Media playback is unsupported on your device Media caption Eric Pickles said scrapping the Commission would save £50m a year

England's public spending watchdog the Audit Commission, which employs 2,000 people, is to be scrapped.

Communities Secretary Eric Pickles said the move would save £50m a year.

Commission Chairman Michael O'Higgins said the watchdog had improved the quality of local services since its inception in 1983.

He said the commission regretted the government's decision but the body had already been looking at moving some of its work into the private sector.

Staff received an email from management on Friday. A source told the BBC it came "completely out of the blue".

Surprising move

In a press statement, Mr Pickles said the commission's research functions would stop and councils would be able to ask private companies to carry out audits. There would also be a "new audit framework" for local health services.

In May, Mr Pickles vetoed the £240,000 salary for the new head of the Audit Commission. Earlier this month he criticised its decision to pay a lobbying firm £55,617.

A source at the commission told the BBC that moving some of the auditing into the private sector could end up costing more.

But Mr Pickles said: "The corporate centre of the Audit Commission has lost its way. Rather than being a watchdog that champions taxpayers' interests, it has become the creature of the Whitehall state.

Analysis "The Audit Commission is a body that has been responsible for checking how councils, and some health organisations, spend taxpayers' money. There have over the last few weeks been some quite bad tempered tussles between the Audit Commission and the new coalition government. But the fact that it is to be scrapped has come completely out of the blue. The Communities Secretary Eric Pickles' belief is that bringing in the private sector will increase the amount of competition and drive down costs. Sources I've spoken to believe the Audit Commission can do the job more cheaply than big private accounting firms. Tonight, the victim of the latest cuts announcement is clear - 2,000 staff at the Audit Commission will lose their jobs - at any rate in their present form."

"We need to redress this balance. Audit should remain to ensure taxpayers' money is properly spent, but this can be done in a competitive environment, drawing on professional audit expertise across the country."

He said he wanted to see the commission's auditing function become independent of government and compete for business from the public and private sector.

He later told BBC Radio 4's PM programme it could mean being bought by another company, or the auditing arm becoming a co-operative, like John Lewis.

Job losses

Asked about job losses, he said: "In terms of people working for the Audit Commission, almost certainly we are looking for them to be able to continue in another form."

He also said the Audit Commission had already been thinking about putting the auditing function out to the private sector.

In a statement, Mr O'Higgins said: "The Audit Commission was set up by a Conservative Secretary of State in 1983, and I believe we have more than fulfilled Michael Heseltine's ambitions when he set it up.

He said the commission had exposed poor practice and had played a significant role in improving services across the country.

'Uncertainty'

"The gerrymandering 'homes for votes' scandal at Westminster Council was uncovered by the Audit Commission," he said.

He said the commission's successes had enabled ministers to give local authorities more autonomy.

Earlier, Mr O'Higgins told the BBC Radio 4's PM programme the decision was only confirmed at 1000 BST on Friday.

He said Mr Pickles' comments about the body were "characteristically robust and quotable" but argued the body had criticised Whitehall and saved £600m in one fraud initiative alone and the quality of local government had vastly improved.

Audit Commission The Audit Commission for Local Authorities in England and Wales was established in 1983

It is an independent watchdog "driving economy, efficiency and effectiveness" in local public services

The commission assumed auditing responsibility for the National Health Service in 1990

Functions were extended to fire and rescue services in 2004

Its remit in Wales was transferred to the auditor general for Wales, also in 2004

The commission now covers local government, health, housing, community safety and fire brigades

It audits £200bn spent by 11,000 local public bodies

He also said some major audit firms were interested in acquiring parts of the commission's audit function - and they would look at mutualisation or a management buyout.

He said there would inevitably be "uncertainty for staff" but until a decision about the next step was made, the commission would continue to carry out its work.

In a statement, Labour's shadow communities secretary John Denham said the move meant taxpayers would have "no coherent information" about how much value for money their local services provided.

He said: "The Audit Commission doesn't just look at the cost but at the quality.

"Without the function of the Audit Commission there will be no one to step in when a council is failing, as Doncaster was recently.

"This move by the government shows they are only interested in the cost of everything and the value of nothing."

He added: "I had warned The Audit Commission against excessive wage increases and their fate seemed to be sealed when they ignored this but the commission needed reform - not abolition."

Clive Betts, the Labour chairman of the communities and local government select committee, suggested to BBC Radio 4's PM programme there might be a "political motive" behind the move - saying there were "quite a few Labour people" including former councillors on the body.

The watchdog has offices in London, Bristol, Leicester, Solihull, Stevenage, Bolton, Gateshead, Leeds and Exeter.