Select Committee on Constitution Minutes of Evidence

Examination of Witness(Questions 20-39)



  20. Thank you. The second thing is, when you were appointed were you just appointed or was there a panel, were there interviews?

   (Sir Ian Byatt) Yes, there were.

  21. What happened? Was it a miracle?

   (Sir Ian Byatt) No. I have applied for all the jobs I have had over the last twenty-five years and I applied for one job in the Treasury. Yes, I applied for the job. It was publicly advertised. You go and talk to the headhunters and they grill you. Then you go and talk to the department and they grill you and then Nicholas Ridley and Michael Howard grilled me. Then you go away and they then decided that I was going to be appointed. It was, if you like, in the pre-Nolan days; I gather that things are now somewhat different. But it was open all right.

Lord Acton: I am sure it was. I just wanted to know.

Lord Morgan

  22. Two quick questions of detail, if I may. You have described the various interest groups and so on that you had consultations with in the course of your work. I was wondering whether you had consultations with the trade unions on any particular aspect? The other question is whether devolution has had any effect on your work?

   (Sir Ian Byatt) I had no formal contact with the trade unions, although I did go and address a meeting of trade unionists, who were very kind to give me afterwards a bottle of whisky, which, they hastened to say, was made from public sector water in Scotland! Sorry, the second was?

  23. That is all you are going to say about trade unions, is it?

   (Sir Ian Byatt) That is all I am going to say about trade unions! I had no formal consultation.

  24. Does that not seem to you rather inadequate, a bottle of water from Scotland?

   (Sir Ian Byatt) A bottle of whisky from Scotland made from public sector water.

  25. Whatever the contents of the bottle it sounds to me a rather minimal contact with those who worked in the industry.

   (Sir Ian Byatt) My contact with management in the industry was very considerable. I believe that a regulator is not there to manage but that a regulator is there to regulate and I do not think it would have been particularly proper of me to get involved. I certainly did not want to get involved in matters of management and I do not believe that my statutory duties led me therefore into those kind of consultations.

  26. Thank you. That is an interesting answer.

   (Sir Ian Byatt) Devolution, yes, of course things changed with the Welsh Assembly and rather than having had contact with the Secretary of State for Wales, which I did in the old days, I had contact with the Welsh Assembly. On one occasion I addressed the Welsh Assembly on the question of the takeover of Hyder, the Welsh company, then by Nomura Principal Capital Finance, whatever they were called.

Lord Morgan: Thank you.

Lord Holme of Cheltenham

  27. Sir Ian, could I scratch the same itch as Lord MacGregor and just pursue this question of Parliamentary accountability within the panoply of various accountabilities you have talked about. If I could direct you to point 11 of your very helpful paper, where you say: "The views of the public influenced the balance between water quality and environmental obligations and prices paid." Clearly all the time in every way you are trying to make trade-offs on those issues. If water had remained publicly owned those three goods are the sort of things that there would have been endless political debate in this place and another place, political pressures of one sort or another on ministers, but the industry was privatised in an interesting way because it is a way that did not produce competition so it was a privatised monopoly. In a privatised monopoly it is probably not adequate to say that the market will secure the trade-off between those various goods. In a competitive industry you might well take the view that the market would resolve the trade-off between environmental goods, clean water and low prices but you had to play that role. It is a long way round of saying this is a subject, of course, since they are public goods, on which MPs will continue to have views. I understand the relation to ministers but thinking of Parliament, qua Parliament, just to follow Lord MacGregor, would it have helped you to have a utilities committee where the necessarily somewhat random views of legislators could be focussed and brought to bear on your industry or do you perhaps not think, as some people have said, that Parliament should be the apex of accountability? Do you think it is enough, as an ex-Treasury man, for it to be primarily the executive and ministers to whom you are responsible? In a sense your thesis, which I just want to question, is that you do direct market research for the public so you keep in touch with them, you have consumers panels and you keep in touch with the public that way, there are ministers and shadow ministers with whom you have liaison but that is the executive and shadow executive. What about Parliament itself representing the views of the balance of these public goods and had the industry not been privatised what would have been matters of public policy? How do you see your relationship with Parliament?

