Select Committee on Constitution Minutes of Evidence

Examination of Witness (Questions 180-199)



Lord Elton

  180. Watchful parliamentarians must always be concerned for the independence of a regulator and you have already told us that your position was entrenched satisfactorily by the terms of your appointment. I was wondering whether there should be a balancing concern, that you should not be totally insulated from government and its policies and whether there was a need, in your view, for any sort of constructive dialogue and whether it took place?

   (Sir Bryan Carsberg) I had regular meetings with Secretaries of State and other ministers throughout my time. Sometimes, if there were particular issues, I would be asked to meet the Secretary of State to discuss the issues. I never felt any pressure of an undesirable kind as a result of that. The stance that ministers took in meetings was to ask me what was going on and how I saw it in the context of the regulatory regime. Perhaps if they had been unsatisfied with the answers pressure would have followed but I never felt any pressure. Yes, there were regular meetings and I thought they were helpful.

  181. You rely on your terms of appointment. I wondered, in the light of what recently happened in the chairmanship of the Qualifications and Curriculum Authority, if you felt that some further thought should be given to what those terms should generally be.

   (Sir Bryan Carsberg) I am not sure I know enough about the constitutional position there. Obviously there are circumstances in which, although a minister has no formal power to fire a regulator, nevertheless he will make it known to the regulator that it appears to the minister that the time has come to resign. The regulator may feel persuaded by that even though there is no formal sanction. In a way, perhaps that is salutary and as it should be. What would be regrettable would be if a regulator, feeling after going through the fire that a good job had been done, was nevertheless put under pressure to resign. I do not have enough knowledge of any cases where I think that has happened to say that there is a problem that needs fixing.

  182. I cannot resist asking this: you say that some committees showed too little understanding of the major regulatory issues to exercise their roles effectively. Could you summarise very briefly what you regard as the major regulatory issues that we should be aware of in effectively inquiring after your affairs?

   (Sir Bryan Carsberg) The main issues in telecommunications today are obviously about provision of a new kind of service—that is to say, a broadband service, with a very high capacity that produces fast, data intensive messages. There are concerns about the speed of roll-out for that. That is partly an issue of broad, public concern which would be a matter I would expect to be studied very closely. Then, the speed of competition. At the moment, there is an enormous amount of excess capacity in the industry because numerous competitors have entered the market place. Perhaps it was just an unfortunate accident of timing but there seemed to have been a general feeling in the industry that demand would increase much more rapidly than it has. That was facilitated by regulation. The problem now is that there is a sort of fear on the industry because that recent experience has put people off investing and that is very unhealthy for the industry because it is impairing its ability to pursue new advances. It will take quite along time for it to clear through natural economic forces. One wonders whether something can be done to clear the position.

  183. Do I infer from that that there are circumstances in which a regulator quite surprisingly might, for the benefit of the consumer, have to try and limit competition rather than encourage it?

   (Sir Bryan Carsberg) I think I believe that, yes. I say I think I believe it rather than I do believe it because I am not the regulator now. When I was the regulator I had a lot of financial models which were developed in my office to help me understand the industry. I knew from those that there were very large economies of scale in the industry and I had a view about the effect of those. I do not have up to date information because I am not in a position to do so but it seems to me that the economies of scale must be very great. I am intrigued by the thought that the best model is to have a significant amount of competition but perhaps nevertheless limited competition.

Lord Lang of Monkton

  184. Perhaps the limiting of competition was something that was necessary in the early days of privatisation when a lot of very young, fragile companies were trying to get established in the new market place. I was going to ask you about the comparison between those early days and now. You have indicated the advantages of having a single regulator at that time. There had to be a nimble, focused approach in a fast moving situation but you now welcome the establishment of boards. Is it the case also that perceptions have changed about regulation in that at the outset it was thought that to some extent it would be a temporary phenomenon, at any rate in part, and now it has become permanent? If that is your view, do you think it can be reconciled with the need to fulfil the regulatory process in a way that is not too burdensome on the industries being regulated?

