising sixteen non-executive commissioners drawn from across the political spectrum and both sides of the public/private divide.

Heseltine endowed the Commission with the political equivalent of three magic powers. First, it could turn its hand just like a private sector consultancy to any analysis of the public sector beyond Westminster that, in its own view, might further the cause of better management. Second, it could take the traditional notion of auditing and add one novel twist scarcely applied anywhere before 1983 (and even now untested anywhere in the private sector, though it is much discussed): public bodies within its franchise would be audited by genuinely autonomous auditors — appointed and coordinated by the Commission itself, and answerable only to the public and the courts rather than to their ‘client’ bodies in the field. And third, it could operate within Whitehall while remaining entirely outside the civil service, with an independent status that even included a licence to publish unsolicited critiques of the impact ‘on economy, efficiency and effectiveness in the provision of local authority services’ of any statute, or ‘any directions or guidance given by a Minister of the Crown’.¹ The consequences of Heseltine’s boldness soon outran anything anticipated by his colleagues in government or their officials. The impact on public life in Britain has been profound, and often quite surprising.

CONSULTANCY POWER

Take first its remit to roam as a consultant. Crucially, Heseltine in 1983 chose as the first executive head of the Commission (its ‘controller’) a successful alumnus of a private sector organization with a formidably disciplined approach to the analysis of managerial problems in any context — McKinsey. This was John Banham, and over the next four years he proved an inspired choice. Banham saw immediately the opportunity to shape a role for the Commission as a very special kind of management consultancy. By taking the existing field force of auditors, with all their local knowledge and networks, and harnessing it to a freshly recruited central staff, most of them with backgrounds in operational research, he built a Commission that functioned as a sort of McKinsey-plus in the public sector. And after his departure, a second ex-McKinsey man, Howard Davies, continued and refined the process for a further five years.^∗

Banham and Davies built a powerful business model that owed more than a little to the tool kit that both men had mastered during service with their previous employer. Data gathered from all over England and Wales would be used for robustly evidence-based analysis of any facet of local government. A national report on each topic would present arguments and conclusions based on comparative data from across the country, presented with state-of-the-art graphics to make even the most esoteric statistics accessible to all. Guides would then be prepared for use by auditors at a local level, enabling them to pursue improvements with the audited bodies under their charge, relating the local performance back to the national picture. Nothing quite like this had ever happened before in the public sector. By instilling quasi-commercial disciplines and positioning public services as goods in a quasi-marketplace with citizens as the end-purchasers, it caught the essence of what came to be known as New Public Management. The impact achieved by the Commission between 1983 and 1989 was sufficiently impressive for its role then to be extended into the NHS, much to the displeasure of officials within the Department of Health. This, perversely, was a fair measure of the way that it was by then starting to change the landscape of government.

Through twenty-five years, the Commission has issued more than 250 national reports. These have been at the forefront of a prodigious publishing programme that has also extended to a wide range of Occasional Papers, Police Papers, Management Papers and Handbooks, Executive Briefings and Bulletins (for a list of most of the titles, see Appendix 1). The early reports usually examined the management of specific tasks, some of them gloriously mundane like the purchase of council supplies or the collection of ratepayers’ rubbish bins. By the end of the 1980s, many were exploring far more complex topics such as the management of the probation service or the handling of community care for elderly people. By the end of the 1990s, with many of the easiest targets gone and the bar pitched ever higher — not least because councils were responding to their recommendations — the reports were increasingly looking into systemic weaknesses impeding the delivery of public services. There is probably much in the resulting bibliography that can still be read profitably today — and the publication of national reports remains a vital dimension of the Commission’s activities.

Capturing the essence of these reports within the confines of a narrative history has been a challenge. It was never going to be possible to do their contents real justice: many responded to complex situations, and the background alone would in most cases have required a long digression from the narrative. On the other hand, any proper appreciation of the Commission would be impossible without some grasp of what the best reports contained. With no claim to consistency, the text therefore refers fleetingly to many while lingering for longer on some of more intrinsic interest. These include, for example, reports on the state of the social services in 1986 (Making a Reality of Community Care), on the case in 1990 for a revolution in the use of day surgery for NHS patients (A Short Cut to Better Services), on the need in 1996 to rethink the basic strategy behind the deployment of police officers in the community (Streetwise: Effective Police Patrol) and evidence that same year of disturbing trends across the whole of the youth justice system (Misspent Youth). All report references are noted in their own index.

