Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (Questions 940-959)



  940. Yes, I agree with that. I think most of the examples Mr Vickers gave are rather case-specific and probably very effective in that context but it is rather more the broad strategy, it is the annual plan, it is the sort of stand back and have a look approach which I think is needed. Ms Boys said that you publish your annual plan and anyone who is interested in it can react to it. This is the area I was thinking of. Would you like to see a mechanism in place whereby some body, be it a Select Committee or a group of MPs or a group of public individuals or bodies automatically did every year cross-examine you on it and pronounce on it possibly?

(Mr Vickers) Of course questions like that are for Parliament to decide. I think for myself there would be merit in systematic and comprehensive scrutiny across the range of what is a wide range of activities. I could see in many respects that that would be a positive development. If I could add to what Penny said about the process with the annual plan. It is not just a question of us publishing an annual plan for everyone to look at, there is an extensive process involving public consultation and a public meeting which goes into the formulation of that plan. Of course the way it is put together now by the OFT with our board it means that there are seven who are responsible for the plan and the internal scrutiny and internal accountability, when one has a board structure, is different from and better than it can be under the sort of structure which went before.

  Lord Lang: Thank you very much.


  941. Just on the consultation, because there is the output side once the plan is in the public domain and the prospect of parliamentary scrutiny and the DTI memorandum draws attention to the value of parliamentary scrutiny and would like to see that extended, so one can see the case for, say, an annual session with a dedicated committee. But on the input side you stress the public consultation and it is in your paper as well. If you could just flesh that out slightly for the benefit of the Committee in terms of the form it takes and the extent of the input and how do you know it is representative of anybody out there. You create a fair deal for the consumers but the people having an input may have very special views which are not reflective of consumers in general. Do you make allowance for that and what is the extent of the input itself and the mechanisms to provide for that input?

  (Mr Vickers) The past year was the first year when we had produced a forward looking annual plan as distinct, of course, from the annual report which looks back. Because of the statutory timetable we had slightly less time than we would normally have for this exercise but nevertheless there were many things that we did in this process. There was a lot of preparatory work and this took place in the months before the board came formally into being but it involved all seven board members very closely and of course many others within the office putting together the elements of the draft plan, which then went out to consultation not simply in the form, "Here is a draft plan. Comments welcome," but we went out there actively to seek comments and to hold this public meeting where we invited a diverse range of people representing different interests, bringing comments and ideas from a variety of viewpoints. We were keen to get every relevant comment and suggestion that we could, so in that sense it was a very open process. Of course we are conscious that different organisations represent different positions and the consumer voice, because it is the most diffuse and dispersed, is in some ways the most difficult to hear so one needs to try extra hard and there are various ways in which we do that. Of course there are consumer organisations like the Consumer Association, Citizen's Advice, the National Consumer Council. We hear a lot about consumer concerns of course directly from the general public but also through trading standards departments in local authorities. The super complaint issue, which is really separate from your question, again goes to this issue of how can we be sure that we are hearing and being properly responsive to the voice of the general public as consumers.

  Chairman: Indeed. There are probably several points I would like to pursue on that but I have several members of the Committee who would like to put questions.

Lord Holme of Cheltenham

  942. Following Lord Lang's question about an overall review of your activities and the plan, of course to plan is what you intend to do and that raises strategic issues on which you might be meaningfully questioned, but on the other hand at the end of the year there is the question of whether you have met the objectives of the plan and how far you have performed according to the strategy that you set out. Bringing those two points together, I wondered, although you were very courteous in saying it is up to Parliament to decide how to do this, if you were to be able to write your own script for parliamentary accountability do you see an annual review bringing those two elements of ex post facto and looking forward together on one occasion and what sort of parliamentary review do you think would be appropriate? While I have the floor, could I just ask a different point, reverting to the corporate structure, how does Ms Boys's role now differ from what you did a year ago? What value does the board add to what was a director general function before?