   (Sir Bryan Carsberg) I remember well when I was appointed that I attended the debate in both Houses for bringing the Act into effect. Many Members who spoke said that the best thing Carsberg can do is to work himself out of a job. Perhaps I was not entirely sure that it was a good idea but it always seemed to me to be rather optimistic because I did not really think that the industry could ever become sufficiently competitive that one did not need quite a lot of regulation. It really comes back to this economy of scale point which is a natural limiter of competition. I thought that perhaps there was an insufficient understanding of the cost structure of the industry there. There are a number of other issues. It is not just about promoting competition in regulation. We probably have to accept that something more than the general competition law is required for the utilities that have these large economies of scale. It is very important to have arrangements that limit the regulatory burdens. The Ofcom kind of development is to be welcomed, with the establishment of the board and also I am in favour of bringing the different functions together under one regulator. The right kind of direction is being shown through the references in the Bill towards regulation with a light touch and maybe that could do with a bit of tightening and perhaps a bit of parliamentary pressure to make sure it is given effect subsequently.

  185. Do you think that there is a case for reviewing the scope of the regulator's role regularly in order to ensure that he does not accumulate any great residue of bureaucracy and that he does remain focused on the essential issues and those which cannot be handled by somebody else?

   (Sir Bryan Carsberg) Yes, and I think that is something a parliamentary committee might well do.

Lord Jauncey of Tullichettle

  186. Sir Bryan, there are two matters I would like to ask you about. First of all, the regulatory boards and, secondly, appeals. Taking the first one, you favour regulatory boards, as I understand it. Do you favour them as being decision makers or as being there to advise and possibly restrain the chairman of the board who presumably remains a regulator? We have had evidence from a former regulator to whom the decision making by committee was clearly anathema. What do you say about that? Do you think there is any danger that a board is going to stultify decision making or result in decisions being taken which perhaps are rather over-bland simply in order to obtain consent; or do you envisage that the regulator will still have the power to take broad and perhaps novel decisions if need be without any fettering by the board?

   (Sir Bryan Carsberg) I think there is some danger, yes. It is one of these cases where there is no perfect system. I favour having boards to make decisions, not just in an advisory role or whatever. A criticism of boards that is validly made is that they do sometimes lack the ability to make tough decisions when tough decisions are needed. Sometimes there is a lack of conceptual clarity. Sometimes they appear to change directions in terms of the fundamental concepts because of the balance of opinion within the board and it just tips one way or another. That is obviously unhelpful for the regulatees because it leaves them in a position of not being able to plan with confidence for the future. On the other hand, I think there are strong advantages in having a board. I would not favour a strictly representational model in the sense that you have one person representing a defined constituency and somebody else representing another but one would expect a board to have its members drawn from a variety of backgrounds and to bring different experiences to the table. My feeling is that the debate that then takes place about particular decisions, bringing different point of view to bear, is helpful on balance but it is not without its disadvantages.

  187. In the case of appeals, you say in your paper, "I believe that modern arrangements incorporate satisfaction rights of appeal . . .". To what are you precisely referring there?

   (Sir Bryan Carsberg) There is the mechanism now for appeals through the Competition Commission. That was what I was thinking of. The regulatory regime at least in telecoms and I suppose in other areas too is changing quite a lot because of the role of European law making. I guess the new position is going to be that a number of rights are defined in the law. There are certainly areas where the regulator perhaps had rights through licensing to intervene in the past but they will not exist any more. The number of decisions will be appealed. For example, the setting of price control rules where they are required through the Competition Commission's mechanisms so that there will be a line of appeal there. I am not quite sure now whether there is a balance of issues where the regulator has judgment and judicial review is the only avenue for challenging it. Even if that is the case, the fact that we have a board rather than an individual regulator and some opportunity for judicial review might be a satisfactory balance overall.

  188. We have been told there is a distinction between the Competition Commission and the Competition Commission Appeal Tribunal.

