Examination of Witness (Questions 448
MONDAY 17 JUNE 2002
Chairman: Professor Cave, thank you very much
for coming to see us. We shall start off with a question from
Baroness Cohen of Pimlico
448. I am asking the kind of core question.
Are you satisfied that the draft Bill, and clause 112 in particular,
provides the clear defining line that you were looking for between
OFCOM's functions in spectrum management and the strategic, political
role of the Secretary of State?
(Professor Cave) I am familiar with clause 112, yes.
My concern in relation to clause 112, I think, begins with subsection
(4) which gives the Secretary of State very substantial powers
to make directions in relation to such matters as the way in which
spectrum trading might be organised and the way in which auctions
of spectrum might take place. My preference would be for a division
of labour which put that particular aspect of the regulatory activity
on the OFCOM side of the fence rather than the Secretary of State's
side of the fence. I say that because I think it is essentially
a sort of subordinate technical function rather than a strategic
issue; and secondly, I think that in the long term the Secretary
of State might be glad not to be intimately involved in what might
be very difficult technical decisions for which he or she will
be subject to a great deal of lobbying.
449. As a supplementary on that, when I was
a civil servant, some 20 years ago, it was rare for Secretaries
of State to go round giving directions either general or specific;
it was always taken as a reserve power, but not much used. What
was envisaged here at the policy end, can one of the Bill team
(Mr Green) There is a fairly strict test or hurdle
for the Secretary of State to overcome before giving a direction.
It is clearly not something that is done lightly or every day
of the week. For example, it is necessary for the Secretary of
State to go to Parliament and effectively get the direction confirmed,
otherwise it ceases to have effect. So what the Bill tries to
balance is the degree of intervention on the one hand by ministers
on matters which are of wider public interest, with ensuring a
degree of transparency and parliamentary accountability.
450. Professor Cave, can I take you back? Does
that solve some of your problems with clause 112(4)? It seems
to me that the Secretary of State really is not going to do anything,
(Professor Cave) On that footing, the thought comes
to my mind that if the Secretary of State did not use the power
then perhaps it might be better, in the interests of certainty,
for the power not to be available to the Secretary of State.
451. Is this a fair view of the matter, Mr Green?
I cannot quite see what it is doing either, you see.
(Mr Green) Maybe it would help to take a hypothetical
example. At the top level of the powers of direction there are
matters of national security and public safety and so on which
are pretty standard, they are in the earlier clauses of the Bill.
When one comes onto spectrum, I guess the question is the extent
to which ministers need to be involved in the wider public interest,
bearing in mind that, for example, the remit of OFCOM on spectrum
management will go much wider than just telecommunications and
broadcasting spheres, so across the broad spectrum. The decisions
that OFCOM will take will be, for example, on spectrum would one
say that ministers should not be involved in the decision when,
say, the analogue television broadcasting is switched off, what
is going to happen to that spectrum, should it be devoted to mobile
services, should a certain amount be set aside for broadcasting?
Then there is a legitimate question, it seems to me, which is,
are we saying, or should the Committee consider, that that is
something that ministers should not be involved in at all, it
should be left totally to the independent regulator? The other
point of view is that this is a matter of major national strategic
importance bearing various implications for public policy, and
it is right that ministers should be allowed to become involved,
subject, of course, to the parliamentary accountability that I
referred to earlier.
Lord Pilkington of Oxenford
452. What would they do? In terms of parliamentary
accountability they would have to come before the House with a
regulation, would they?
(Mr Green) The direction would have to be confirmed,
I think it is, within 40 days, otherwise it will cease to have
Baroness Cohen of Pimlico: Negative resolution?
Lord Pilkington of Oxenford
453. What would it be? Could you explain this?
(Mr Susman) This is a relatively rare form under which
the order contained in the direction is made first, then laid
before Parliament, but it will lapse unless both Houses approve
it within 40 parliamentary days.
Baroness Cohen of Pimlico
454. Professor Cave, did you have a point to
(Professor Cave) Yes, can I make an observation. My
remarks related to subsection (4) of that clause, not to section
3 which, as I understand it, permits the Secretary of State to
give directions over the allocation of the assignment of spectrum
in certain circumstances. I would certainly regard it as being
appropriate for the Secretary of State, for example, to decide
whether spectrum should be allocated to public service broadcasting
or to a commercial use. I would regard that as being a decision
which related to a key policy output, and that, in my view, is
the appropriate sphere for Secretary of State decisions, whereas
the ways and means of conducting auctionsfirst-price auctions,
second-price auctions, things of that kindseem to me to
be something better done by the appropriate agency.
