Examination of Witnesses (Questions 520
WEDNESDAY 21 MAY 2003
520. Mr Latif, you would want to put on the
record you agree with that?
(Mr Latif) Yes.
Chairman: Thank you very much.
521. Reverting to the beginning of Lord Elton's
question about the complication of the different layers in the
regulatory set-up, it does seem to me that the person who ends
up most confused by these different layers is the actual consumer.
We have had witnesses from the regulators with very wide differences
in what their view of their remit is. One, for instance, said
that it was considered part of their job at least to implement
Government policy. Another one said that they were there specifically
to represent the consumer. I think the consumer has not got a
clue who is representing him or her and I just wondered if this
proliferation of voices claiming to act on the consumer's behalf
is merely confusing him?
(Dr Golby) If I may start to answer that,
my Lord, I agree with you. I think the general consumer is totally
confused with the current situation and cannot really distinguish,
for example, between Ofgem and Energywatch in terms of that activity.
The primary remit, of course, of Ofgem is to represent the interests
of the consumer but this seems to have been passed to a consumer
lobbying body known as Energywatch. I believe that that has caused
confusion amongst the consumers, the general public, the population.
(Mr Latif) I have to say, I agree. I think the primary
responsibility does lie with Ofgem and Energywatch seems to have
taken that kind of role on. It does cause quite a lot of confusion.
In fact, sometimes we have situations where Energywatch put complaints
in but really the complaints are not valid in terms of the regulatory
(Mr Barnard) But in saying that, my Lord Chairman,
we must never forget either that Ofgem's and all the other regulators'
statutory functions are exercised concurrently with the Secretary
of State. To put it in strict constitutional terms, the ultimate
protector of the public interest and the consumer's interest in
these matters must be the Government, must it not?
522. That raises an interesting question, of
course, distinguishing between the consumers, the public and the
public interest and who speaks for each of those, and indeed how
you define each. If I could just follow up Lord Fellowes's question.
You have identified there is a problem because there is a multitude
of voices and you have accepted there is a problem but you did
not specify a solution to the problem. Is it a case that one has
to accept that there is a multitude of voices and live with that,
or should one seek to do anything about it?
(Mr Latif) I think we are staying where
we are. We will learn to live with it, I think. There is an educational
programme going on between the suppliers and the interested bodies
and I think the working relationship is getting better in that
respect. So I think we will live with it; we will not change.
523. One of the points which was made to us
before, and in fact the next witness referred to it in a speech
he gave last November, concerns the nature of the exercise. There
is going to be at least some institutional tension, there is some
inherent tension in the system and that you cannot get rid of
the tension and that really what you are about is actually managing
(Mr Latif) Yes.
(Mr Barnard) One could be more radical, my Lord. One
could ask, where you have got a Secretary of State and a regulatory
authority who in the exercise of their functions are charged to
enhance consumer benefit, why on earth do you need a consumer
body? The traditional answer has been, "Well, these regulators
are non-ministerial government departments, they act on behalf
of the Crown, they are staffed by civil servants and we all know
that civil servants get out of touch with the environment, do
they not?" Actually, does anyone really believe that in the
third millennium with instant communications and a clamouring
media out there constantly lobbying regulators as to what they
should and should not do? It seems strange to me to impose on
regulated industries another layer called a consumer body by statute,
financed by the industries themselves and presumably acting as
the eyes and the ears of the regulator, when he has got an objective
to stand by the consumer's interest and enhance it and he has
got eyes and ears of his own.
Lord Fellowes: I could not have put it
Lord MacGregor of Pulham Market
524. The regulator's function in relation to
the consumerand one is bearing in mind the utilities regulators
and one is going back to the privatisation period when the whole
system was set upwas to act on behalf of the consumer in
monopoly or semi-monopoly situations and it was the competition
aspect which of course was the protection of the consumer. Leaving
aside the social and the environmental aspects, you could argue
that that has really worked?
(Mr Barnard) Yes. I think that is a correct
analysis, if I may say so, yes.