   (Sir Bryan Carsberg) Yes.

  189. Are you referring to the whole Commission or to the Appeal Tribunal, which I gather is a rather simpler and a good deal cheaper mechanism?

   (Sir Bryan Carsberg) If I remember correctly—though you must forgive me for not being quite sure about the most recent developments in this—I believe that the plan in the Communications Bill would lead to the result that price control regulations would have been appealed to the Tribunal rather than to the Commission as a whole. I believe it is also right that there are some other areas where the Commission would be the price setting authority. I was an adviser to Lord Puttnam's committee on the prelegislative vetting of the Communications Bill and I remember this was discussed in that committee. There was a question arising as to whether the Competition Commission might be a better appeal body for pricing decisions as a whole simply because it would have the expertise of handling a number of pricing cases. I think I would have favoured that if I have my facts correct. In other cases, the Tribunal would presumably be perfectly satisfactory. Certainly the simplicity and speed of the process is appealing.

  190. Would you favour a single appellate body which would hear appeals of all kinds or do you think there are advantages in splitting the matter as at present?

   (Sir Bryan Carsberg) I would have thought there were some advantages in having one body so that consistency of practice could be developed across different industries, but it is not an area that I have thought deeply about.

Lord Fellowes

  191. Referring back to the main duty sentence in your paragraph four, it seems to me at the moment that if the average customer were asked who is responsible for improving value for money they probably would not say the regulator. I think the regulator is widely viewed as a disciplinary body for an industry, in particular the financial regulator, rather than the consumers' friend. It seems to me there is quite a job to be done on educating the consumers that the regulator is their friend. Would you agree with that or not?

   (Sir Bryan Carsberg) Yes. The consumer organisations, both the general ones and the industry ones, understood the position very well. I mentioned earlier that I was responsible for introducing the customer compensation plan. If BT did not repair faults on telephones within two working days, it had to pay compensation to customers. The consumer organisations were very well aware of that and welcomed the development very much, which appeared to be associated with a very rapid improvement in customer satisfaction at the time in terms of the speed of repairs that were carried out. It is correct that individual customers are not very well informed about the position. I believe telephone and other utility bills now have a message on them about the regulator but even so I suppose individual customers do not know. They will often write to a Member of Parliament and the Member of Parliament will get in touch with the regulator. I am not sure that it is very easy to do much about that short of very expensive advertising campaigns where you might feel the costs outweighed the benefit. These things tend to get sorted out one way or another anyway and the regulator gets to know if there are widespread consumer problems.

Lord Morgan

  192. I was interested that in your answers six, seven and eight in your Written Memorandum you talk about the variety of forces that might impinge upon a regulator making a particular decision. I suppose it might be a personal view as to what weight one attached to each of them. Like our Chairman, I am an academic and in my discipline, modern history, historians could reach quite different conclusions because one rates, let us say, the press or some other source as more important than another. Could that lead to some variation and even inconsistency in the way the legislators see the evidence coming forward?

   (Sir Bryan Carsberg) I am sure it could. It is probably true of any decision making process. I do not think there is anything you can do to eliminate that danger. I always thought one did the best possible job by being exposed to arguments of various kinds. For one thing, it helps you to understand the situation much better and you do not just take what you hear at face value. In one meeting you say, "At the last meeting I heard somebody say such and such a thing. What do you think about that?" You test it around and finish up with a good distillation of the different views. I was not suggesting that one would just take the word of the consumerist body or whatever. You would try to distil and learn from the various sources of evidence.

  193. Were there any instances where you felt it was desirable to take the initiative in the sense that some particular aspect of the problem was not necessarily covered by the sources available and you felt there was a call for something quite different? For example, the labour force in the industry or some quite different organisation.

   (Sir Bryan Carsberg) In terms of with whom one had contact to learn things?