Over the years the Commission has managed to make a happy habit of publishing timely reports on topics of acute interest to politicians as well as professional interest groups, and many have had an enormous influence that is also an important part of the story. At the most obvious level, reports and papers from the Commission have helped to trigger direct changes in whatever unlit corner of the public sector they exposed to an unaccustomed light. Within a few years of the publication of A Short Cut, for example, some minor operations hitherto involving overnight stays in hospital were being routinely handled by the NHS as day-surgery cases. More broadly, a string of reports within one sector could help elicit a seminal change in working practices across the whole of that sector. By the early 1990s, it was already apparent that a succession of papers on the need for more professionalism in the running of local councils had made a telling impact on the way that local government in general conducted its affairs. By the end of the 1990s, ten years after a cagey start, many senior police officers and their counterparts in the Home Office were happy to acknowledge that they owed a similar debt to the Commission, for the work it had contributed to the modernization of the police service. (Another institution that was arguably changed in a radical fashion by the Commission, though it was most certainly never the subject of a Commission publication, was the National Audit Office. Set up in the same year as the Commission, but reporting directly to Parliament — its head, the comptroller and auditor-general, is an officer of the House of Commons — the NAO was given a broadly parallel remit for auditing the departments and agencies of central government. From the start, it too produced national reports — but their style and content in the 1980s were soon made to look almost Ruritanian by comparison with the Commission’s and a rapid catch-up was required.)

Auditors and analysts, with sharp pencils and disarmingly basic questions, were at first no more welcome inside hospitals than in police stations. But close cooperation with the Royal Colleges and the leaders of the medical profession produced a small library of powerful reports in the decade after the NHS was added to the Commission’s audit franchise in 1990. These helped to change attitudes within the NHS to dozens of topics, from the prevention of coronary heart disease to the management of beds, records and medicines. In 2002, the government transferred one of the Commission’s central duties within the health sector, the preparation of national reports, to a new body. After years of steady expansion, it was a rare diminution of the Commission’s franchise and marked another stage in the restructuring of public services that has been such a constant feature of life under New Labour since 1997. But, in recent years, the influence of the Commission in the health service has grown again, as attention has come to focus increasingly on standards of financial management within the NHS.

At the most general level, the Commission’s approach could fairly be said to have contributed significantly to the way that the analysis and management of the public sector were brought into line with their counterparts in the business world. Of course this was a wider phenomenon. By the end of the 1980s, with new technology transforming the presentational arts, it was increasingly evident that a powerfully written national report could change people’s views of the world. Privately funded think-tanks and publicly funded inspectorates sprouted up on all sides. It would be absurd to attribute their proliferation to the Commission alone. But they first emerged in response to an appetite that the Commission’s publications had undoubtedly done much to nurture. And by the time that Whitehall came to review ways of appraising its own performance, after 2005, the ‘Comprehensive Performance Assessment’ designed by the Commission for local government was openly acknowledged as a model for the appraisal of state departments. (The notion that they might be answerable to anyone other than their ministers and Parliament would have struck an odd note twenty years earlier — another sign of broad changes for which the Commission has arguably been a potent catalyst.)

AUDITING POWER

The second of the Commission’s mould-breaking powers has enabled it to pull off the implementation of an auditing concept generally regarded until 1983 as an ideal too perfect for attainment. The principles of both public and private audit decree that the power to hire and fire auditors should be independent of the bodies — municipal or corporate — that are the subject of audit. The private sector has had difficulty achieving this, whether in Britain or anywhere else. No stock exchange, for example, has ever tried to impose external auditors on the companies whose shares are traded under its umbrella, though this would be a logical step. Instead, shareholders vote to appoint or dismiss auditors, who formally report to them. In practice, as anyone will know who has ever attended an annual general meeting of a large public company, the auditors are effectively selected for the job by directors of the company and their remuneration is overseen by those directors. In the public sector, similarly, there was not much emphasis before 1983 on the separateness of district auditors. Though their integrity was very widely respected, and seldom if ever seriously impugned, individual auditors often worked so closely with their audited bodies over so many years as to be almost part of the municipal family. Indeed, this was one of the features of the local government system that persuaded Michael Heseltine to go for a new and far more rigorous approach.

