Auditing the auditors: why English councils pay more for less

The numbers are stark. According to new research from the Audit Reform Lab at the University of Sheffield, English local authorities saw audit fee scales jump by an average of 238% between 2022/23 and 2023/24. On the ground, this means an average council’s audit bill that once stood at around £120,000 could now top £400,000 — money squeezed from budgets already stretched by social care, housing, and services.

Crucially, less than one-fifth of the increase was due to additional audit work or greater complexity. The remainder came from firms hiking their rates. Audit directors’ hourly charges rose from £165 to £414, according to PSAA data. In Scotland and Wales, by contrast, the same roles typically command around £170 an hour.

“The market is broken, regulation is feeble and the price hikes create a moral hazard where auditors have little incentive to deliver work on time and to budget,” said Dr Daniel Tischer, researcher at the Audit Reform Lab and author of the report. “English councils are not only getting bad value for money, but weak and delayed audits are also compromising local accountability and national fiscal oversight.”

If Tischer’s critique highlights the failure of regulation, practitioners point to a more practical bottleneck: people. The audit market is facing a severe shortage of qualified staff, with long-term effects from Covid-era recruitment freezes and consolidation among firms.

“The audit market in England has suffered from capacity issues,” said Karen Borowski, head of audit at DJH in Huddersfield. “Reduced recruitment during Covid and changes in work-life balance mean fewer qualified accountants three years down the line. Add in regulatory pressure and consolidation reducing competition, and the result is higher fees and less flexibility.”

Borowski also stressed that audits themselves are no longer simple exercises. Councils are entering into complex commercial ventures, novel financing arrangements, and in some cases facing deep financial stress. Each of these requires additional, careful work. But, she added, unmanaged procurement left scale fees “unrealistically low,” so councils now face a double hit: a legacy of underpricing and today’s inflated extras.

The cost spiral might be defensible if audits were timely and effective. Yet delays are endemic. By 30 June 2024, 68% of English council audits for 2022/23 remained unsigned. In Wales, only 9% were late; in Scotland, 12%. For the previous financial year, nearly 60% of English audits were delayed by more than 12 months.

Audit delays do more than frustrate accountants and finance directors; they weaken governance. Without timely sign-off, councils lack a reliable financial baseline for budget setting and long-term planning. Strategic decisions – whether to invest in housing, cut services, or borrow – risk being made on outdated or incomplete information.

As Borowski put it: “Delays increase time pressure and audit risk. The work becomes more compliance-focused, raising the danger of missing vital issues. An audit should add value, highlighting opportunities for improvement as well as providing peace of mind that accounts are sound.”

Technology could play a role in easing the strain, with data analytics and automated testing offering efficiency gains. But progress is uneven. “Many local authorities still rely on legacy systems that make data extraction difficult,” Borowski said. “Greater standardisation of charts of accounts and reporting formats across the sector would unlock significant gains. Until then, innovation is limited by the systems we’re working with.”

Why are councils in England paying so much more – and waiting so much longer – than those in Scotland and Wales? The difference, researchers argue, lies in governance.

Since the abolition of the Audit Commission in 2015, England has relied on a privatised model, with the Public Sector Audit Appointments (PSAA) body setting scale fees but with auditors able to claim additional charges. Wales and Scotland have kept elements of central oversight, with strong public-sector capacity in their audit systems.

The Audit Reform Lab’s report found that, as a result, Scottish and Welsh councils enjoy not only lower fees but also far more timely audits. In effect, public oversight in those nations is helping to balance market pressures that in England have gone unchecked.

The Labour government has pledged to act, proposing the creation of a new Local Audit Office (LAO) to take back some of the Audit Commission’s former powers, including auditor appointments and contract management. The LAO would also run a public audit service to cover up to a quarter of the market, intended to help clear backlogs and provide career pathways for auditors.

Tischer welcomed the idea but argued it should go further. “Labour’s plans to create a Local Audit Office are welcome, but they should strengthen the Office’s capacity by enabling a 70/30 split of public versus private audits. That would give the LAO the expertise and scale to challenge private interests and protect the public good.”

Others stress that reform must be future-facing, not merely retrospective. Peter Murphy, professor of public policy at Nottingham Business School, warned: “The current system, designed to serve the public interest, has instead prioritised the needs of large private firms. Early warning signs of financial difficulties at councils like Nottingham and Birmingham were missed. If reforms only replicate the old system, we’ll face the same risks again.”

Murphy and his colleagues argue for a greater emphasis on forward-looking risk assessment. As researcher Katarzyna Lakoma put it: “The new system must be explicit in addressing vulnerabilities and risks, not just auditing the past. It should reflect the values and needs of public service delivery, not merely financial compliance.”

For now, the crisis in local audit is overshadowed by the more high-profile debate on English devolution. But researchers warn the stakes are just as high. Local public audit underpins accountability across a wide range of services, from housing and social care to police and fire. If audits fail, so too does public trust in how billions of pounds of taxpayer money are managed.

The reforms Labour has outlined could mark a turning point. But whether they succeed will depend not just on rebuilding public capacity but also on reshaping the culture of audit itself – away from expensive firefighting and towards transparent, timely assurance.

As Borowski concluded: “The winning outcome is an audit that doesn’t just tick a box but strengthens financial resilience, governance, and accountability. That’s the only way councils – and the public they serve – will get real value.”