  194. Yes.

   (Sir Bryan Carsberg) No. I did not really find that. I did have meetings with the trade unions, among others. I found that interested organisations tended to make their way to one's door. I did not have to work at making contact, as long as you made yourself available when the approach was made.

Lord MacGregor of Pulham Market

  195. On appeals, earlier witnesses have suggested that judicial review was always a threat in the back of their minds and therefore a constraint in one sense, but also a source of appeal. You seem to suggest you do not think it was a particularly satisfactory mechanism because a lot of people did not want to use it for fear of falling foul of the regulator or whatever but also presumably for other reasons. How much did the thought of judicial review weigh in your mind when you were looking at issues where you had to make decisions?

   (Sir Bryan Carsberg) No regulator wants to have decisions overturned through judicial review. It seemed a matter of good management and prudent behaviour to consider the danger and to take steps to avoid it. I guess to some extent the process I used in making decisions was shaped by advice I had from my legal experts regarding judicial review, to make sure that people have plenty of opportunity to put their views to you. I generally had to make my decisions in the form of making determinations. On legal advice, I would send a draft determination to the people affected by it and give them a reasonable amount of time to comment on it before I finalised it. It was not that I was particularly anxious about judicial review. It seemed to be good management to do things in a way that minimised the danger of judicial review. There was a reluctance on the part of regulatees to take that course for the reasons you indicate.

  196. I am sure this did not happen but in terms of our inquiry we worry that a regulator is totally unregulated and could more or less do what he likes. That constraint of judicial review is always there in the background to make sure you take reasonable decisions in a reasonable way.

   (Sir Bryan Carsberg) Yes, and what is I believe called the Wednesbury unreasonableness test, a decision that is so unreasonable that no reasonable person could have made it. There are limits even in the judicial review process.


  197. If I can come back to the discussion on the role of Parliament, looking at accountability you have stressed the importance of Parliament in the process, on the whole it works. You make the point, "A regulator can be expected to review the reports of Parliamentary Committees and adapt his or her behaviour . . ." You write, "This kind of behaviour cannot be guaranteed—it can vary according to the individual personality of a regulator". It may vary according to the Parliamentary Committee! I wonder if you have given any thought to what might happen on the Parliamentary side, that you enhance Parliamentary scrutiny of regulators?

   (Sir Bryan Carsberg) I did feel that there was something to be said about that, really, because I had several meetings with Parliamentary Committees both in my Oftel capacity and subsequently when I was at the Office of Fair Trading on other matters, transport, for example. I often felt, not always, a sense of disappointment at the end of a meeting with that Committee. It was never an unpleasant experience for me but one sometimes felt they focused on rather day-to-day minor issues and did not really get to grips with the important issues in the industry, like how much competition is sustainable, what are the terms on which you should do it, like the excessive burden of regulation, that kind of thing. I am sure it was very difficult for members of the Committee who were under pressure and did not, perhaps, have a lot of resource available to help them. It seems to me if something could be done to improve the performance of those committees so that they were well advised and had enough resources to develop a really good understanding of the industry and perhaps of the strategic issues effecting it that would really make them much more effective.

  198. It really is a question of resources available to the extant committee rather than have some distinct committee focusing on regulation?

   (Sir Bryan Carsberg) It might be a good idea to have a separate committee, but the most important point is the resources.

  199. Finally one point, we have been focusing on vertical relationships with the minister, the regulator and the consumer. Coming back to a point you were touching on, horizontal contact between the regulator, the sharing of information and best practice. Is there anything further that should be done in respect of improving coordination between regulators?

   (Sir Bryan Carsberg) In my time the regulators used to meet regularly, at least as soon as there were other regulators to meet with, first it was gas, then others as time went by. That was very helpful. We engaged in a certain fairly modest amount of sharing of resources. I remember internal audit was an area where we had a sharing arrangement and there was the idea of exchange of staff so that we could gain from each other's experience. I think regulators probably have the ability to do as much as is sensible. It is difficult to see that any additional formal arrangements are needed. I think it is very desirable that there should be that kind of contact.

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