Examination of Witnesses (Questions 1060
WEDNESDAY 12 NOVEMBER 2003
Lord Jauncey of Tullichettle
1060. In paragraph 33 you suggest that the regulators
should commission their own consumer research and market intelligence.
Would you like to expand on that a little, particularly on what
you have in mind?
(Ms Hutton) On the whole, industry is pretty effective
at ensuring it gets its views across. They have both the community
of interest and the resources to do so. The consumer interest
is highly disparate, so we believe that it is sensible for regulators
to ensure, first of all, that they have the consumer view. They
will probably have to go out and quite deliberately find that.
Secondly, they must understand the breadth of that consumer view
and the way in which whatever policy they are proposing or regulation
they are proposing would impact on it. That is fundamentally the
(Mr King) I would consider this as part of the process
of drawing together a cost benefit analysis or regulatory impact
assessment of proposals to potentially bring about significant
changes in the market as a consequence of your regulations. Examples
would be the FSA's recent changes to the regulation of financial
advice and the removal of the polarisation rules. The FSA have
conducted quite a bit of consumer research to understand better
consumers' relationships with advisers and their understanding
of the term "independence" and those kinds of issues.
It is highly important. With different groups of consumers, certainly
you do need to have an understanding of specific issues faced
by more disadvantaged groups, be it access to utilities or different
payment methods. That is the kind of thing you can get, more
from qualitative than quantitative research.
1061. Do you think regulators have the financial
resources to have this undertaken on their behalf?
(Mr King) Regulators have quite considerable resource
budgets relative to the National Consumer Council. Some of the
regulators have got better at consulting in their forward work
plans about the kind of research they plan to do in the year ahead
and that is very useful.
(Ms Hutton) There is a further issue which is one
we have discussed at some length with the Competition Commission.
They do not have an instinctive understanding of consumer issues.
Derek Morris would say that himself. In conversation with him,
we felt that quite a good way of cooperation would be for him
to come to us with a particular market inquiry and say, "What
might be the consumer issues?" He has a lot of staff and
resources to go out and do the research but what he felt he could
usefully have from us was the expertise which helped him direct
that research. He was quite clear that he needed it, but he was
not so clear that it was being pointed in precisely the right
1062. You have a hierarchy of regulators in
terms of those who are quite good at consulting and those who
are less good. Perhaps it would be a bit invidious to ask for
(Ms Hutton) We think it is tremendously important
that regulators, when they are communicating with the public,
do it in a way that is accessible. Some regulators are better
at that than others. One of the things, for example, that the
FSA has done which we thoroughly approve of is that, in their
consultation papers they flag up issues that are of interest to
consumers early on. Although it may seem to you that there are
a great many consumer bodies out there, most of them are incredibly
hard pressed to try to deal with the enormous range of stuff which
is thrown at them. That kind of signposting is very helpful.
1063. There is a dissemination of best practice
for regulators in terms of how they go about it?
(Ms Hutton) Certainly.
1064. In paragraph 38, you tell us that the
National Consumer Council used the opportunity of an appeal from
Oftel's cap decision to the Competition Commission to argue a
case strongly. Then you comment that consumer groups do not have
an equivalent right of appeal. What was it that gave you the locus
in this case which was denied to them?
(Mr King) Without going into the extended debate surrounding
this particular case and the arguments that have gone on for at
least two and a half years now, we were campaigning for quite
some time for price regulation of calls to mobile phones, be it
from fixed line to a mobile network or across different mobile
networks, based on economic analysis.
1065. I am not sure you got my question, which
is what was it that gave you the locus to intervene when
other consumer bodies could not or vice versa?
(Ms Hutton) The issue is that we do not have a formal
right to appeal decisions. We think that if industry is going
to have a formal right to appeal decisions, it would probably
be a good idea if consumers did as well. The way in which we participated
in this debate was fundamentally through rather ordinary campaigning,
press releases through the papers, talking to the regulators.
We did not have that formal channel but we used the normal lobbying
1066. You do not have formal access? You cannot
be a third party?
