Alan Magnus, a partner with City firm DJ Freeman, believes technical releases sent to auditors by the commission attempt to 'change the intention' of the Local Authorities (Companies) Order 1995 by effectively barring the formation of 50:50 'deadlock' companies.
In a letter to Sir Paul, Mr Magnus refers to TR11A/96 which states: 'Minority interest is any interest in a company which is not a controlling one, eg less than 50% of voting rights.'
Mr Magnus tells the minister: 'This is not correct. One that is less than a controlling interest is '50% or less' for voting rights, not 'less than 50%'.'
The importance of rules governing local authority companies centres on capital restrictions.
If a company is deemed to be council controlled, its borrowing counts against the authority's own borrowing restrictions. This has forced the West Midlands authorities running Birmingham airport to sell off 51% to allow for the financing of the airport's expansion.
But Mr Magnus told LGC: 'My view is that deadlock firms do not fall within the Local Authorities Companies Order. This a deliberate policy of the Audit Commission. It always takes the strictest, narrowest view. This is beyond what Parliament intended.'