525. The consumer is interested in more than
(Mr Barnard) Indeed, yes.
526. If we could move on, because I am conscious
of time, to another dimension; not necessarily another voice but
looking at it from a different aspect of accountability which
you identified in the written submissions, certainly on the part
of the Electricity Association, that is the aspect of parliamentary
accountability, the answerability to Parliament itself. It is
really a question to the Electricity Association based on the
paper and then to see whether the Gas Forum would agree with it
in terms of, if you like, enhancing parliamentary scrutiny, what
you would like to see. In a way I think the point you are making
about existing parliamentary scrutinyand there are probably
several voices there as wellis that you would like to see
a dedicated committee to deal with it, a committee dealing with
regulation. Could you give us slightly more indication of that.
You have signed up to the idea of having a dedicated parliamentary
committee. What would it entail and indeed which House would have
ownership of it?
(Dr Golby) I am not sure I dare, my Lord,
suggest which House should have ownership of such a committee,
appearing before you today. We were suggesting this approach because
I think in the same way that we have just been discussing Ofgem
and Energywatch there is a number of layers of political oversight
of Ofgem's activitiesTreasury, National Audit Office, Public
Accounts Committee and so on and so forth and that results, in
our view, in a lack of institutional ownership of the way in which
Ofgem's work is governed and measured. I think we start from the
position that utility regulation is complex, difficult and it
plays a vital part in the economic and social significance of
both the industries involved and the country and the economy itself.
Therefore, if anything deserved a dedicated review body at parliamentary
level, we believe that this industry really does. That is why
we have suggested that that could be achieved through a Select
Committee for regulatory accountability and maybe such a committee
would look at other regulators as well as the electricity and
gas sector with a very specific role of looking at the interface
between government policy and regulatory practice. I think what
we are saying here is that there is a legal accountability which
in our view is all about the execution of policy and an appeals
process there. I think this body is about the strategy of the
regulator and whether it is indeed fulfilling the role that Parliament
has given to it. That is where we come from in suggesting this
527. Mr Latif, is that something the Gas Forum
(Mr Latif) I do concur with what has been said. Also,
I think we would like scrutiny in terms of budgets post-RIA and
also in terms of how well they are withdrawing from regulation.
It would be nice to have an independent, impartial body looking
at that and I think that would serve the whole government's process.
(Mr Barnard) Could I just add, my Lord Chairman, that
it is astonishing what you can find on the Government's website.
For example, in preparing the Association's submission to your
Committee we found that there is under the Cabinet Committee system
something called a Ministerial Panel for Regulatory Accountability,
consisting of the Chancellor of the Duchy, the Secretary of State
for Trade and Industry, the Chief Secretary to the Treasury and
the Minister of State at the Cabinet Offices and its terms of
reference are quite formidable: to tackle cases where progress
to regulatory reform is blocked, to call Ministers to account
for new regulation and to call Ministers to account for their
performance in addressing the burden of existing regulation. Surely
there might be a case for parallelling that panel, if only we
could find out what it does, with a new purpose-dedicated Select
Committee on regulatory accountability?
Chairman: Yes. Thank you.
Lord Holme of Cheltenham
528. I would be very interested in those answers.
If you had to rank to the industry, to the companies on a scale
of not at all important to very important the role of parliamentary
accountability for younot for consumers, not for the public
interest but for you as the industryare you just being
polite because you are here in front of Parliament saying, "Gosh,
we would really like to have more parliamentary accountability"?
Is it marginal to you? Is it important to you? Is it very important
(Mr Latif) It is very important to us.
I think we have a situation where we would like an impartial third
party to have a look at that. At the moment we have a situation
where our regulators were drawn from 70 per cent of the regulator
market but the costs have actually gone up. So we would like an
honest view of the actual process, whether it has been effective,
whether the monies which have been collected have been effectively
spent, whether the projects which have been delivered are actually
in the interests of the consumer, etcetera. From our industry
I think it is a genuine feeling that we do wish that to happen.
(Dr Golby) If I may say so, my Lord, even the Pope
answers to God!