  (Mr Vickers) Let me try to take first the question about assessment of whether what is set out in the annual plan is achieved or not. Of course, for many years the office has produced annual reports which are laid before Parliament. Because this is the first year in which we have had an annual plan we have not yet reached a point where the two can be compared and that is coming up for the first time. I have to say I have not thought through how parliamentary scrutiny might operate in that context. I think part of the value of a comprehensive review of what the office does is that we do have competing priorities and of course we have, and should have, finite resources. The question of whether we have made good, sensible strategic judgments about the allocation of resources to competing ends can be considered in a comprehensive review; it cannot so readily be done in a more partial review.
  (Ms Boys) If I could add my thoughts there, I think that the more effective scrutiny would be through whatever sort of committee was chosen, it being reasonably the same people year by year so that one could see progress over time and whether certain aspirations had been achieved and if it was more sort of piecemeal or more issue-specific then one loses that advantage of forming a judgment.
  (Mr Vickers) If I could just echo that, I think to work most effectively it needs to be searching scrutiny, which is best from those with relevant expertise because a very wide range of expertise is relevant to what we do. I think one of the possible risks, now we have moved to a situation where competition law and consumer law are, I believe, now widely and properly perceived as being manifestly independent from party political considerations, is that it would be regrettable if there was a perception that such a review process dented that in any way but I think that risk could be guarded against very safely.


  943. The second question was on the corporate structure.

  (Ms Boys) Perhaps I could answer on how my role has changed. When the board structure was put in place John and I re-thought the particular roles that we were playing. We had one document that we had drawn up which allocated responsibilities between us. We have redefined that. I now take responsibility for all senior staff in the OFT and therefore see myself as both a board member with a strategic role but also someone who is the link between the board's strategy and seeing that that strategy is implemented and reporting on it regularly to my fellow board members, on what progress is being made and what difficulties we are encountering. There are specific areas where John and I have chosen to lead but that is non-specific to our role; it is just what suits us and plays to our various strengths. Lastly, of course, as an independent board member I have an equal vote along with everybody else on the board.

Lord Holme of Cheltenham

  944. Would you consider yourself a non-executive chairman or an executive chairman, and if you are an executive chairman how do you relate to an executive director?

  (Mr Vickers) I would consider myself to be an executive chairman, not a non-executive chairman. Penny has described key elements of the executive director role as it is now. Correspondingly, there was a shift in my own role. It used to be the case that some of the senior directors reported in a management sense to me, now that is to Penny, because I have very important responsibilities in relation to the running of the board, relations with the non-executive directors and so on. In terms of the way that Penny and I work together, I think in essence it is fair to say that Penny is responsible for running the OFT. I have leadership and representational responsibilities as well as the board responsibilities. As far as case work is concerned (and a lot of the day to day work is case work), I am substantially involved in quite a large body of case work so that is a sense in which I am an executive chairman.

  Lord Holme: Could I just say, as a member of the Committee, how reassuring I find the last bit of that. I am very glad, given your experience, you are still involved in the case work because that is clearly part of the value that you personally add to this important job. So I am relieved to hear that.

Lord MacGregor of Pulham Market

  945. Just following up the question of Lord Holme about the parliamentary scrutiny, I was interested in your response because you were indicating that continuity would be of benefit in looking at these sorts of issues and one of the issues which has been put to us is whether there would be sense in having a parliamentary committee, whether a joint committee of both houses or this house, or whatever, which looks at regulation as a whole and all the regulatory bodies. The difficulty about a lot of the House of Commons committees, as I know only too well, is that the membership changes rather regularly for all sorts of House of Commons reasons. Do you see any advantage in that from your point of view?

  (Ms Boys) Well, that would fit with my understanding of what would go with more effective scrutiny, yes.

  946. It is the effective scrutiny aspect really. Thank you. Now to the two questions I mainly wanted to raise. I recognise, of course, that you are very different from a number of the individual sector regulators who have been set up as a result of privatisation or whatever, but I am interested in any read-across to what can be done with them from your experience, particularly in relation to appeals. There has been criticism of the fact that with some regulators it is only judicial review that can occur and that is very limited in its scope. What impact does the fact that you are always aware that there is a right of appeal to the Competition Appeal Tribunal have on the way in which you operate and approach things?
  (Mr Vickers) It has a tremendous influence, together with the point I mentioned earlier about the requirement in the Competition Act for consistency with the relevant EC competition jurisprudence. So everything that we do, both in terms of substantive decision making and the way we go about making decisions is disciplined in a very healthy way by that prospect.

  947. You say "healthy". Would you not find sometimes that it would be easier for you if you did not have this other avenue of appeal which was always hanging over you?
  (Mr Vickers) I think the answer is, probably it would be easier and that is partly why it is healthy that it is not so easy.

