Consultation outcome

Government response to the consultation on changes to the audit fees methodology for allocating £15 million to local bodies

Updated 29 July 2021

Purpose of the consultation

Following the findings of Sir Tony Redmond’s independent review into the effectiveness of external audit and transparency of financial reporting in local authorities, the government committed to take swift action to support stability in the local audit market.

In the government response to the Redmond Review, ministers announced £15 million in additional funding in 2021/22 to support local bodies to meet the anticipated rise in audit fees in 2021/22, driven by new requirements on auditors including the 2020 Code of Audit Practice, and to enable local authorities to develop standardised statements of service information and costs.

The government ran an open consultation from 20 April to 18 May 2021 to gather views from stakeholders on the most equitable way to allocate the £15 million funding between the local bodies.

The consultation proposed the government’s preferred methodology for allocating the funding but also included alternative approaches for respondents to consider. The preferred methodology proposed basing individual allocations on each body’s scale fee as a proportion of the total fee scale that each body currently pays as part of the current contracts. Alternative methodologies for allocating the funding were as follows:

a. allocating funding on the basis of a more standardised methodology that meant that all bodies of a specific ‘type’ received an equal allocation.

b. taking into account past fee variations alongside base fee scales.

c. providing equal allocations to all bodies, or another methodology that was not derived from the current fee scales.

d. allocating a proportion of the £15 million as a fixed sum to all bodies and the remainder on a proportionate basis derived from the scale fees.

Overview of the respondents

There were 91 responses to the consultation in total. Responses were received from councils, fire and rescue authorities, local police bodies, national park authorities, audit firms and regulatory and accountancy bodies.

Summary of responses

Question 1

With regard to the allocation of the £15 million to affected bodies, do you agree with the proposal at paragraph 7 that is to base individual allocations on each body’s scale fee as a proportion of the total fee scale that each body currently pays?

• Yes – I agree with the above proposal
• No – I disagree with the above proposal
• Unsure

Question 1 responses

Overall, 57% of respondents agreed with the proposed methodology, 32% disagreed and 11% said they were unsure.

Question 2

Alternatively, do you think that one of the methodologies proposed in paragraph 8 would be more equitable? What are your reasons for this?

• Yes
• No
• Unsure

Question 2 responses

In total, 31% of respondents said yes, they thought one of the other proposed methodologies would be more equitable, while 60% said no and 9% were unsure.

• 4% of respondents preferred methodology a
• 11% of respondents preferred methodology b
• 8% of respondents preferred methodology c
• 11% of respondents preferred methodology d
• 2% preferred a combination of methodologies a-d

Question 3

If you do think that we should consider a different methodological approach, what factors in your view should be used to determine the proportionate element of the funding? For example, might regulatory standards that only apply to certain bodies be a suitable contributory factor?

Question 3 responses

There were a number of comments in response to this question. Some notable suggestions are included below: - allocations should take into account the size of a body and the complexity of its accounts - allocations should take into account specific local factors and discussions at a local level - allocations should take into account the differences between bodies and the varying levels of impact of different regulatory and accounting standards on different types of bodies - the method of allocation should be as simple as possible

Question 4

We would also welcome views if you have an alternative proposal to those described above – please provide details below.

Question 4 responses

Alternative proposals were limited but some suggestions were to:

• reimburse actual cost of fee increases on an individual basis for each body
• combine aspects of the different methodologies

Question 5

We would also welcome any more general comments on the proposals and any unintended consequences that might arise from their implementation.

Question 5 responses

Some comments are highlighted below:

• need to ensure that audit firms are required to do additional work for changes in the code and that resultant increases in fees are standardised across audit firms

• audit firms should only be doing additional work where necessary – shouldn’t see the additional funding as an ‘open cheque’.

Question 6

Finally, any comments relating to the equalities impact of the above proposals would be welcomed.

Question 6 responses

Respondents felt that the above proposals were unlikely to have any significant equalities implications. There were no comments which highlighted the possibility for differential impact on groups with protected characteristics.

Government response

The government is grateful for all the responses to the consultation. Throughout this process, our objective has been to establish a funding methodology that most accurately and fairly reflects the anticipated additional costs to individual local bodies of rising audit fees. While we outlined our preferred methodology in the consultation, we were open to considering alternatives and wanted our final decision to be informed by views from a variety of stakeholders.

