Select Committee on Constitution Minutes of Evidence


Examination of Witnesses (Questions 520 - 532)

WEDNESDAY 21 MAY 2003

MR ROGER BARNARD, DR PAUL GOLBY, MR ITRET LATIF AND MISS ANGELA LOVE

Chairman

  520. Mr Latif, you would want to put on the record you agree with that?

  (Mr Latif) Yes.

  Chairman: Thank you very much.

Lord Fellowes

  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 environment.
  (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?

Chairman

  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 it?
  (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 better!

Lord MacGregor of Pulham Market

  524. The regulator's function in relation to the consumer—and one is bearing in mind the utilities regulators and one is going back to the privatisation period when the whole system was set up—was 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 just prices?
  (Mr Barnard) Indeed, yes.

Chairman

  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 scrutiny—and there are probably several voices there as well—is 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 activities—Treasury, 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 particular approach.

  527. Mr Latif, is that something the Gas Forum is for?
  (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 you—not for consumers, not for the public interest but for you as the industry—are 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 to you?

  (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 bodies—judicial 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.

Chairman

  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 of transparency?

  (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 to us.
  (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.






 
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