15 July 2025
In a surprise announcement, the English Devolution & Community Empowerment Bill, published last week, outlined the government’s plans for the Local Audit Office. The government had previously promised to fix the local audit crisis and consulted on a range of ways of doing this, but now some of these measures do not feature in the devolution legislation.
The creation of the Local Audit Office (LAO) marks a significant change in the local audit regime. Since the abolition of the Audit Commission in 2015, local authorities have been audited by private companies. This has resulted in declining quality of audits and a backlog that has obscured up-to-date information of the entire sector’s financial position. The local audit crisis has contributed to councils losing control of their finances and declaring effective bankruptcy in recent years, including high profile-cases like Birmingham and Slough.
The new LAO will take on responsibility for auditor appointments, fees and maintaining a register of audit providers. It will also prepare the Code of Audit Practice, and could itself become an audit provider.
The government has previously consulted on local audit reform, publishing their response in April. There are several commitments made in this response that are not covered by the current legislation, including on accounts reform, although the bill does propose to separate Local Government Pension Scheme accounts from the general fund.
The government’s April response said the LAO would publish national insight reports on local audit health, which could include emerging trends, quality and market sustainability, as well as statutory recommendations and public interest reports. Yet these reporting functions are not detailed in the legislation.
The bill mandates audit committees with at least one independent member, which Research for Action hopes will strengthen oversight. However, we believe the proposals should go further, with audit committee chairs coming from opposition parties where possible, and allocating committee membership according to parties’ vote share rather than seats.
FJ Malinen from Research for Action, who have researched the audit crisis caused by the privatisation of local audits for years, said:
“The government could have not acted sooner to create a national body that will simplify the current audit regime that has led to a crisis. It is good to see that the bill leaves open the possibility for the LAO to act as a public provider of audit, but we are concerned this will not be enough to tackle the failing market if private provision remains the norm.
“The draft legislation is worryingly thin on detail about the LAO’s regulatory role, especially what comes to enforcement powers. We believe the LAO should have a remit for carrying out regular investigations on cross-cutting issues, tackle fraud and corruption, and set up a complaints and appeal process for audit that is open to the public.”
“The government has previously said that the LAO would be underpinned by values including transparency and stronger accountability, but we do not see any detail on how it will put those values into practice. There is no mention of the public or civil society’s role as stakeholders, or access to information or public accountability rights. Audit reform should put public interest at its heart.”
Further information:
Government update on compliance with audit backstop dates (July 2025)
Research for Action’s response to consultation on local audit reform (January 2025)
Research for Action’s briefing on local audit reform (February 2025)
Report: Local Audit: Why Public Interest Needs To Count (Research for Action, August 2023)
Report: Rethinking Local Audit and Accountability (Research for Action, September 2021)
Government response to the consultation on local audit in England (April 2025)
