Examination of Witness(Questions 60-69)|
WEDNESDAY 29 JANUARY 2003
60. I wish I did not know anything about it
(Mr Vass) Clearly the Environment Agencyand
this falls within the general issue of waste but it seems to me
that in the longer term the general intent of such a directive
is very sensible. The question is how one funds that recycling
and whether or not it would be better to have a tax at the point
of production so that the companies which are producing fridges
in a sense pay a tax at that point in time in order to fund the
costs of what will actually be a disposal problem at the end of
that so that consumers who bought those products do not have a
disincentive to dispose of that properly but just dump it in the
hedgerow because it would be collected free, funded out of this
prior level tax. Of course that prior level tax would in a sense
be saying that the consumer would buy a fridge based on the full
cost of the production cycle, both the production to produce the
fridge and the disposal of the fridge at the end of the process.
So from the economic perspective I think these are problems which
are addressable and if the directive is going wrong at this stage
it is probably because this has not been said in a broad enough
context or been given enough time to be able to think about it.
61. A very short question. In paragraph 3 you
say: "The members of the regulatory bodies are appointed
by the Government. In general the appointments are determined
on the basis of merit and the expertise necessary to carry out
the specific functions." You mentioned one woman regulator.
Are there a lot of women regulators? Are there a lot who are found
to have the expertise necessary and merit?
(Mr Vass) There is not a majority of
women regulators but where we have had women regulators they have
certainly pulled their weight. I think Baroness Young at the Environment
Agency and Clare Spottiswood are obviously notable examples. I
do not think it is a gender issue actually.
62. Okay. The second question, reading straight
onand this is not referring to the previous question"Utility
regulators have typically been appointed for five years and cannot
be removed except for exceptional circumstances (e.g. incapacity)."
What happens if they are found to be pretty useless from the beginning
but not amounting to incapacity? I do not mean the Earl of Mar
and Kellie's glorious fridges but if somebody is useless they
are useless but it is not incapacity. So you live with them for
five years? Is that the system?
(Mr Vass) I think this is a hypothetical
63. Of course it is because I would not dream
of naming someone.
(Mr Vass) in the sense that we
could have had some evidence but we have not, in the sense that
I think in general the regulators have carried out their activities
within a framework. If a regulator was really so useless that
the constraints of having an advisory board, all the due process
that goes with that, did not rein in his uselessness then I would
be very disturbed, given also that we would have the backdrop
of appealing to the Commission, etcetera So I think even if they
were useless that uselessness would be constrained in some way
because they are within a machine that is moving forward, whatever
64. I love the thought of constrained uselessness!
(Mr Vass) To be a tolerable outcome,
I think, but we have not got that evidence.
Lord Acton: Thank you.
65. If I could slip in a supplementary question,
which I know you indicated earlier you would be quite happy to
be asked but I think it is relevant in that context. It relates
to the point that Lord Acton's question was based on a regulator
as a single individual who might be useless and of course the
point we put to Sir Ian, which you indicated earlier you touched
upon, was the possibility of having a board rather than a single
regulator, not necessarily for that particular reason but there
might be other reasons why a board might be appropriate. Do you
have a view on that?
(Mr Vass) Yes, and in fact having listened
to Sir Ian, I would go further and say that I do regret the passing
of the individual regulator. I think the individual regulator
has brought great advantages to communication to the public at
large, to answer the question there. People are at least aware
of Sir Ian Byatt or Sir Brian Carsberg or Callum McCarthy. I think
there is a directness of communication to be able to say "I
have made this decision", to be able to be on television
arguing between the economic regulator, as Sir Ian Byatt did with
Lord Crickhowell, over environmental expenditure on television.
But an individual regulator has all the accountability and other
constraints which a board would have. So we lose transparency,
we create obfuscation and I think the situation is getting worse.
If we look at a situation like OFGEM, we had OFFER and OFGAS coming
together as the office of gas and electricity markets headed by
Callum McCarthy. The Utilities Act says, "We want to get
rid of the DG and have a board, so we have GEMA, the Gas and Electricity
Markets Authority, but you will not find the acronym GEMA used
anywhere because OFGEM policy is not to use GEMA but to use OFGEM
as, in a sense, the public face of regulation. Callum McCarthy,
I think appropriately, is chairman and chief executive vested
in one body. We then have a debate, "Should we have a separate
chairman and chief executive?", chief executive of OFGEM,
chairman of GEMA, creating obviously the potential for conflict
there. But the real issue hereand we saw this with John
Vickers, who commentated that he was surprised that there was
going to be a separate chairman and chief executive and he argued
that it was not appropriateis that I think it is going
to become worse. What seems to be happening is the adoption of
the corporate governance model of the combined code, the Stock
Exchange combined code, which has the separation of the chairman
and chief executive. We have just recently had the Higgs report
published, I think, last Tuesday, saying we should have independent
non-executive directors, and that is an inappropriate model. That
model was developed for commercial companies and the avoidance
of the abuse of power by directors against their owners, the shareholders.
Clearly you need a separation of duties within a board where that
abuse can take place privately but of course a regulator, as we
have heard today, carries out his functions in a publicly accountable
process. So those divisions of power are not necessary as a form
of protection. So in a sense we may be not only losing the benefits
of the individual director-general but undermining the clarity
and accountability of that process by the separation of powers.
Once again, we may not notice it; it will just be something which
I think gradually leads to a loss of innovation and potentially
a full capture by the regulated companies, which has not been
secured under the individual regulator arrangements, I would suggest,
but this is an arguable point.
Chairman: Lord MacGregor, just one very quick question.
Lord MacGregor of Pulham Market
66. Actually you have just asked the question.
I think we have got to make up our minds about that and I am not
quite sure where I go on this at the moment but could I argue
the contrary point to see how you respond. I do not think the
regulator as, say, chief executive is undermined in his public
role or as the recognition of a public figure by having a chairman
because an awful lot of companies have chief executives who are
very well known, who do all the answering in public and very often
people do not know who the chairman is. So I do not think that
is a particularly strong argument. You could argue that there
is too much power in the hands of the individual regulator and
that a chairman and a board can be some sort of constraining influence
when necessary and you could argue, to take the useless point
which Lord Acton raised, that one way of removing a useless director
after a year is for the board to say, "This is going badly
wrong and we have got to do something about it." I just put
the point to you that there is an argument the other way.
(Mr Vass) Yes. I think I can only say
I see that argument but I do just respond back with the thought
that it is in the legislation through the powers and duties, and
the clarity of those powers and duties, which then focus on an
individual, which I think just assist that wider communication
and articulation of regulation on behalf of Government which has
been so beneficial. When we just look at the namesSir Brian
Carsberg, Professor Littlechild, Jim McKinnonthey all played
a tremendous individual role in the promotion of the methodologies
and the public confidence in regulation; not necessarily down
to the individual member of the public but generally for those
67. When Lord MacGregor referred there to Lord
Acton's useless point he meant Lord Acton's point about the useless
Lord MacGregor of Pulham Market: I was trying to
68. Mr Vass, we have taken up a lot of your
time and we have overrun but the reason for that is because you
have provided us with a tremendous amount of information which
is invaluable for our purposes.
(Mr Vass) Thank you.
69. It will prompt further thought on our part
in a way that I think will be wholly productive and we will, if
we may, get back to you on a number of points if we think you
can be of further help to us, and I am sure you can. It has been
an extremely helpful session from our point of view and we are
most grateful indeed. Thank you very much.
(Mr Vass) Thank you very much.