   (Sir Ian Byatt) Let me try and answer that. Of course I knew that there were debates going on at the ministerial level, for example about the question of quality. Under both Conservative and Labour Governments I know there were quite important discussions about how far the environmental agenda should be pushed and what effect it would have on prices and in some ways I think that debate was even more acute in the privatised days than it had been in the old nationalised days, but that was not for me to engage in. I was there to help that debate but I knew it was happening. As far as Parliament is concerned, I think one of the difficulties for regulators is that the Parliamentary committee system in the Commons is very much marking individual departments. So if I was examined by the Environment Committee they are interested in the environment and of course they thought it was worth paying for. I was very heavily criticised by one of the Environment Committees for daring to suggest that the customers might not like the cost of their recommendations and they thought it was quite improper for me even to begin to say these things. So there was not a body other than the Public Accounts Committee and the Public Accounts Committee had hearings on the role of the regulators and what we were doing. There were quite big hearings in the early days and that was quite helpful because it really concentrated one's mind on what one was doing. Later hearings by the Public Accounts Committee were on particular issues like the setting of performance standards and the millennium bug, the computer bug Y2K, where computers would not work once we got into the new millennium. So there was no regular Parliamentary checking of what the office was doing as a whole and I think that could be a lacuna in the Parliamentary arrangements.

  28. Just a quick supplementary question. Would it, for example, have helped or hindered you if there had been at regular intervals a debate on a report that you laid before Parliament on the water industry and its regulation? Would that have been helpful or unhelpful?

   (Sir Ian Byatt) It depends on the nature of the debate, of course, and whether it would be in the full House or not, I do not know. But we did of course do a report each year and that was presented to Parliament and I presented it to the press. I could not present it to Parliament, although I would have been very happy to present it to Parliament if Parliament had wished me to. I found that Parliament—the House of Commons, of course, I speak of—was very ready to hold the executive to account and the spirit of Charles I, which is very important, is fine but sometimes there are other elements as well. So I, for example, took an initiative in 1999 when I published my draft price limits and I said there was an all-party water committee, which actually was quite helpful but it was not part of the formal set-up. Helen Jackson had started it up and did that very well and we had quite good debates within that. But I would have said, "Shall I present my price limits?" "Oh, yes, that will be fine." How many Members of Parliament turned up? Three of them. So I felt that I was trying to involve Parliament and we did have a Parliamentary officer and Ingrid Olsen, who is behind me and who is still working for OFWAT, is there to help Members of Parliament with the work of OFWAT, but we did not get quite the response we might have hoped. So while lots of good things came out of Parliament, I have some disappointments.

Lord Holme of Cheltenham: Thank you very much.

Lord Jauncey of Tullichettle

  29. Sir Ian, the director-general of water services is a creature of statute, is that not right? He has no powers or duties other than those which are conferred upon him by the enabling statute?

   (Sir Ian Byatt) Correct.

  30. You mentioned that one of your duties was, I think, to see that the water companies were carrying out their duties?

   (Sir Ian Byatt) Yes.

  31. Supposing you had taken the view in a particular case that a water company was not doing what it ought to be doing, possibly it was not supplying an adequate quantity of water when it was in a position so to do or perhaps it was not supplying water of an appropriate quality where it had been agreed what that quality should be. Was there anything you could do about it? Did you have power to fine or would you take the matter to the minister or what would you have done in such a situation?

   (Sir Ian Byatt) If it had been a matter of the quality of water there is a drinking water inspector and the drinking water inspector is in a position to fine the water companies for not delivering water of the correct standard. If it is a question of supply, the case did in fact arise or almost arose in Yorkshire in 1995 because Yorkshire Water almost ran out of water and I held an inquiry into why that had been and the main reasons were that they had got a high level of background leakage in that area but they also had not completed their water grid properly so that the water could run downhill but they could not pump it uphill and then had to take it up by tanker. Also there were other levels of service obligations which they were not meeting properly. So I said: "You will from henceforth operate under lower price limits", which cost the company about £40 million, "You will put all these things right at the expense of the shareholders." They did that. Of course the management changed in the process of this. So we certainly had and used the power to deal with a water company which was not properly carrying out its functions. I should say that there is an appeal body, what used to be the Monopolies and Mergers Commission, now the Competition Commission, and I should have mentioned that because that is an important part of the accountability, that I can be appealed against, and that is very necessary.

