Examination of Witnesses (Questions 960-979
THE RT HON PATRICIA HEWITT MP AND THE RT HON TESSA JOWELL MP
MONDAY 8 JULY 2002
960. It is you that has got to deal with it, not us.
(Tessa Jowell) Absolutely, but I am making clear that this is a matter that you have obviously given considerable attention to. I have to say that I have confidence in the way that this Bill has been drafted. I have confidence in the clarity of purpose both of the Content Board and the Consumer Panel so, no, I do not live in fear of those risks, but if you can provide us with further evidence as to why you think those risks might exist, then I am obviously very happy to look at this.
961. As a person who has suffered a number of judicial reviews, I can tell you that those risks exist.
(Tessa Jowell) We are all part of that club.
(Ms Hewitt) I would certainly underline that. Every regulator lives in terror of JR. It does underline the importance of the provisions in the Bill requiring OFCOM to abide by the best standards of regulatory discipline and transparencyand that of course applies equally to the Content Board which is exercising delegated powers on behalf of OFCOM as an entity. It also means that once OFCOM is established and once the Content Board is established it will be absolutely incumbent on OFCOM to set out very clearly the detailed processes, time scales and so on they and indeed the Content Board will adopt on cases that fall within the Content Board.
Chairman: Something for you to think about. We are struck by the notion that you wanted a Board of six with a majority being non-executive and a minority executive. In my own experience, given illness and the problems sometimes of creating a quorum, I think it is something of a fantasy and, honestly, I would urge you to get a Board of nine because the Chair of the Content Board will certainly want a Deputy who sits on the Board, and when you begin to count the numbers, although I am totally in favour of small boards, six is something of an oversight.
962. My question is on the Consumer Panel to which reference has just been made. Some of the consumer organisationsbut not all of themhave criticised the proposals that the Consumer Panel is to be appointed by OFCOM rather than yourself, and that it can only consider content issues at OFCOM's instigation. Do you think that these proposals might undermine the Consumer Panel's independence?
(Ms Hewitt) No, I do not. What we have proposed on the Consumer Panel is that, although the members will be appointed by OFCOM, the appointments will have to be approved by the Secretary of State. If you look across to the Financial Services Authority, with their Consumer Panel it is only the appointment of the Chairman that has to be approved by the Secretary of State. The reason for doing this in this case, making the whole membership subject to the Secretary of State's approval, is that it is very important that that Consumer Panel has an independent voice, and that that is a strong independent voice, particularly in situations where there may be a very strong or very powerful industry and business voice in a different direction. So I think by making the appointments subject to ministerial approval we do help to guarantee that they will have the operational independence they need and a public profile of their own. On the content sideTessa may want to add to thisI would simply make the point that the Consumer Panel is going to need to deal with a lot of quite big issues: choice, information for the consumer, value for money, that sort of thing, and I think it is much better to have them chosen for that purpose and focussed on that purpose, rather than also ask them, in an overlapping role of the Content Board, to focus on the other questions that are raised, the issues to do with broad cultural identity and social harm that the Content Board will be dealing with.
(Tessa Jowell) I would like to quickly pick up one point because it may help the Committee. I was just checking on the face of the Bill. We have not on the face of the Bill specified the size of the Content Board, and would indeed expect the Content Board to be larger than the main Board because of the representation from the devolved administrations. I think you referred to six as the membership; that would be too small in order to take account of the breadth.
963. I was suggesting eight or nine for the main Board because I believe you will need two members of the main Board sitting on the Content Board, otherwise if the Chair or anybody becomes ill, the thing becomes impossible to run.
(Tessa Jowell) OK. We can come back to the size of the main Board later, if you like. Again, in relation to the Consumer Panel, I think that it would be very important that the Consumer Panel is an effective and trusted representative of the voice of the consumer. There are a very wide range of consumers of this Bill. We would not want to see a Consumer Panel whose membership was simply drawn from the existing range of consumer organisations. To have the director of every consumer organisation on the Consumer Panel would not create the kind of culture and approach that we hope the Consumer Panel will develop.
