Select Committee on Constitution Minutes of Evidence

Examination of Witness (Questions 220-228)



Lord Fellowes

  220. Sir Christopher, could I ask you to elaborate a little on your paragraph 3 about, ". . . when a single regulator is appropriate", et cetera?
  (Sir Christopher Foster) This is a matter I considered in my book. Again, it is a matter of art. I do not think there is any clear analysis that leads you to a particular conclusion. I believe—and I believe that experience has not disproved me—that one should start with a single regulator. Again it is an issue of clarity: that one person, in a sense, needs to form these various judgments consistently. Carsberg was my mentor as much as anyone and he was able to develop a sufficiently clear and transparent policy on everything he did—and other regulators followed his lead—so that industries knew what they were up against. They knew, in a sense, what they had to do to be good and where he would start caning them for being bad. I do believe that a single person is in a much better position to do this. As soon as you have a number of people around a table, what comes out is bound to be some sort of compromise and it is usually less than totally clear on these matters what the underlying policy is, particularly where quantitative issues arise, as they necessarily do. So my view was that you should start off with a single regulator; that he should indeed have advisers, an advisory council, people he should bounce ideas off; but the responsibility should be his, and the safeguard against irresponsibility should be review, should be appeal. Just as you have a single judge sitting as a court of first instance with a council, a committee, a number of judges above them, that was the parallel one should have here. I imagine—and I think this is true—that it might be harder in all cases to find quite as talented a bunch of regulators as the first regulators, who were exhilarated by the challenge of being pioneers in this matter. To some extent the problems have become more difficult, not so much because of social problems—thought that is one set of difficulties—but because, as they drove prices down and profits down, they ran into the danger where they were actually making the industries unprofitable. Again, it is something I discussed in my book several years before it happened, but the sad effects in water, and to some extent railways, where over-regulation has led to unprofitability and therefore to sick industries, is thoroughly regrettable[1] I believe—and I certainly argued—that at some point along the way single regulators should be replaced by a board, but really after, I hoped, the principles and the criteria had been sufficiently clarified for a slightly more muddled and companionable approach to get by the work.

  221. What you are saying is that a board might have tempered the enthusiasm of the regulator in circumstances where it has actually been damaging to the industry.
  (Sir Christopher Foster). Yes— after a few years, as soon as one got to the point where all sorts of forces were demanding price cuts when the industry really could not afford it—it is at that point, I think, that a little tempering would probably have been helpful.

Lord Elton

  222. If you were responsible for setting up the Better Regulation Task Force, what remit and terms of reference would you give it?
  (Sir Christopher Foster) Could you tell me, the Better Regulation Task Force is not the one we have in the Cabinet Office at this moment, is it? Are you talking about that one?

  223. I am giving you carte blanche.
  (Sir Christopher Foster). That is a totally different subject, is it not? I am more than happy to.

  224. We can draw our own conclusions.
  (Sir Christopher Foster) I believe that the Better Regulation Task Force, in both its Conservative and its Labour forms, is a thoroughly excellent idea. I believe that all regulations, not only private sector regulation but even regulation of Government, should be subjected to a cost benefit test. Yes, of course, there are many regulations which are entirely desirable and necessary, but they need to be proved to be so. I think that there are some tendencies at the top to say, "We don't want regulations at all", but that runs into the opposite danger, of trying to tell people what to do without having any legal authority for doing so. I think that is a serious problem in certain parts of the public sector now. One has to strike a balance between no regulation and attempts at dictatorship in the public sector, and over-regulation, leading to all sorts of inefficiencies on the other hand. I do believe the cost benefit test, employed with more or less sophistication, depending on circumstances, is the answer to that. But that is a long way away from any other question I have had to answer, and I hope that is not an unreasonable answer.

Lord MacGregor of Pulham Market

  225. Two final questions from me, to make sure that we get the benefit of your advice while you are here. At item 7 you say that you have "some further observations on the limits to transparency". Have you covered all of that, or is there anything else you want to tell us?
  (Sir Christopher Foster) I think I have. No, I have not quite. I think it is very much like a legal process in this regard. All the evidence that comes in from the parties, except where there are definitely matters that are commercial and in confidence, should be transparent and should be available to other parties. In broad terms, everybody needs to know the evidence that is going in from all parties relevant to a decision. However, there will be all sorts of papers that the regulator will be working on, trying to adjudicate between parties, which should be privileged—just as there is legal privilege. When it comes to the end of a determination, there should be transparency in the sense that everybody should get a copy of the draft determination and have a chance to make observations on it. Then, of course, the determination itself is published. I do not believe that this sort of thing is a problem, and I hope that such procedures are fairly well observed. There is a difference, however, between making the evidence available and demanding that absolutely everything that the regulator thinks is open and available to everybody. I do not know if anybody would ever recommend it, but it would be a counsel of desperation.

  226. The other question is in relation to regulation in continental Europe and the United States. Are there things that you would like to point us to, where we might learn from experience there?
  (Sir Christopher Foster) Yes and no. One of the features of congestion charging is that we have done something which nobody else has done first. Similarly with our own form of utility regulation and, to the best of my knowledge—though again I am not so directly involved these days—it has worked surprisingly well and has adapted to all sorts of circumstances. Some regulatory regimes—usually, I think, because they muddle up the social and economic too far—have not made a success of it. That is perfectly plain. I also think that the more one gets to a position where you are scraping the barrel with trying to cut costs, the more rate of return regulation and RPI minus "X" regulation become much the same thing. I have again argued that in my book: that at the limit they become indistinguishable from each other. It may be arrogance, but I cannot think of any way in which we have a great deal to learn from European regulation, except possibly—again, I am not expert—over rights of appeal.

Baroness Gould of Potternewton

  227. I hope I have not missed this, but it is the question of the appointments of regulators. We have a fair discussion going on now, particularly in today's Financial Times with the DLA law firm suggesting that, "Appointments of senior regulators should be vetted by the Commons, and parliamentary committees should be able to compel them to give oral evidence". That is a second point. The first point is whether appointments should be vetted by Parliament. Could we have your views on that?
  (Sir Christopher Foster) This is a huge question. It does not seem to me that in the United States it has done any real, lasting good to anybody to have appointments first vetted by Congress. On the other hand, there is plainly a very serious issue here. How does one ensure that regulators have the minimum competence for the job? The first generation were admirably qualified. Most were excellent; a few were perhaps less excellent but, by and large, with their staff, they did a first-rate job. There then became a practice of appointing civil servants. One worried that that was being done because they would be more amenable to political influence. One hopes that that is not true. I think that they may be highly intelligent men who are perfectly capable of doing a good job. I would much rather, if there is to be a vetting procedure, that it should be of the job descriptions rather than of the actual candidates. I think that, somehow or other, there is need in the public domain to get it quite clear that these people do have the relevant economic or legal or quantitative accounting, some sorts of expertise, which means that they are likely to attack these jobs sensibly. It is fraught with difficulty, however, and the most surprising people do make excellent regulators.

Lord Acton

  228. Is there any vice versa to that?
  (Sir Christopher Foster) I am sure!

  Chairman: Sir Christopher, we have covered an awful lot of ground in the time available. It is possible that there may be one or two points that we may wish to pursue, perhaps in writing, if subsequently they occur to us. We are extremely grateful to you for being with us this afternoon and for providing us with a great deal of food for thought.

1   Note by Witness: I argued that a board of regulators would be less likely to take good decisions but more likely to avoid bad ones. Even so, I argued that the Chairman or Secretriat should take steps to explain how any new decision was consistent with old ones. Back

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