  32. A decision of yours can go to the old Monopolies Commission?

   (Sir Ian Byatt) No, formally if a water company wishes to be referred I cannot stop them being referred, so essentially the decision is theirs.

  33. But I suppose in theory you could be judicially reviewed?

   (Sir Ian Byatt) I have indeed been judicially reviewed.

  34. Successfully?

   (Sir Ian Byatt) No. This was on the question of what we call budget payment units, which in the electricity world were pre-payment meters but they were not for meters because they are on a rateable value charge, and there was an issue about whether the disconnections code (by which the water company had to go through certain processes before disconnecting them for non-payment) applied when people did not swipe their card, it was almost self-disconnection. In fact the customers rather liked this and so I fought that case quite hard but I have to say I lost and it seemed to me entirely appropriate that there should be a process of judicial review so that regulators cannot just trample over things.

Lord Elton

  35. I have three short unrelated questions. The first one is that I was fascinated to hear that when the drought became serious and it became clear that suppliers had a statutory exemption from penalties for failing to supply water you persuaded them to give that up. How?

   (Sir Ian Byatt) I am not sure I can really answer that question terribly well. Ministers had said they would legislate on the matter and you exercise such authority as you have on these occasions. It was quite clear what the customers wanted and so I believed I had, if you like, the power of the public behind me. They did not have to agree to the licence change. They could have gone to the Monopolies Commission on the licence change and said it was an entirely inappropriate one but they chose to agree to it. That was a perfectly proper procedure. I was not twisting their arms or anything like that but I was explaining to them that they did have duties and that if they failed on those duties people should be compensated because if you do not get the water I believe you should be compensated. You are paying for a commodity you are not getting. But also it is a pretty good disincentive to your teams working in the company if, as a result of them making mistakes, the shareholders have to pay out a lot of money.

  36. Thank you. That is very illuminating. Secondly, you have said that you did on occasion consult with other utilities regulators. Did you gain from those consultations any common perceptions which you feel applied to all regulators in the utilities?

   (Sir Ian Byatt) It is always very helpful to discuss these things with people so I think, yes, we learned a lot from each other about how to deal with governments, how to carry out our jobs, the kind of process to use. The process of consultation is extremely important. There is nothing in the legislation ever about process but process matters a great deal and we were all working out processes for involving people and having proper transparent systems so it was very helpful to talk about those things. It was also helpful to talk about technical matters so that, for example, when Callum McCarthy and I were doing a review in 1999, he on electricity distribution and me on water, our staff talked about the appropriate numbers for the cost of capital based on talking to the city and talking to the banks.

  37. So there is a community of regulators there already in existence?

   (Sir Ian Byatt) Indeed there is. I believe there is still a working party looking at the way regulatory accounts should be done and that seems to me very helpful.

  38. Thank you. Finally, your last point in your background paper says that the independence of regulators could be compromised if ministers were to make improper (i.e. extra-legal) use of their political strength. I just wondered why you put that in.

   (Sir Ian Byatt) Because ministers are very important people and they are very powerful people and they believe they want to get things done and there is always the temptation to try and push things a bit hard and I think part of the point of the legal framework of regulation is that there are people who have statutory duties which cannot be overturned. So it is part of, dare I say it, defence against conceivable arbitrary government. It is not for me to give you instances of possible arbitrary government.

  39. Does it follow that a closer or more effective relationship with Parliament than that which has so far been offered would be a protection?

   (Sir Ian Byatt) Possibly. I would have to go away and think about it.

Lord Elton: Yes, quite. Thank you.

previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2003