Chairman: I do not think you will have any argument on that from this Committee.
964. You mentioned the devolved administrations. Much of the debate in both Scotland and Wales about the Bill seems to have been about the place of the regions in OFCOM. Also suggestions have been made about whether there should be specific sub-committees of the Content Board or the Consumer Panel dealing with issues concerning the regions. What reassurances would you give?
(Tessa Jowell) First of all, in relation to the main Board, the members of the main Board will be selected by the usual Nolan process, but very much on the basis of their expertise. I hope that every member of the main Board will accept that they have a responsibility to act on and consider the interests of communications across the whole of the United Kingdom. In addition to that, OFCOM will be expected to hold meetings in the devolved administrations in different parts of the UK, and also to have an office in each of the devolved administrations. This was obviously an issue which we discussed extensively. Broadcasting particularly is a reserve matter. That is perhaps the most important reason why we resisted the calls for Irish, Welsh and Scottish representation on the main Board, but felt that it was right and proper that that should be reflected on the Consumer Panel and on the Content Board, where these issues of regional and national difference very importantly need to be addressed.
(Ms Hewitt) I totally agree with that.
965. One of the things that struck me about the way the Bill was presented was the sheer number of people who have commented favourably on the Bill. I think that is down to the work of the Bill team did beforehand. I think there is a lesson for other Bills to follow that. Both the White Paper and the policy document talk about OFCOM being able to develop a relationship with the self-regulatory bodies. How would you actually see OFCOM developing that relationship with the self-regulatory bodies? Why have you not put a duty on OFCOM to develop a policy towards that?
(Ms Hewitt) That is a very interesting question. I think it will depend on the particular area that a self-regulatory body is dealing with. If we look, for instance, at something like the Internet Watch Foundation, we are very clear that this Bill is not about imposing regulation on the Internet. The general law will continue to apply online just as it does offline. But there have been very strong concerns, which we both share, expressed, for instance, about pornography and other kinds of dubious content on the Internet, and we were as a government instrumental in helping to get the Internet Watch Foundation set up. It has proved extremely useful, and has worked very closely with the Internet service providers, who by and large take stuff down as soon as it is brought to their attention, and it has become something of a model for other parts of the world. Clearly, OFCOM is going to need to have a relationship with them so that they understand what work they are doing, and can, where appropriate, refer complaints to them. There will be other examples like that, but I am not sure that we need to spell that out by way of a particular duty in the Bill, although we would be very happy to take another look at that. My feeling is that it will simply flow from OFCOM's statutory duties and the nature of their work that they will have to have relationships with a whole variety of other organisations.
966. Is it not one of the concerns that people have that OFCOM will be far more regulatory because of things like market dominance, and their fear is, if it is not there, there will be regulatory creep?
(Ms Hewitt) That is one of the main reasons why, of course, we have put into the Bill the very specific duty of OFCOM to keep its functions under review and to ensure that they do not impose or maintain unnecessary burdensthat is the clause 5 provisionbecause there is always a danger, and certainly always a fear of regulatory creep, and particularly when markets change very fast, it is very important that regulators keep a close eye on those markets, and when they conclude, as some regulators in other sectors have done, that competition was well advanced, they can then step back from price controls, for example. But we are very clear that OFCOM has to apply the five principles of good regulatory practice that are set out in the report of the Better Regulation Task Force, and that does include rolling back stuff that is found to be unnecessary.
967. A number of our witnesses have told us about the importance of taking decisions promptly, and indeed, there are examples one can see from recent practice of great delay in decision-making which has led to difficulties in telecommunications and broadcasting markets. Clause 6 reflects a desire for there to be promptness standards, but they are standards that are not specified in terms of particular deadlines, and they are standards that are set by OFCOM for itself. Do you think there would be advantage on the face of the Bill in attaching deadlines to certain decisions or functions that OFCOM has to undertake?
