Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (Questions 1050 - 1059)




  1050. Good afternoon. Thank you very much for being with us. Perhaps you would like to introduce yourself for the record.

  (Ms Hutton) Thank you. I am Deirdre Hutton. I chair the National Consumer Council and I have with me James King who is a Senior Policy Officer at the National Consumer Council specialising particularly in financial services, but since he is our economist he has a broader range of responsibilities.
  (Mr King) I do some competition and economic regulatory work as well.

  1051. Thank you very much indeed. We have the paper you put into us earlier this year. Before we put any questions, is there anything you would like to add to the paper itself?
  ( (Ms Hutton) I think it is more in the nature of highlighting some of the things in here and first of all to emphasise that the National Consumer Council is a body which is there to articulate the interests of consumers, to make sure that those interests are heard by policy-makers and decision-makers as robustly as the interests of business or any other collective groups. Our fundamental position is that we believe that competition delivers most for consumers and that regulation is a surrogate for competition where that competition does not work properly and that of itself leads to a series of conditions where we think regulation is justified, particularly market abuse and protecting consumers in conditions where they cannot protect themselves. We believe that there are good reasons to have an independent regulator, notably the long-term outlook and also the freedom of the avoidance of political pressure and see that there have been very considerable improvements recently particularly perhaps in bringing together regulators to create a coherent regulatory structure — the creation of fewer more consumer focused objectives and better consumer representation. But there can be tensions with government particularly when the objectives are not clear enough in the first place and also where the locus of responsibility for social or environmental objectives is not clearly understood by the various parties. Finally, if regulators are to hold and maintain public confidence the regulators must be accountable to Parliament—and we do think there is room for some improvement there—and they must also be accountable to the public through clear independent operation, through good consultation and through transparency and openness. Thank you.

  1052. Thank you very much indeed. If we look at regulators and the statutes they create, some of those do encourage competition. What you are doing is effectively checking they are doing their jobs in that respect.
  (Ms Hutton) Yes, I think so. We see the promotion of competition for regulators on the whole as being a good idea although we would probably prefer to see an objective which said that the objective of the regulator should be to enhance consumer welfare, which is exactly what Adam Smith said and underneath that heading of consumer welfare a great many things fall, for example competition and competitiveness.

  1053. You are the National Consumer Council. We have had a number of several related bodies before us and one of the questions we have put to them, since they are there to represent the consumer, is how do you know you represent the consumer. How do you know what the consumer interests are? Is it some abstract perception? What is the method of consultation?
  (Ms Hutton) I think the first thing to say is that we do not represent consumers, we are not a democratic body and representation of consumers in that sense is for those who are democratically elected. What we  endeavour to do through qualitative and quantitative research and through policy analysis is to understand what the interests of consumers are. One of the advantages of not representing consumers is actually the interests of consumers are tremendously divergent and to try and pick your way through that combination of interests to come to something which you can articulate which represents the general consumer interest is a difficult and complex process. How do we know if we are accountable? We do a lot of consultation. We have just finished a consultation on consumer education which obeyed all the Cabinet Office rules on consultation and for which we had about 100 responses. We also run policy fora with various consumer organisations, I have lunches, we have seminars, we have Round Tables, there is a whole series of mechanisms by which we make sure we understand what the consumer view is. Since everything we say is public people soon let us know if they disagree.
  (Mr King) I would like to add another example of the way in which we try and help shape our thinking of what the consumer interest is. We have a consumer network which is a standing body of 200 consumers that we regularly survey and that helps to inform our thinking. When the Pensions Green Paper was published we sent a survey out to these people to test some of their thinking on some of the issues. Not an opinion poll-style approach trying to get a majority opinion rather to understand a little better the consumer experience and that can make a distinctive contribution to the debate.

Lord Fellowes

  1054. Paragraph 29 of your paper makes it pretty plain that you do not think that parliamentary accountability for regulators is entirely satisfactory. I wonder if you could elaborate a bit on that. You put one or two suggestions for how it could be improved. Do you think it is seriously wanting?
  (Ms Hutton) I do not think seriously wanting, but we do think there are ways it could be improved. One of the suggestions that has been made is that there should be a Select Committee solely for regulatory affairs. On the whole we are not in favour of that for the House of Commons partly because we believe that it is quite a good idea for understanding of regulatory matters to be spread right across members rather than located within one group and also the Select Committees in the House of Commons very clearly reflect government departments. We do think there might be a case in your Lordships' House for having a body which is specialised in this area as indeed you are through this Committee, particularly perhaps so that staff can build up a greater understanding of regulatory issues. We do also make the particular suggestion in the Commons that Select Committee debates are sometimes quite low key and happen to one side and that the transparency of the accountability could be enhanced perhaps through parliamentary debate on a subject rather than solely done on a Committee.
  (Mr King) Maybe I could add a few words from my experience of dealing with the Treasury Select Committee and my work on financial services. I think there have been a number of positive inquiries and really quite thorough ones where the FSA has been held to account normally on occasions where a mis-selling scandal has come to light, be it investment trusts or endowment mortgages or something of that nature. It is perhaps less strong in the way that it holds the FSA to account more generally across its statutory objectives. It does bring the FSA forward every year after publication of the Annual Report, but that tends to be one of the lower profile inquiries it conducts. They could draw in the views of more stakeholders before they conduct those investigations.


