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"CHARGING PRINCIPLES
(1) Other than in the circumstances specified in subsection (3), OFCOM shall not fix any administrative charge for any functions undertaken by OFCOM for any charging year unless—
(a) at the time the charge is fixed there is in force a statement by OFCOM of the principles that OFCOM are proposing to apply in fixing charges for the relevant functions for that year; and

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(b) the charge is fixed in accordance with those charging principles.
(2) Those principles must be such as appear to OFCOM to be likely to secure, on the basis of such estimates of the likely costs as it is practicable for them to make—
(a) that, on a year by year basis, the aggregate amount of the charges payable to OFCOM in accordance with the relevant statement is sufficient to meet, but does not exceed, the annual cost to OFCOM of carrying out the functions to which the relevant statement applies;
(b) that the cost of carrying out those functions is met by the imposition of charges that are objectively justifiable and proportionate to the matters in respect of which they are imposed; and
(c) that the relationship between the meeting of the cost of carrying out those functions and the amounts of the charges is transparent.
(3) The provisions of this section do not apply to—
(a) administrative charges under Chapter 1 of Part 2 of this Act;
(b) charges, fees or payments under the enactments relating to the management of the radio spectrum;
(c) any other payment made to OFCOM which is to be paid into the appropriate Consolidated Fund by virtue of section 393;
(d) charges under section (Charges in respect of OFCOM's central functions); and
(e) charges relating to costs incurred by OFCOM prior to the radio and television transfer dates.
(4) A relevant statement of charging principles for the purposes of this section shall specify—
(a) the relevant functions carried out by OFCOM, and
(b) the statutory basis for those functions.
(5) No tariff shall be fixed by OFCOM under sections 4 and 87 of the 1990 Act and sections 4 and 43 of the 1996 Act (general licence conditions) except in accordance with the relevant statement of charging principles.
(6) As soon as reasonably practicable after the end of each charging year, OFCOM shall publish a statement setting out, in respect of each service for which a relevant statement of charging principles has been made and of that year—
(a) the aggregate amounts of the administrative charges for that year that have been received by OFCOM;
(b) the aggregate amount of the administrative charges for that year that remain outstanding and are likely to be paid or recovered; and
(c) the cost to OFCOM of carrying out the functions specified in the relevant statement of charging principles.
(7) Any deficit or surplus shown (after applying this subsection for all previous years) by a statement under subsection (6) shall be carried forward and taken into account in determining what is required to satisfy the requirement imposed by virtue of subsection (2)(a) in relation to the following year.
(8) The provisions of section 36(1), (5) and (6) shall apply to a statement of charging principles made under this section.
(9) In this section "charging year" has the same meaning as in section 35."

The noble Lord said: I rise to move Amendment No. 87 in the name of the noble Lord, Lord Crickhowell, who cannot be in his place. I shall do my best, but inadequately, to make the case that he would have set out. I suggest that this is one of the big brutes of the Committee stage of the Bill. It is a very big issue indeed.

In moving these amendments which introduce a number of new clauses it is hoped that I shall provide the House with the opportunity to debate funding

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issues and the charging principles to be followed by Ofcom. Perhaps even more important, I am giving Ministers the opportunity to explain their approach to these issues and, for the very first time, to give detailed explanations to Parliament about the way in which Ofcom is to be funded.

It is really extraordinary that the elected House did not find the time to examine the adequacy and fairness of these financial arrangements. We in this Chamber must at least try to repair that neglect and focus on what I referred to at Second Reading at col. 673 as one or two of the "fatal flaws" in this legislation. I said then that unless Ofcom is more than adequately resourced with a clear underpinning from the public purse, frankly it begs the question, "Why bother with the Bill in the first place?"

The response of the noble Lord, Lord McIntosh of Haringey was, I am sad to say, uncharacteristically complacent. He stated:


    "I assure my noble friend . . . that there is not really any problem of the funding of competition costs. It has been agreed by Ofcom, by the DTI and by Her Majesty's Treasury. That is set out both in this Bill and in the paving Bill".—[Official Report, 25/3/03; col. 784.]

I am not sure that that tells us very much. Incidentally, it is not set out in the Bill.

Ofcom, the DTI and Her Majesty's Treasury may well have agreed. But what about Parliament? Surely, we are entitled to know what has been agreed and to be supplied with adequate information about the analysis that led to that agreement so that we can form some sort of judgment regarding the adequacy of the funding to be provided.

As to the second part of the Minister's response, the more innocent among those who heard or read the remarks might think that all they had to do was to turn to the relevant sections of the Bill and everything would become absolutely clear. I suggest that noble Lords do just that and turn to Clause 35 entitled "Fixing of Charges". There are two-and-a-half pages. Clause 36 on "Supplemental service provision for non-payment" is another full page. Clauses 37 and 38, which relate to non-payment, result in two-and-a-bit additional pages. Finally, Clause 39 on "Suspending service provision for non-payment" is another one-and-a-quarter pages. I am afraid that my eyes had begun to glaze over well before I got to the end of Clauses 35 and 36 without ever feeling remotely reassured by what I was reading.

The Explanatory Notes presented by the Government helped a little. Paragraphs 87 and 88 inform us that universal service providers designated in Clause 63 have to meet charges,


    "set by OFCOM in accordance with pre-determined 'charging principles' designed to ensure that the aggregate charges collected in any one year will just cover OFCOM's costs—in that same year—of carrying out the administrative functions listed in subsection (5)".

Note "listed in subsection (5)", which is important. Paragraph 88 reads:


    "Charges must also be objectively justifiable, proportionate and transparent".

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All that implements the relevant EU authorisation directive.