(Ms Hewitt) I would be reluctant to do that. In a Bill that is covering such a large territory as this one, and given the range of very different issues that OFCOM is going to have to make decisions on, I think it would be very difficult to specify in advance, "You have got to do this within three months and that within six weeks, but you can have longer on something else." I think it is better to leave it to OFCOM to say, "There is a real concern, and I share it, about decisions taking far too long or market investigations taking far too long, so that by the time you get to the end the market is quite different from where you started." They should look at that. They should then set themselves clear targets and standards for the amount of time they are going to spend on different processes. But I think it may also be the case that where, for instance, they embark on a very complex investigation, perhaps an SMP issue, they will need to specify a standard for that particular investigation. Against the desire for speed, which is hugely important, we also have to balance the need for OFCOM to publish its thinking and consult with all the various parties, so that companies, for instance, who will complain about slow decisions will also be the ones who will complain very loudly if OFCOM or one of the existing regulators does not publish a proper regulatory impact assessment, preceded of course by consultation, but followed by consultation before it arrives at its decision. There is a balance here between actually doing a thorough job and making sure that people who are going to be affected by the decision are consulted, and making a decision reasonably speedily so that it is not out of date by the time you implement it.
968. Would you not say the SMP condition is actually rather a good example of where deadlines might be advantageous? In some of these competition policy decisions, even the European Commission impose certain deadlines upon themselves, and where a market is not effectively competitive, the importance of not allowing a dominant player in the market to foreclose the market is particularly great. That may therefore mean conditions have to be applied, and have to be applied quickly.
(Ms Hewitt) I am very much in favour of those deadlines being set and, as you rightly say, the European Commission does indeed set deadlines and impose them on itself. All I am saying is that OFCOM should be in the same position of imposing deadlines on itself for different kinds of investigations.
969. Do you think that it is sufficient for OFCOM to set its own standards? Should there not be some accountability either to you as Secretary of State or to Parliament about what those deadlines should be?
(Ms Hewitt) OFCOM will indeed be accountable through us to Parliament. I would expect that it will want to consult on the promptness standards themselves in order to see whether they are getting that balance right between enabling people to put their views in and arriving at timely decisions, and it may well be that that would be an early issue on which the appropriate Select Committee takes evidence.
970. One of the things that was raised with us was that, of course, the Competition Act 1998 is a significant part of the structure of regulation here, and in Schedule 5, paragraph 7 of that legislation there is a provision to allow those affected to go to court in order to secure a decision from the Office of Fair Trading where there is undue delay. That has not been brought into force, and I will not go on about that, but is there not a case not only for that being brought into force but for there being some parallel provision in this Act?
(Ms Hewitt) There might be, and I will certainly take another look at that. I do not know specifically why the provisions in the other Act have not been brought into effect. We could certainly have a look at that. In my experience, the threats of JR tend to arise when a company believesand it is generally a companythat it has not been given enough time and/or due consideration has not been taken of the representations it made, and those are the sources of the threats of JR which by and large the regulators are most concerned about at the moment.
971. Most of the evidence we have received on that has been about the success that the dominant players have had in working the system, that is to say, delaying things when it suited them and complaining about accelerated processes when that suited them. Would you like to see a mechanism in place that prevented that from happening?
(Ms Hewitt) If this Committee can find a magic wand that will ensure good relationships on an entirely proper basis between the regulator and the dominant player, then I will be the first to cheer and I will incorporate it into all the other regulatory regimes as well. I can give you that assurance, Chairman. I think it is very difficult to find, and in a sense, one of the biggest challenges of regulatory policy making and of being a regulator is getting an effective relationship with the companynot regulatory capture, which is another danger, but also not game playing, playing of the regulatory system by a company which, by definition, has more information about its own operations and intentions and business strategies than the regulator has. It is very difficult, because when that relationship gets bogged down, when you get into regulatory trench warfareand we have seen it on a number of occasions, not only in this sectorthen, of course, in a sense the only thing the regulator can do is demand more and more and more information, and the regulator I think often finds himself caught between being flooded with detail by the company and tied up in knots going through it all and, on the other hand, not actually getting promptly the information that they need, and that is very frustrating. Some of those tensions I think are absolutely inherent in the nature of regulation and the very significant commercial interests that are being defended here by a company whose dominant position is under attack by new entrants and, as they often see it, by the regulator as well. That is why the competition objective is so important as one of the objectives for OFCOM, and that is why it is so important that, on the right occasions, OFCOM should have, like the other regulators, some very tough powers to deal with abuse of dominant position and so on.