(Mr King) No. Maybe an analogy here might be with
the new right of National Consumer Council and other consumer
bodies to submit a super complaint to the OFT if we think there
is a market problem. To get super complaint status, we had to
comply and prove that we were a body fit to represent consumers
and capable of doing that. Therefore, at a later stage, we could
submit a super complaint if we wished. In that sense, we have
established a locus as a consumer representative body.
In this case we are able to input and represent the consumer perspective
to Oftel. Whereas the relevant companies could appeal if they
were unhappy with the decision made by Oftel, despite the fact
that we made an input, we would not be able to appeal against
that particular decision and take it to the Competition Commission.
1067. Do you think that the regulatory systems
ought to have a third leg so that you have the regulated enterprises
and the regulator and a formal representation within the appeals
process for consumers? If so, would that be best done centrally
by you acting on behalf of the bicyclists or the radio operators
or whatever, or would bicyclists and radio operators represent
(Ms Hutton) First, we would be very happy to have
an equivalent status to industry in appealing decisions. Where
there are sector specific consumer bodies, it is clear that they
should do it. There is absolutely no point in duplicating. Where
there were issues and there was no sector specific body and it
appeared to us that there was a significant detriment to consumers
that we ought to be interested in and worried about, we should
do it, but we would not necessarily assume that the bicyclists
could not do it themselves. I suppose our watch word is that we
never do something that somebody else can do better than we can.
1068. But you will do something you can do better
than they can?
(Ms Hutton) Absolutely.
1069. In the preceding paragraph, your last
sentence suggests regular interchange of staff between regulators
and consumer bodies could have a positive effect. Have you tested
this view on any consumer body or any regulator?
(Ms Hutton) Yes. We do have, for example, two secondees
at the moment, one from the Food Standards Agency and one from
the Financial Services Authority, which works extremely well and
they rather enjoy themselves. We see that as a wholly positive
1070. When they returned to their native heath,
did they conduct themselves differently from how they acted before?
(Ms Hutton) Or did they sink without trace? We had
a secondee from the DTI. She has gone back to the DTI and I think
would say that in the work she is now doing the experience she
gained has been extraordinarily helpful because she deals with
sponsorships of consumer bodies. The secondee from the Food Standards
Agency who went back had a much better understanding of what worried
consumers and the way it might best be handled, which they have
taken back to the FSA. We have not yet had a secondee go back
to the financial FSA so I cannot answer your question but it seems
to me that if you believe that there is benefit in an interchange
of secondees between industry and regulators then an interchange
between regulators and consumers is a similar thing.
1071. Which can be done without legislation.
(Ms Hutton) And it can be done without legislation,
yes, as we have just proved.
Earl of Mar and Kellie
1072. I am interested by the concept of the
consumer interest. We were given evidence by those who regulate
electricity that they had been instructed by government to view
the consumer interest as being a low price for electricity. This
has had the effect of creating considerable difficulty, if not
bankruptcies, for the greener electricity generators. Therefore,
today's cheaper electricity would appear to be being created by
the less green, more primitive forms of generation. I am therefore
suggesting that the government got the consumer interest wrong.
Is that the sort of thing that your Council could do anything
(Ms Hutton) Yes. It is interesting. It goes back to
my initial statement. You have to be clear about who is responsible
for social or environmental objectives which are usually subsidiary
objectives to competition. We are generally pleased to see that
the regulators largely now have a responsibility for low income
consumers. I understand the point you are making and the difficulties
that that can lead to. One straightforward, economic response
is that this is nothing to do with regulators. If you are a low
income consumer who has a problem affording these essential goods
and services, it should be given to you through the benefit system.
One of the difficulties we have with that is that we do see quite
a lot of reverse subsidy going from the poor to the wealthy. The
straightforward, economic system of saying, "This is nothing
to do with the regulators" we find slightly worrying because
if you unwind some of those reverse subsidies there may well be
ways of bringing low income consumers into the market which would
be a better way of doing it than doing it through benefit. Although
I am not answering your question directly, which I appreciate,
we do think there are some difficulties which are not yet properly
thought through about where the responsibility for environmental
and social obligations lies. With environmental obligations it
is particularly difficult because you are not just balancing the
interests of various groups of consumers; you are balancing the
interests between current and future consumers which is an even
more difficult equation to get right than the one we currently
have to deal with.