  948. Then on the board, I am interested in the case-specific issues rather than the general strategy from this point of view. How often does the board consider your decisions on individual cases?
  (Mr Vickers) The decisions which are reserved to the board are decisions about strategy and about monitoring the implementation of that strategy. There are certain kinds of case decision, such as whether a market investigation reference is made to the Competition Commission, which is also reserved to the board. In terms of the general flow of case work the board, of course subject to conflict of interest safeguards, is kept informed in various ways: Penny provides a monthly report at our meetings and through the general flow of information to board members about the progression of cases. Some board members have individually come to discussions of cases at various stages and some key issues in cases have been discussed at collective meetings of the board. I should of course stress that there are great teams. We are 650 people, not seven people, and so there is the teams' great expertise there in investigation, economics and on the legal side. That is how it has worked so far in terms of the board. I hope that is fair—
  (Ms Boys) Yes. I think you asked how often and I am trying to recall all our board agendas and I think it would be fair to say that roughly about 50 per cent of a typical board agenda is a progress report, management issues, the HR strategy and about 50 per cent would be specific case-related issues.

  949. I recognise you have got 650 staff and a great deal of expertise and industry knowledge there but what is at the back of my mind is that there are some regulators who still do not have the full board structure. I am seeking to see whether, recognising also the conflict of interest point, there is an advantage in having experienced business people or consumer representatives on the board who can perhaps shed some light on the decisions you are about to make and have some input into it. If 50 per cent do go the board it suggests that you do seek that?
  (Mr Vickers) Just one thing on this footnote point. The board members are there not as representatives of particular interests and of course the range of experience comes from various quarters. I think at times questions do arise in cases where it is very useful to take the mind of the board or outside a board meeting to consult an individual board member who has relevant expertise. It is also important that the board collectively is aware of the development of the major cases and that it understands the decisions which have to be taken. The case decisions, for example, under the Competition Act or in the merger area, I would take responsibility for those and I would in a sense be the decision-maker but it is always very valuable to have the views of others for when decisions like that get taken. As I mentioned, other kinds of decisions like market investigation references to the Competition Commission, those are board decisions.

Lord Fellowes

  950. Lord Holme and Lord MacGregor have just about covered my questions. I wanted to ask one specific though, following up your last answer to Lord MacGregor. You said seven heads are better than one. What happens if the seven do not agree? Can a non-executive director dissociate him or herself from one of your decisions on specific cases?

  (Mr Vickers) The case decisions, for example, in the merger area—the same is true under the Competition Act—often it would be the case that I would be taking responsibility for those decisions rather than the board collectively. We have in general resolved matters without voting. That has not always been the case and I think the principle of collective responsibility applies in the sense that if there is a discussion and a vote on the matter then that is the decision of the board. Any individual is free—your question about dissociating themselves—and they could certainly vote against a proposition, but I think perhaps you meant more than that?

  951. I meant a little bit more. You said that collective responsibility, or words to that effect, operates but I would imagine that as a board the non-executive directors would want to know whether or not that doctrine of collective responsibility does operate or not?
  (Mr Vickers) It is early months with the board and I think the spirit is that we recognise we have to take these decisions. Not everybody agrees on every occasion, though for the most part it has been—

  952. It will no doubt be put to the test at some stage.
  (Mr Vickers) That is very possible.

  Lord Fellowes: Thank you.

Lord Elton

  953. The system of regulation has developed, broadly speaking, to arm's length government from certain duties which had been governmental duties in the past, as I see it, and therefore the length of that arm is of interest. I see that you are set up under a formidable amount of statue, quite prescriptive, and that in your memorandum of agreement with the department it says that the OFT will have regard to the consultation it has had with the Secretary of State and ministers during the previous year and the issues raised when developing the annual plan. Then I noticed that the Committee, I am not sure that it was at the Committee's instance, received a document starting with, "The DTI has seen the OFT's submission to the Committee," and then gives a view on it and says that it needs to be added to in respect of, it appears mostly, accountability to Parliament. I wonder how you would categorise your relationships with the department and the extent to which you are actually free agents where the statue provides for you to be free agents.