972. That leads very neatly into the next question. Clause 29 of the provisions of the EC Authorisation Directive seems to suggest that providers of network and services can only be charged for functions of OFCOM related specifically to the authorisation provisions. Do you agree that this means that such providers cannot be charged for OFCOM's Competition Act functions, and does that not suggest a very compelling case for Exchequer funding for these functions?
(Ms Hewitt) We are looking very closely at this at the moment, Chairman, and the detailed policy in this area is still being worked out, because, as you rightly say, Article 12 of the Authorisation Directive does lay down some restrictions on the charges that can be levied on network and service providers, and the Electronic Communications Directives of course do not apply to the provision of content services, so there is not a provision there in respect of broadcasters. We are looking at that, and indeed, the final arrangements that will be made for charging will be a matter for OFCOM, but OFCOM, of course, is going to have to impose these charges in a transparent and objective manner, and it will have to do so in compliance with this Act and the Directive.
973. Taking your previous answer together with that answer, it is clear to me your ambitions are the same as ours, for a really vigorous, well staffed, well managed, highly expert and, when necessary, very tough competition regime. That is expensive. We are trying to see our way through the ambiguity as to who pays for it, and whether the Exchequer will be prepared to pay significant sums of money for a very significant function.
(Ms Hewitt) Indeed, and of course, we have already said in the Schedule to the 2002 Act that OFCOM must conduct its affairs so as to secure that their revenues become at the earliest possible date at least sufficient to enable them to meet their obligations and carry out their functions. But we are looking at what in practice that will mean, just as we are looking at what, possibly modest, but nonetheless, what savings can be made by bringing the existing regulators together and, as Tessa said earlier, creating a new entity but one where, simply because there will be one administrative function for the whole body, we ought to be able to make some savings compared with five separate regulators, as we have at the moment.
(Tessa Jowell) If I can very briefly add to that, the five regulatorsand you will no doubt have heard this on a number of occasionsat the moment employ something like 1,100 staff, and their combined cost is in the region of £110 million. It would be quite extraordinary if there were not some economies of scale as a result of bringing together the five regulators, and economies of scale which would release money to fund the new functions, particularly in the competition area, that OFCOM will pursue.
974. The numbers you describe are enormous. I think what we are talking about here is a qualitative not a quantitative issue. The type of lawyers and competition experts employed by very big companies are highly paid, quite difficult to find, and there is a very tight market for them. I suppose what we are cautioning is the notion that, having created and deployed very good people, they are not being bought off the market because the private sector can afford to pay between three and four times as much money. This is a very serious issue.
(Ms Hewitt) It is a very serious issue, and of course, currently with certainly all the regulators I know there is a real issue of good people being tempted by extravagant salariesperhaps slightly less so just at the momentin the private sector, and that is a real problem. We, I think, deal with it obviously partly by making sure that we have a properly resourced body, and that they are paying appropriate salaries and can keep good people, but we can never match the wilder reaches of the private sector. So what I think we also need to do, which is more of a challenge, is to try and achieve something more like the situation in Americaand I am referring to a very specific situation herewhere it is regarded as highly desirable in your career to have spent a significant amount of time within a regulatory body, and that is regarded as a normal part of your career path. I think that does require our private sector companies to recognise that it is also in their interests to let people develop real regulatory expertise rather than trying to poach them after a matter of a couple of years.