(Mr King) I am sure the regulator in energy would
probably say this as well, but it is important to state that just
because a high price company has gone bankrupt it does not indicate
in some way that competition has gone wrong or that the consumer
interest has not been reflected. That could be seen as an indication
that competition is working rather well. If there is a view that
the price does not fully reflect the environmental costs, that
is a wider decision that has to be made at the government level
in setting a framework rather than at the regulatory level, although
the regulator may need to implement within that kind of framework.
I am sure that will be a debate coming out from the Energy White
Paper. Sustainable consumption is something that we do think about.
One of the pieces of research we have done quite recently testing
the attitudes of consumers on quite low incomes showed a not very
simplistic analysis. People were not interested just in low prices.
Certainly price can be a big factor but there are other issues
in terms of simply finding it difficult to get access to what
you might call green choices. While there might be quite a desire
to engage people in sustainable consumption, sometimes it is quite
difficult for people to implement that well in the choices they
The Committee suspended from 5.30pm to
5.38pm for a division in the House
Lord MacGregor of Pulham Market
1073. I wanted to ask about your paragraphs
in relation to the relationship between the government and regulators,
particularly paragraphs 25 and 26, where you say that it is not
clear if the division of responsibilities works as well as it
might. How do you think it might work better? Secondly, on the
examples you give of stakeholder pensions and, in paragraph 26,
protecting disadvantaged consumers, I imagine that could be in
relation to water charges or whatever you might wish to raise.
Is there not a danger here, if the regulators move so much into
those areas, that they are straying into policy issues and issues
that are really for governments rather than for regulators? It
is perfectly reasonable for all sorts of people to make representations
but if the government does come to the conclusion that they may
have stakeholder pensions moving better than they are and that
one way of doing it is being slightly criticised here. Is that
not for government to decide? The government is ultimately responsible
to the electorate for those sorts of decisions. I do not mean
just at election times. Should policy decisions of that nature
by the responsibility of the regulator and if they are where is
the right of appeal against a policy decision that is taken, unless
of course the government decides by legislation to overrule the
(Ms Hutton) I think you put your finger on an enormously
difficult area. Looking over the piece at regulation generally,
it seems to me that there has been a move towards giving regulators
sets of objectives which almost inevitably result in them doing
something which could in other words be called policy. That is
partly a consequence of giving very broad, over-arching objectives.
Here is the tension because on the one hand we would approve of
the clarity of a broad, over-arching objective; on the other hand
that almost inevitably means that if you have subsidiary objectives
those trade offs are going to be made within the regulator. Hence,
is that policy? There are a variety of ways to deal with that.
One is absolutely to take that back into government, being very
clear that government does all policy and all a regulator does
is execute it. That is tremendously difficult in practice. The
other way of handling that is for the regulator to be tremendously
transparent in the way it sets about that handling of conflicting
issues so that nothing is done behind closed doors and it can
be seen whether they are doing that in a sensible, useful and
friendly way, always bearing in mind that government has the right
to haul them in and say, "You have failed to fulfil your
duties under the law." The particular difficulty for the
FSA is that the government for perfectly valid reasons wishes
to extend pensions and stakeholder pensions. The FSA has a set
of rules which says that people must only be sold to on a responsible
basis. The regulator finds itself in a position of tension, where
being asked to do something would infringe its own rules of operation.
The FSA can answer this much better for themselves, but it is
notable that in this particular area most of the consumer bodies
and the industry bodies, on the whole, feel that the FSA has a
pretty difficult role to play.