455. Following on from that, if your general
aim is to get the public sector to pay a market price for its
spectrum, do you think the Bill has the balance of powers right
between OFCOM and the Secretary of State in determining those
prices? If you fear lobbying on technical matters, you are also
going to get lobbying on prices from the public sector, are you
(Professor Cave) I understand that the system that
is proposed is broadly the system that operates at present under
the Wireless Telegraphy Act 1998, and that is the system by which
at the moment the Radiocommunications Agency establishes a price
under the ministerial guidance associated with the implementation
of policy in this regard, then sends the Bill to the department,
the department obviously has the opportunity to see if it is being
overcharged for spectrum which does not qualify under the arrangements,
and that broadly speaking it pays up. That is the arrangement
which I think ought to exist. Even though under clause 119 it
is indicated that the payment is, as it were, made by the Secretary
of State rather than demanded by OFCOM, I think that in essence
if the current arrangements persist then the system for charging
for public service spectrum will work.
456. But if the system that is operated produced,
say, for the Ministry of Defence a kind of fivefold increase in
the charge, you do not think that the Ministry of Defence would
go running to its Secretary of State and start pleading poverty
and using its not inconsiderable influence to get the charges
(Professor Cave) One of the aspects of the situation
which I tried to emphasise in my report is that spectrum is simply
an input into a whole range of production processes, and the Government
has its own quite independent point of view of the level of output
from those processes. In the case of defence spending, if the
Government took the view that spectrum charging should be levied
on the Ministry of Defence, then in my view, in order to maintain
the appropriate level of defence services for the nation, it also
ought to revisit the defence budget in order to ensure that the
nation is buying the appropriate level of defence services. Obviously
there is a risk in the arrangement that I have described that
you end up with something like a money-go-round where the money
goes to the Treasury and then it goes back to the Ministry of
Defence. I discussed in the report in various places how you might
try to produce a system which would ensure that there was an appropriate
provision of all public services, including defence and public
service broadcasting, but at the same time that there would be
an incentive for the organisations involved to work in the long
term to reduce their use of spectrum. It clearly does require
the participation of the Treasury, particularly as it is the public
spending agency in this process, because it has to co-operate
in ensuring that the incentive system works, because if it is
just a money-go-round you may as well not bother.
Lord Pilkington of Oxenford
457. Do you think the money ought to be used
for the benefit of the general public, like a question I asked
earlier, to help the transfer from analogue to digital, for example?
Should it go into a pot, in other words, and not go on the money-go-round
that you describe?
(Professor Cave) Broadly, if there were any savings
as a result of more efficient use of the spectrum, then I think
they should be used for the benefit of the whole populationit
might be tax cuts or whatever.
458. How is this situation going to shake out?
I am not experienced on spectrum, but I have some past experience
of trying to get the Ministry of Defence to disgorge land, so
I am scarred. The money-go-round is just the point that seems
to put a flaw in your method of making the Ministry of Defence
disgorge its spectrum, because what it will then certainly rush
along and say is, "If we have to pay this spectrum price
then there will be so many fewer tanks or so many fewer this,
that and the other." They are expert as well at working out
what will be the most painful thing for ministers to sustain to
carry this through, so they will simply take from Peter to pay
Paul, and you will not actually get them to disgorge the spectrum
that they are hoarding, will you?
(Professor Cave) What underpins the mechanism is the
commitment by the Government of certain public spending targets
over an extended period. So the footing upon which it would work
would be that the Government takes a view as to how much spectrum
the Ministry of Defence might appropriately need. It is difficult
to do that, I acknowledge, but that could be a scheme that was
developed over a period of time. It would then factor into the
Ministry of Defence budget an amount to pay for that spectrum.
If the Ministry of Defence found a whole lot of spectrum that
it did not need, which it was able to hand back or to lease, or
to do something of that kind, then that would be extra revenues
available to the Ministry of Defence to spend. I understand a
system like that works with the sale of Ministry of Defence land,
and I am told by some peoplealthough you have contradicted
itthat it has in fact caused the Ministry of Defence to
dispose of a certain amount of its land assets, on the basis that
it has been able to keep some of the revenues from it. So it is
absolutely essential to have that kind of regime in place.
459. To come full circle to clarify this, you
think that the Bill as written gives enough powers to do this,
and that it does not need any strengthening of the OFCOM powers?
(Professor Cave) When I first read 119 I was rather
disconcerted that it seemed that the payment was voluntary, rather
like those restaurants where they ask you to pay as much as you
feel you need. Normally those do not last for very long, I think
I am right in saying! However, on having taken further advice,
I think that there are constitutional difficulties in entrusting
to OFCOM a power to levy charges on government departments and
on Secretaries of State. If that is indeed the caseand
I am no legal expertthen the current wording which actually
replicates, I understand, the arrangements which operate at present,
does seem to me to be satisfactory.