975. Both your departments, Secretary of State, clearly want OFCOM to be as transparent and accountable as possible. In the US the US FCC holds certain meetings in public and publishes minutes. Do you not think the commitment to openness and accountability would be better delivered in practice if the main Board or the Content Board were required to or at least considered holding certain meetings in public and to publish reasons for important regulatory decisions?
(Tessa Jowell) As Patricia has said, OFCOM will be expected to operate in accordance with the five principles of the Better Regulation Task Force, of which transparency is one, and whether or not OFCOM hold part or all of their meetings in public will ultimately be a matter for them. This, as you will know, is a matter on which the Culture, Media & Sports Select Committee expressed a very strong view. I have a fair degree of sympathy with that view. I would work on the presumption of openness unless there were specific reasons of commercial confidentiality that would mean that meetings should be held in private, and there should be quite a clear delineation in relation to that. Going back to the discussion that we were having earlier about the respective role of the Content Board and the Consumer Panel, the discussion of these bodies of OFCOM I would expect to be discussions of considerable public interest, and I think therefore that it is important that meetings of OFCOM be paraded on a public stage. I think you probably have two Secretaries of State who would broadly take the view that OFCOM should meet in public, subject to the proviso that there may be overwhelming, very clear, commercial reasons as to why sometimes they should not, and I hope that, as OFCOM establishes itself, they will hear that message loud and clear.
976. We had some discussion earlier, as you have referred to, from Lord Pilkington's question on a little bit of unease about the status of the Content Board. Do you think there might be some merit in a proposal that some people put forward that the Content Board should have the ability to have more power to report to Parliament in a very specific way, for instance, to the Select Committee?
(Tessa Jowell) As I said a few minutes ago, I think the Select Committee will have it within its power to invite the Chairman of the Content Board or no doubt the members of the Content Board to come and give evidence, but it is important to remember that it is not by accident that the architecture of OFCOM has been reached in the way that it has, that the Content Board has delegated functions from the main Board, and has other advisory functions that it can exercise. So no, I do not think the Content Board should report independently of OFCOM to Parliament because it is not independent of OFCOM. But all the opportunities for parliamentary scrutiny are open to invite scrutiny of the Content Board's work in the normal way.
Lord Hussey of North Bradley
977. It has been suggested to us that if OFCOM amounts to little more than five current regulators operating under one roof, the process of reform would fail. Do you agree, and can you point to particular provisions of the Bill that would prevent this happening? Would you not also agree that this emphasizes very much the supreme importance of a Chief Executive and Chairman when they are appointed to make certain that is not allowed to happen?
(Ms Hewitt) I entirely agree with you, both about your concern and about your suggested remedy. Tessa and I have been absolutely clear from the outset of this that we are not creating a body that is simply front door marked "OFCOM" with five silos behind it, each effectively with the same culture and traditions and personnel of the existing regulator. If that were to be what happened, it would indeed be a failure of the reform process and would completely miss the potential for learning and understanding a very rapidly changing sector that will come precisely from creating a single regulator with a single culture and a shared approach to these issues. I am glad to say that not only are our two departments but also the chief executives of the five existing regulators are absolutely committed to that, and are working enormously hard to work together and not just to sit there defending their turfs and organising their silos in the new body. But I do think that, as we create what is a completely new public body with a completely new statutory framework, the role of the new Chairman, whom we will announce very shortly, and of the new Chief Executive, will be absolutely crucial in ensuring both that the organisational structure and staffing are right, but even more important, that the culture is the one that we all want to see.
(Tessa Jowell) The work which has been commissioned jointly by us which is currently under way is part of the answer, particularly in relation to the identification of the importance of change agents. I think this reflects again or underlines the importance of some of the earlier line of questioning, that we have to make sure that the legislative framework is right, and a very large responsibility would sit on the shoulders of the Chairman of the Board and the incoming Chief Executive to achieve this, but you can be absolutely sure that the two of us are resolute that this qualitative change in the regulatory culture will be achieved.
978. The draft Bill gives extensive powers to the Secretary of State. Are you satisfied that those powers are compatible with the independence of OFCOM and, perhaps equally important, are you confident that there is no tension in the exercise of those powers between your two departments?