(Mr King) I think it is important to be very clear
all the time about the sort of markets that we are talking about
here, in the case of utilities they are essential products or
services. In the case of pensions, they are becoming increasingly
essential in terms of the products that the FSA regulate. Therefore
it is not good enough for those from an economic perspective to
purely see it in terms of pursuit of economic efficiency as what
regulators need to think about while social policy is something
for government and if they want to do something they can increase
income support or something like that. It is just not in the real
world. The trend under this government which in general we would
support is for regulators to take account of some of these access
type issues. The difficulty arises if it is not absolutely explicit
what the regulator has to do in these terms. They might be encouraged
informally to do this rather than with clear guidance or clear
objectives. In relation to the stakeholder product question, this
is a very interesting area because the FSA is not an economic
regulator but economic regulation is arriving in the financial
services context. We have some concerns about the manner in which
this is occurring because unusually the Treasury is setting price
caps whereas with utilities there are very well developed, independent,
arm's length mechanisms for setting price caps which are very
good. There are some particular issues that are slightly beyond
the remit of the inquiry but it might be worth flagging up that
they are quite interesting in relation to stakeholder pensions.
You also have something of a tension between the consumer protection
perspective of the FSA and some wider public policy objectives
of the government in relation to the savings gap. It is quite
an interesting example. There is not quite clarity about which
bodies are responsible for what.
1074. I am not sure that it does come within
our terms. I suppose you could say it deals with accountability
but focusing on pensions for one moment, if the government were
to decide to relax the FSA rules applying to pensions, some of
the arguments might be that unless you do this accountable people
to whom the stakeholder pension is directed will certainly not
be interested. If the government did that and subsequently the
FSA had a complaint about mis-selling and wanted to look at it,
it is quite an interesting issue as to where you come out at the
end of all that.
(Ms Hutton) Yes. One of the difficulties with financial
services is that you do not necessarily understand what the difficulty
is for 10, 15 or 20 years, which makes it a tremendous problem.
It goes to the heart of what this particular balance is, because
if government told the FSA what to do there would be an interesting
question as to whether the FSA was or was not an independent regulator.
1075. Absolutely and if the government had perfectly
legitimate objectives which they were by and large succeeding
in but there was this complaint from some small quarters about
mis-selling, has the FSA the right to step in? Who do they bring
in front of them? Do they bring in front of them the providers
or is it the government? There are some quite interesting tensions
there and accountability is not entirely clear to me.
(Ms Hutton) It is not, although I suppose one answer
is to say that the theory behind these sorts of products is that
they are so simple and clear and non-toxic that the companies
selling them can be given some kind of regulatory safe haven in
selling them. I only put that forward as the argument that is
presented, rather than an argument I necessarily agree with.
(Mr King) The view of the National Consumer Council
is that the FSA should not remove those regulations in relation
to the sale of their products precisely because they are not as
simple as they might be for people on low incomes, because of
the interaction between state pensions and private pensions.
1076. You said at the beginning that you were
a creature of statute. You did not use those words, but you were
put in the position by government.
(Ms Hutton) If I can interrupt for a moment, we are
not founded in statute. We arose as a result of a White Paper
in 1975. That is partly a benefit because we have to prove that
we are good enough constantly to be maintained.
1077. You exist to promote the interests of
consumers. If it seems that the government is pursuing a policy
towards its regulators which is anti-consumer, would you promote
the consumers' cause to the government and, if so, by what means
and to whom?
(Ms Hutton) Can I take that as a rather general question
which is, as a body funded by government department, do we find
it easy to disagree with the government when they are doing something
we do not like? We have a track record in doing that. To give
you a specific example, when the Enterprise Bill was going through
Parliament last year, while we supported the Enterprise Bill,
we also wanted to see in there what was then called a general
duty not to trade unfairly. The DTI was very opposed to this.
1078. How did you approach that?
(Ms Hutton) We ran a campaign called Stop Shark Practices
which identified where the gaps in the legislation were. We talked
to civil servants. We talked to ministers. We ran a campaign in
newspapers. We lobbied back benchers on the standing committee.
We worked quite hard at it. In the long run, we won because the
Minister agreed during the course of the Bill that this would
be something that would need to be looked at in the future and
indeed it has been, because the DTI is now adopting a rather different
stance. The European Commission has produced a draft directive
and its language uses the language of the clauses that we suggested.
Of course, we have to be skilful, sensitive and sensible in the
way that we lobby but we have a very good track record on standing
up for what we think is important. Often the way you do it is
the thing that allows you to be robust.
- Your relationship with government does not inhibit
(Ms Hutton) No.