  (Mr Vickers) I feel that we are totally independent from ministerial government in the making of the decisions that we have to make under the law. One of the changes in not so much the length of the arm but the arm itself. With the recent legislation, especially the Enterprise Act, is that on some questions where we used to give advice to the Secretary of State for the Secretary of State to take decisions, for example in the merger area, we now take those decisions, on the clearance of mergers. With very narrow exceptions in particular defined areas, ministers are not part of that process at all since the Enterprise Act came into force in June. An intermediate step, which started under my predecessor, was that our advice on the main merger cases was published with the confidential material taken out. Before that, in the public scrutiny, it was rather an opaque process. So in short, we are completely independent from ministerial government but of course subject to the law and the accountabilities that we have discussed previously and of course we are accountable for the expenditure of public money through the Public Accounts Committee process and otherwise.

  954. Thank you. Just one other question at the other end of the process really. I was wondering what proportion of your energy goes into section 92 activities, the duty of the OFT to monitor undertakings and orders (ie seeing that what is decided actually happens) and has that revealed any tendency to escape undertakings and orders?
  (Mr Vickers) I think the review of undertakings and orders has two elements. That is one, the other is whether undertakings and orders put in place years ago continue to make sense and we are systematically reviewing that latter question. I believe it is true that in the case of many orders and undertakings if there were breaches then we would hear rapidly from third parties adversely affected by those breaches. So it is very important that we monitor compliance, but I confess I am not able to give a figure on how many of our resources go in that direction.
  (Ms Boys) It would be a comparatively small percentage. It is about half the workload of one of the four branches in our markets and policy initiatives division.

  955. Therefore, you are fairly heavily dependent upon the whistle-blower?
  (Ms Boys) Except in the sense, as John said, that we do have a systematic programme for revisiting these old undertakings and saying, "Are these at all serving any useful purpose?"

  956. But those are ones you do not wish to see honoured or enforced?
  (Ms Boys) We are looking to see what has happened as a result, what is going on in the market, whether they are actually serving any useful purpose and taking them away and lifting them if not.
  (Mr Vickers) Of course we wish to see all orders and undertakings enforced. There is the question of reviewing undertakings which may have been put in place a while ago.

  957. I was actually asking about enforcement and you have told me about review.
  (Mr Vickers) I understand. Penny, your answer, was that related to both elements of the review?
  (Ms Boys) Yes, though I think you are right that for ongoing review we are fairly dependent upon complaints.

  958. If I can encapsulate what you said, your experience is that broadly when a decision is make or an undertaking given it is honoured?
  (Mr Vickers) Broadly. There are some circumstances, though, where one would be unwise to rely on third parties bringing this information to light. To give one example of responsibility which is about to move from us to Ofcom, there is the annual question of whether the BBC has complied with a requirement on the percentage of programmes it has commissioned from independent producers. That is quite a substantial annual monitoring effort which we have been responsible for and on which we recently reported.

  Lord Elton: Thank you very much.


  959. I am conscious of time and I just have one or two quick questions to conclude. Fundamental to your activity, indeed any regulator, is maintaining some balance between independence and accountability and getting that balance right and I wonder whether you felt that balance was roughly right in your case. Also, really following up Lord Elton's first point, if you look at accountability you can argue there are different kinds of accountability. One is simply answerability, which is explaining what you are doing and responding but where decisions remain in your control. The other is accountability where others can challenge and you may be overturned. I suppose there obviously the court is the primary means of that and I suppose there is financial accountability as well through the NAO. If one is to distinguish between answerability and accountability where would your relationship with Government fall? Do you see yourself as answerable to Government but not necessarily accountable because ministers cannot necessarily overturn what you are doing?

  (Mr Vickers) First, I am not sure that I would see a tension between independence and accountability. It is our job independently (ie free from outside influences) to make what we believe are the right decisions, whether about strategy or case work. We consult very widely where appropriate, informing the information base to inform those decisions, but they are taken absolutely independently in that sense. Nevertheless, there are all sorts of accountabilities, such as those that you mention, which then follow but I do not see those as being at odds with the independence with which decisions should be taken. In terms of answerability to Government, I think the answerabilities are perhaps more primarily to Parliament, for example financial accountability through the National Audit Office and the Public Accounts Committee. I cannot readily think of a context where we are answerable to Government in a different way from that in which we are answerable generally for what we do.
  (Ms Boys) I agree.

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