(Ms Hewitt) On the second one, no, I do not think there is, and actually, we have created a real model of joined-up working between our two departments, with a single team which came together first of all to create the White Paper and then the Bill, and will continue, I think, to work together very successfully once we have OFCOM in place. On the powers that are kept, as it were, the direction-making powers for the Secretary of State, those particularly apply to spectrum matters. I think the starting point here is just the recognition that radio spectrum is the raw material for the communications sector, and it is a hugely important and, as it happens, very valuable economic and social resource, and the decisions that we make about its management will have a huge impact on whether or not we achieve our aim of making Britain one of the world leaders, the most dynamic and competitive communications markets in the world, but the importance of spectrum does go much wider than the communications sector, vital though the communications sector is, because the spectrum is also used by emergency services, by defence, by radio astronomers, by radio amateurs, and there are a variety of different people. That is why we have taken the view in the Bill that ministers ought to be able to intervene on grounds of national security, public safety and health, and international relations. We have also said that there may well be wider public interest considerations which would lead ministers to set the strategic allocation of spectrum, for instance, between public and private sector users or across broad sectors of users. I really cannot imagine that we or any government would want to leave the decision on switching off analogue television to an independent regulator. It seems to me that is a decision that ought to be made by ministers, and ministers should be held accountable for it. There is a difference of view on a rather narrower set of issues, which Martin Cave in his report describes as the specifics of spectrum management: setting the licence fees, whether you assign a particular chunk of spectrum by an auction or a beauty contest and that sort of thing. We are looking further at that in deciding on our response to Professor Cave's report, and so we will have more to say on that subject once we have really worked our way through his review. I think our view at this point is that it can be very difficult to separate the strategic decisions from the management specifics, and certainly if one thinks about 3rd generation mobile spectrum, the decision whether or not to have a 5th licence, which from one point of view is a specific of spectrum management, was a hugely important issue that will actually determine how competitive the market is. By bringing in a new entrant and by reserving the biggest block of spectrum for that new entrant, we are transforming the dynamics of the mobile telecommunications market. I would regard that as a strategic decision. I think Professor Cave in his report would regard that as a sort of management specific, and it is in that sort of area that we are really thinking through where we draw the line between the ministerial decision and the proper regulatory one.
979. I fully understand what you are saying about spectrum, and I am sympathetic to it, and I am equally sympathetic to what you have said about switching off analogue. Indeed, some might say, "Get on with it and give us some dates." That is the crucial decision that is needed. Indeed, some of our witnesses have said just that. I was a regulator myself for eight years of a different area, when I was Chairman of the National Rivers Authority, and my experience suggests that while Secretaries of State in setting up organisations say, "Of course, we want you to be completely independent and we are not going to get in your way at all," as soon as you start being independent and robust and effective, their departments start getting terribly sensitive, and there are, of course, sensitive areas, in broadcasting in particular, where you will be under great political pressure, I suspect, from time to time, because individual Members of Parliament will dislike something and will think that perhaps ministers should do something about it. Are you satisfied that you are going to and will be able to keep off the backs of OFCOM when it really should be the responsibility of OFCOM?
(Ms Hewitt) There is a huge range of decisions here that will be entirely matters for OFCOM, and OFCOM will have to make the judgement within its statutory duties, and it will be accountable to Parliament for those decisions. Once we have established an independent regulator or a regulator with a very significant degree of independence, then I am very clear that the role of ministers is to be a robust defender of that policy framework, and I have been doing a robust defence recently on postal services, where we have a changing market and a new regulator. But I think in the narrower but nonetheless very important area of spectrum, the first thing we have to do is decide where we set that boundary. Having set it, I am very clear that any ministerial direction would have to be published. In the case of the direction of spectrum management, it would have to be confirmed by Parliament with an affirmative resolution procedure. We would have to be able justify it to Parliament and persuade both Houses that it was the right thing to do. It is not something either of us would envisage using, particularly routinely.