As outlined above, a clear majority of respondents agreed with our proposed methodology to base individual allocations on each body’s scale fee as a proportion of the total fee scale that each body currently pays as part of the current contracts. While the government understands that individual circumstances may vary, it is important that the methodology we pursue follows a simple process which allows for efficient payment to local bodies.

Although a small number of respondents favoured methodology a, we believe this would be less likely to accurately reflect the costs faced by different bodies than using their current scale fees. Furthermore, we remain concerned that methodology b could risk rewarding poor performance and potentially unfairly penalise audited bodies who have not previously required fee variations, but may need them in the future due to changes to the Code or other regulatory costs.

We also do not believe that providing a fixed sum to all bodies would be an equitable method of allocation, given the different sizes, remits and performance of the bodies in question, and so do not believe methodologies c and d would be appropriate.

Finally, we believe that the suggestion to devise a methodology based on some combination of the methodologies above would be overly complex and conflict with our aim to make the allocation process as simple, clear and fair as possible.

Therefore, it is our intention to allocate the £15 million funding across local bodies in line with our preferred methodology. Payments to local bodies will be made in due course.

List of respondents

• Babergh and Mid Suffolk District Councils
• Basildon Council
• Basingstoke and Deane Borough Council
• Bournemouth, Christchurch and Poole Council
• Blackburn with Darwen Council
• Breckland Council
• Brighton & Hove City Council
• Bristol City Council
• Broads Authority
• Bromsgrove and Redditch District Councils
• Cambridgeshire and Peterborough Combined Authority
• Chelmsford City Council
• Chichester District Council
• Chartered Institute of Public Finance and Accountancy (CIPFA)
• City of Wolverhampton Council
• Cleveland Police
• Cotswold District Council
• Dartmoor National Park Authority
• Devon & Somerset Fire and Rescue Service
• Devon County Council
• Dorset & Wiltshire Fire and Rescue Service
• Dorset Council
• East Riding of Yorkshire Council
• East Sussex County Council
• East Sussex Fire Authority
• Ernst & Young LLP
• Financial Reporting Council (FRC)
• Flyde Borough Council
• Grant Thornton UK LLP
• Horsham District Council
• Hampshire County Council (including Hampshire Pension Fund), Hampshire & Isle of Wight Fire and Rescue Authority, Hampshire Constabulary and the Police and Crime Commissioner for Hampshire (joint response)
• Kent County Council
• Kent Fire and Rescue Service
• Kingston upon Hull City Council
• Knowsley Metropolitan Borough Council
• KPMG LLP
• Leicestershire County Council
• Lewes District and Eastbourne Borough Councils
• Lichfield District Council
• London Borough of Barking and Dagenham
• London Borough of Havering
• London Fire Brigade
• Maldon District Council
• Melton Borough Council
• National Fire Chiefs Council - Finance Committee
• Newcastle City Council
• North East Lincolnshire Council
• North Kesteven District Council
• North Lincolnshire Council
• North Northamptonshire Council
• North Yorkshire County Council
• Nottinghamshire County Council
• Nottinghamshire Fire and Rescue Authority
• Office of the Kent Police and Crime Commissioner
• Oldham Council
• Oxford City Council
• Police and Crime Commissioners Treasurers’ Society
• Peterborough City Council
• Police, Fire and Crime Commissioner for Essex
• Police and Crime Commissioner for the West Midlands
• Public Sector Audit Appointments Ltd (PSAA)
• Rochdale Council
• Rotherham Metropolitan Borough Council
• Sheffield City Council
• Shropshire Council
• Society of County Treasurer
• Society of District Council Treasurers
• Society of London Treasurers
• Solihull Metropolitan Borough Council
• Somerset West and Taunton Council
• South Gloucestershire Council
• South Hams District Council
• South Oxfordshire District Council
• Spelthorne Borough Council
• St Helens Borough Council
• Stoke-on-Trent City Council
• Stroud District Council
• Surrey County Council
• Surrey Office of the Police and Crime Commissioner
• Test Valley Borough Council
• Torbay Council
• Tower Hamlets
• Wakefield Council
• Warwickshire County Council
• Wealden District Council
• West Devon Borough Council
• West Sussex County Council
• West Yorkshire Fire and Rescue
• Wirral Council