Hence Heseltine’s enthusiasm for the Commission, and its statutory responsibility for the appointment of auditors. For twenty-five years, the Commission has called upon a pool of audit firms comprising a number of private sector partnerships as well as the legacy body of district auditors (which has always been a separate conceptual entity, though it was only between 1994 and 2002 that it was actually run as an arm’s-length agency). In financial terms, the Commission has ‘purchased’ audits from this pool and has ‘resold’ the audits to audited bodies — building a mark-up into the process, by which it has generated the cash to pay for its national report work and other publications. In so doing, the Commission has taken the ‘purchaser/provider’ concept that was central to Margaret Thatcher’s reforming agenda all through the 1980s, and fashioned a derivative version for the special circumstances of the world of public audit. And, in the process, it has assured the auditors under its aegis of a robust independence. (The auditors and the central institution are often collectively referred to in this book as ‘the Commission’, where it would be pedantic to keep distinguishing between them and the distinction is not pertinent. Most importantly, though, the auditors have acted always as individuals with their own statutory responsibilities — or as representatives of private firms with their own joint and several liabilities — and they are identified separately from the Commission where the context duly demands it.)

The conspicuous independence of its auditors from their audited bodies has many times underpinned the effectiveness of the Commission as a policeman of the public sector. Sometimes this role has pushed it into the limelight. It had to confront the leaders of the so-called Loony Left in the 1980s, taking a firm stand against them in Liverpool and Lambeth — but treading with great care thereafter, to pre-empt what might arguably have become a full-blown constitutional crisis between central and local government under Margaret Thatcher. It is legitimate to wonder — given the animus against it within the Thatcher cabinet — whether local government in its historical form would have survived such a crisis. How it might have ended for the Thatcher government itself, but for the Commission’s involvement, is probably just as hard to say. (The Commission was given no real opportunity to pull off a second rescue over the poll tax, though it cannot be faulted for not trying.)

Again, later in the 1980s, the Commission and one of its appointed auditors had to deal with the potential financial implosion of a London borough council. Hammersmith and Fulham had entered into a complex web of financial contracts with the international banking community which at one point threatened to expose each citizen of the borough to a bill for several thousand pounds. Without the Commission on hand, to flush out the crisis in the first place and to provide critical legal assistance to the auditor tasked with steering it to a safe resolution, English local government might easily have been lured into a much more extensive engagement with the global derivatives markets in the 1990s that could have had calamitous consequences. And no history of the Commission would be complete without its own account of the scandal at Westminster City Council, where an appointed auditor (again from a private firm, ironically, as at Hammersmith) had to toil through much of the 1990s on an investigation into a blatant misuse of public power by the country’s flagship Tory council under Shirley Porter. In all these cases, and many other less egregious episodes, the Commission came under intense and often hostile scrutiny from all those who would have preferred to see auditors in the public sector taking a less inconvenient line. It stood its ground, as did the auditors, and the campaign medals were earned.

It is not just their stubborn independence, though, that has marked out the Commission’s auditors as a rare species over this quarter-century. In reorganizing the audit function under the direction of the Commission, Michael Heseltine wanted to shake up the district auditors because he was ambitious for them to do much more than watch over the probity of local authorities’ accounts. He also envisaged a much expanded role for private firms. In the event, Heseltine found himself pushing on an open door — and there proved to be less scope than imagined for the private firms to sweep in as new brooms — because the district auditors themselves had been keen for many years to widen their own remit beyond the ‘regularity’ work of checking that the accounts complied with the law. That remit has gone on widening ever since.

Hence the greater scope for stretching the public auditors’ remit. Even in the policeman role, auditors can be required to go in pursuit of the ‘three Es’ as well as their regularity agenda. But the three Es have been central to the ‘value-for-money’ (VFM) agenda that has defined their consultant role. And of course the pursuit of VFM has been a constant theme of the Commission’s reports — which is why the business model devised by Banham and his colleagues, built round investigative studies, was such an ingenious response to the divergent statutory duties laid on the Commission at the outset.