Executive Summary
This report presents an empirical assessment of the breakdown in England’s local authority audit system following the abolition of the Audit Commission and its replacement with a privatised audit market. Drawing on data for over 300 councils from 2018 to 2024, the report finds significant deterioration in audit timeliness, rising costs, and market concentration among a small number of private audit firms. The comparative performance of English local authority audits was notably weaker relative to the different systems in Scotland and Wales. We are supportive of the need for a new, centralised Local Audit Office (LAO), but strongly recommend that it develops sufficient internal capacity to provide a public sector alternative to private sector local authority audit provision.
The key findings are as follows:
- England’s local authority audits have become increasingly delayed. As of 30 June 2024, only 1% of 2022/23 audits were completed on time, while 68% remained outstanding. Delays of over 12 months have become commonplace.
- English local authority audits perform comparatively poorly. In contrast to England’s 32% audit completion rate by June 2024, Scotland and Wales achieved 88% and 91%, respectively. English audit delays are also significantly longer, with 59% of 2021/22 audits delayed by over 12 months, compared to none in Scotland or Wales.
- Audit costs in England have risen sharply to respond to these failures. The PSAA fee scales increased by 238% between 2022/23 and 2023/24, with over four fifths of this attributable to basic price hikes, rather than requirements for additional recurring audit work, audit completions where they have been delayed and new local audit requirements (such as accounting rule changes or changes to audit scope).
- Audit cost increases in England reflect higher hourly charges. Audit Directors in England increased their rate from £165 per hour in 2022/3 to £414 in 2023/4; Senior Managers from £91 to £228 and Senior Auditors from £59 to £148. The 2023/4 hourly rates for Audit Directors in England are now more than double those charged by Audit Scotland and Audit Wales.
Our key finding – that audit firms hiked hourly costs whilst presiding over the breakdown of local authority audit in England – would, in any other industry, be viewed as a moral hazard or a reward for failure.
These findings challenge the idea that unfettered markets always improve efficiency, and raise wider questions about audit firm concentration. It also raises questions about the erosion of regulatory capacity: the English audit system now exhibits fragmentation (by design), rising costs, and diminished capacity to deliver public assurance. In contrast, Scotland and Wales—where centralised oversight remains—have a better performance (and now also cost control) record.
We argue that the dismantling of the Audit Commission removed critical public audit infrastructure and capacity. The resulting decentralised audit model has failed to meet expectations and has reduced the ability of the system to coordinate responses during periods of institutional stress.
Local authority audits are essential not only to council finance and governance, but also to the production of whole-of-government accounts. Their failure compromises both local accountability and national fiscal oversight.
In light of these issues, the report supports the creation of a Local Audit Office with regulatory authority and coordinating capacity. Drawing on comparative evidence, it further recommends a substantive role for public sector audit provision alongside private firms, moving to a 70/30 split. The goal is not merely to manage audit backlogs, but to re-establish a system that is transparent, resilient, and aligned with the public interest.