So far so good but the functions listed in subsection (5) are by no means all the functions of Ofcom. In paragraph 75 of its report the Joint Committee commented:


    "It is intended that the costs of OFCOM will be met almost entirely from those it regulates. This broadly replicates the way in which the current costs of the five existing regulators of 118 million are met, although at present the Exchequer meets half the running costs of the BSC, an arrangement that is to be discontinued under the new legislation, and some of the costs of Oftel. Both the Radiocommunications Agency and Oftel have forecast increases in the future in the costs of regulating the sectors for which they are responsible. Taken together with the transitional costs associated with the move to a single regulator, this may, according to the Government, led to 'some modest increases in the pecuniary cost of the new regime' with the savings associated with merger accruing over a longer timescale".

Some witnesses before the Joint Committee were concerned at the lack of savings foreseen as a consequence of the merger and several organisations expressed worries that they should not be asked to fund activities unrelated to their sector. The Secretaries of State expected that there would be economies of scale from combining the five regulators. The Joint Committee agreed but urged caution in seeking to apply too much pressure on Ofcom to secure cost reductions. It said:


    "This may lead to false economy and strike at the heart of the purposes of the Bill. Effective regulation does not come cheap, and the long-term costs to industry and to the public will be greater if OFCOM lacks the resources to undertake effective regulation".

I attempted to make that point at Second Reading.

I have referred to the charges that meet the requirements of the authorisation directive set out in Clauses 35 and 36. However, the Joint Committee suggested that:


    "These provisions leave it uncertain whether OFCOM could charge an organisation providing an electronic communications network or service for the performance of central functions or policy development or"—

most importantly—


    "for the exercise of OFCOM's functions under the Competition Act or the forthcoming Enterprise Act".

What the Joint Committee said in paragraphs 79 and 80 is of crucial importance. I quote from it almost in full. It stated:


    "Although the ITC has developed general principles of cost-based apportionments, an assessment of regulatory exposure and the ability of licensees to pay, there are no statutory provisions for broadcasting or for wireless telegraphy directly analogous to those in Clause 29. This at least makes it theoretically possible that the entire burden of OFCOM's general costs that cannot be attributed to functions under Chapter 1 of Part 2 will fall entirely on other sectors. This would in our view be unfair and unacceptable".

It went on to recommend that,


    "the principles underpinning charges under Clause 29, namely that charges should be fixed in accordance with clear principles and related only to relevant functions, be extended to all administrative charges under the Communications Bill and the broadcasting legislation that it amends, except where incentive charging for wider purposes is intended".

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The committee went on to state:


    "This creates a potential gap with regard to OFCOM's central services and its competition law functions, which cannot easily be allocated in advance to particular parts of the communications sector. We will examine OFCOM's powers under competition law and its capacity to exercise them later, but it is evident that these powers will require OFCOM to employ high quality staff with specialist skills of a kind that it is unlikely to inherit from the existing regulators. Don Cruickshank, a former Director-General of Telecommunications, pointed out that the OFT and Competition Commission were funded from the Exchequer and that their capacity to attract resources was helped by the Treasury's commitment to competitive markets".

It therefore recommended:


    "To ensure that OFCOM has adequate resources to undertake its competition law functions, we recommend that those functions be funded directly by the Exchequer. We would prefer to see OFCOM's central functions funded proportionately and transparently through a levy on all companies above a certain size in the regulated sectors. If this proves incompatible with the EC Directives, we recommend that such costs should also be met from the Exchequer".

I apologise for quoting at such length, but I hope that in a minute the Committee will agree that it was entirely necessary.

The Government's response to the Joint Committee was:


    "The Government is considering the Funding Issue".

That was it. Since then all we have had from the Minister is that reference to an agreement by Ofcom, the DTI and the Treasury. In other words, the parliamentary telescope is today focused on a black hole at the very centre of the regulatory universe. By the time the Bill leaves this House we must know exactly who funds competition powers, and how; we must know about the principles of charging that apply to those not covered by the EU directive; and we must know how central costs are to be allocated.

There is another even denser black hole at the centre of the immense chasm that the Government have so far left in this particular part of the universe that they have created. It is: who stands behind the regulator in the event of a counter suit from a regulated concern? Ofcom will be dealing with vast, well-resourced international organisations. If they face what they consider to be unreasonable delay, loss of business or harassment, they may well sue Ofcom. Tragically, we live in an age where litigation of this kind is increasingly common. Who pays the costs incurred by Ofcom or any damages awarded in the courts? What is certain is that it cannot be the organisations that it regulates.

That is the background and the reason for bringing forward these new clauses. Amendment No. 87 introduces a new clause designed to provide an opportunity to debate Recommendation 30 of the Joint Committee, that all administrative charges under the Bill and broadcasting legislation that it amends should be fixed in accordance with clear principles and related only to relevant functions, except where incentive pricing is intended. The new clause is modelled on Clause 35 which relates only to electronic communications networks and services.

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Amendment No. 88 arises from Recommendation 31A that Ofcom's competition law functions should be funded directly from the Exchequer. Amendments Nos. 88 and 80 cover Recommendation 31B that central costs should be funded by a "unified levy" or by the Exchequer. The two clauses relate to the alternatives. Finally, Amendment No. 91 deals with the extraordinarily important question of legal costs. Ofcom will be dealing with extremely tough characters. It is going to be a rough old world out there. The big beasts in the communications jungle may well be tempted to find out just how much courage Ofcom has. Its courage will necessarily relate to how deep its pockets are in the event of things going wrong. There may be an early and difficult test for Ofcom to meet. It would be tragic if it fell at the first hurdle. I beg to move.


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