  1055. At the moment it is fairly sporadic because it depends on the Committee taking an interest in actually deciding to hold a session on the Annual Report. So you want more consistency?
  (Ms Hutton) Yes.

Lord MacGregor of Pulham Market

  1056. I fully take your point about some of the reasons for not wanting to see a purely regulatory committee in the House of Commons and I know only too well how each Committee can change its composition quite quickly and its interest in changing and so on. On the other hand, the regulatory process has grown enormously across a whole range of activities and there are regulatory issues as distinct from departmental interests. Do you feel there would be some advantages in getting that established in the Commons as well in a joint committee?
  (Mr King) I think it is an interesting idea. We would agree that the system is not perfect. It is trying to find a better replacement. I think there is a natural caution about suggesting a new committee in the House of Commons given the way in which they tend to be structured. We would be quite interested in the idea of a body that was able to build up specialist expertise on the staff as well. Economic regulation and the financial services side as well has been one of the growth industries in the last 20 years, but the network of people who are able to make informed comment on their work is actually not that wide. So some form of parliamentary body would be positive.
  (Ms Hutton) If I can just reflect, too, on some work I have been doing in another context. What you find is that although the subject matter that regulators are regulated on is widely different, nonetheless they do face fairly similar issues particularly in terms of governance and on these issues that you are looking at of independent accountability, I can see precisely the argument you are making. What I am fighting against is having regulation put in a little box that nobody else understands because I think it is becoming such a sophisticated area where on the one hand you are perceived as getting rather simplistic calls for deregulation and on the other hand sometimes we are perceived as putting forward equally simplistic calls for more regulation. The truth lies somewhere in the middle, to have a rather sophisticated understanding of what we are trying to do. I would like the understanding spread.

  1057. I understand the point. I suspect in the case of House of Commons committees there will be various committees—the Treasury Committee is a very good example—where because of the issues that are of current public concern that involve regulators they will want to be involved themselves. It does mean that if you are a select committee on regulators, it is excluding looking at regulatory matters in other committees. The Chairman asked you a question about your own accountability. I can see all the points you made and if you have some very powerful people within the Council who are advocating a particular line that could easily prevail. What checks and balances do you have within your governance to reach conclusions about lines you take?
  (Ms Hutton) About two years ago we had a complete overhaul of our governance structures, which was basically to sort out whether the board was there to be representative of or whether it was there for governance purposes. It is a confusion I see regularly repeated around the regulatory world. I am absolutely clear that our board is there for governance and that is the role they fulfil. They are smaller and slimmed down because of that and, by definition, that means that much of the responsibility for policy is devolved to the chief executive who is the accountable officer. The board decides the broad, strategic direction of the organisation and ensures that the organisation is value for money and is producing what it says it is going to produce. Interestingly, we did set up at the same time an advisory group which is about 40 people now, which was designed as a wrap around group to the board which I think of effectively as a group of shareholders. They are composed of stakeholders who are chosen from a range of interests from the  academic, to parliamentary, to business, to consumers. They meet twice a year. There are two purposes for that. First of all, to give us advice on what they think we should be looking at in terms of issues coming up and, secondly, to tell us whether they think we have done okay in the previous year. We are trying in an organisation where accountability is not easy to build in a whole series of mechanisms which give us that information. In formal terms, I should say that both I and my board were all appointed after open advertisement and interview.

  1058. That is the governance issue. The chief executive has a very powerful role in establishing policy on any particular issue.
  (Ms Hutton) He has.

  1. If there is a feeling either in the advisory group or on the board that the chief executive has gone too far or has got it wrong, is there any way of changing the policy position of the Council?
      (Ms Hutton) That has indeed happened. Generally speaking, the way it works is that having decided on a strand of work the board will have an early discussion which says: these are the parameters within which we are happy for this work to go ahead. We would then bring that work back at a half way stage to say: what are the emerging issues you are finding here? Why are consumers affected? How are they affected? What might the solutions be? That getting it back at the half-way stage gives you the opportunity to say that the board thinks this is not going in the right direction. It would come back finally when finished, but if we have done our job properly early on that should be a sign-off. The more difficult issue arises when responses are reactive to things that are coming out of government or any other source on a daily basis, where you have to have faith in your chief executive that he is going to do that properly. One always has the mechanism to haul them over the coals later if they do not. I think the mechanisms are pretty good.

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