(Mr Barnard) One comes back in a sense, I suppose,
to the quite bewildering combination of functions that one finds
in regulatory bodiesjudicial functions, executive functions,
administrative functions and legislative functions. There are
bodies which do combine those functions. Some of them are called
local authorities, some are called government departments; indeed,
regulators are classed as non-ministerial government departments.
What is good for the goose is good for the gander. If it is important
for government departments to be specifically accountable to dedicated
Select Committees the same must be true, presumably, of a regulatory
system comprising a collection of non-ministerial government departments.
529. Just within the time available, I mentioned
the other level, which I think ties in very much with that because
Parliament obviously, if there is a committee, can ask questions
and extract the sort of information you are looking for, but one
of the points you are making as well is that there needs to be
greater transparency in terms of material made available and material
made available on a consistent basis. You have already referred
to the importance of the regulatory impact assessments and you
have already indicated a welcome for the direction one is going
in respect of that, but to what extent could there be greater
transparency on the part of regulators? You made the point that
agenda are not necessarily published and minutes are not necessarily
made available. What could be required of the regulator in terms
(Mr Latif) We are surprised that minutes
are not actually published from the authority. You do get the
minutes of the Bank of England's monetary policy being published.
So we would like there to be at least that level of transparency
in the actual process. I think at the moment we do not feel that
the structure itself of splitting the executive function is going
to resolve our situation in terms of how it all hangs together.
So I think we do need information coming out from the board level
to see what the strategic direction is and what the decisions
are. We are not talking about commercial individual company level
but the broad picture.
530. So there should be a change from the present
situation where it is up to the regulator to determine how much
is put in the public domain and that there should be some duty
placed on the regulator to put in the public domain certain material?
(Mr Latif) It is a vital part of this country's economy.
I mean, we are one of the biggest industries there is. So it is
surprising that that kind of information is not freely available
(Dr Golby) My Lord, I do not think I can particularly
add to that. I think the Monetary Policy Committee and the way
that that reports its decision-making process is a very good example
which could be used here.
(Mr Barnard) I agree very much with what my colleagues
have said but I would just add a word of caution, which is that
it is not entirely clear that board-style approaches to regulation
are any more accountable than the old personal director-general
approaches to regulation of regulation. One of the reasons for
that is that regulators like Ofgem are given statutory power to
regulate their own procedure and make the rules of procedure,
and these tend to reserve only very substantial strategic items
for the consideration of the authority. That is what one would
expect but it does leave an awful lot to the executive machine
and it also makes it very difficult for the industries collectively
or as individual licensees to articulate a case directly to the
authority, qua authority. So one has to be careful, I think, about
the way in which the procedures of board-type structures in regulated
industries are provided for.
531. If I may come back to that. Miss Love,
is there anything you wanted to add?
(Miss Love) I think the only thing I would add would
be that in terms of the terms of reference and the areas that
each of the authority and Ofgem work in, if we could actually
have transparency in who has remit over which areas. That would
help us understand where the touch-points are within the organisation.
(Mr Latif) I just want to say more accessible as well.
At the moment we seem to not be allowed to talk to the authority
members. At the moment it seems to be a no-no. So accessibility
would be useful as well.
532. Just on the point Mr Barnard has raised,
which is quite important, it is one of the things we have been
looking at and various witnesses have raised it, the sort of individual
versus board argument, do I take it that the point you are making
is that you are drawing attention to, if you like, a downside
of having boards, which is not necessarily an argument for having
say an individual regulator, it is for putting mechanisms in place
to actually govern how the boards operate?
(Mr Barnard) Yes. For the avoidance of doubt, as we
said, it is not an argument for returning to personalised single
regulators; it is an argument, as you have just appreciated, for
proper structuring and proper mechanisms of procedure.
Chairman: Thank you very much. I think
we have covered the areas I identified in terms of accountability,
which is very much the core of our inquiry. As I said, the papers
you have put in to us are extremely helpful and we are grateful
to all of you for being here this afternoon and for answering
our questions. Thank you very much indeed.