Examination of Witness(Questions 80-99)|
WEDNESDAY 12 FEBRUARY 2003
80. I am also interested in the issue surrounding
fuel poverty. How much did the regulator get involved with things
like the amount of help people were given to pay their electricity
bills, or did you get involved in that type of what might be suggested
to be micro-management? Did you in fact set a standard of how
electricity companies were to deal with people in such circumstances?
(Professor Littlechild) Yes, we did.
We were very conscious that it was quite an important political
and social issue, and we wanted to ensure that the companies were
more responsive on this. For example, one of the very first things
I did was to look at what had happened to disconnections in the
gas industry. When the gas industry was privatised those disconnections
absolutely soared and there was a tremendous outcry about that.
I said to the companies, "We don't want that to happen here.
We want the number of disconnections to go down and not up".
We took two steps. First, we said, "We are willing to allow,
indeed we are prepared to encourage, the use of prepayment meters",
which would enable customers to know how much electricity they
were using as they were going along and budget for it. Secondly,
before disconnecting anybody we required the company to go through
a procedure of ascertaining what they could afford to pay in the
way of paying off their debt, for example, and not simply saying,
"You haven't paidwe cut you off". That meant
in some cases that, instead of allowing customers, say, a month
or two months to pay off their debt before disconnecting them,
they would have to allow, say, a year. Both of those steps proved
tremendously effective, I think, with respect to disconnections
certainly. The number of disconnections when I left was down to
about 1 per cent of what it was when I came in. There were two
or three companiesLondon was one, and I think there were
two or three othersthat had not disconnected a customer
for a year or two. This was a dramatic change. We were therefore
very conscious of that and we worked with the fuel poverty lobbies
in that area. I guess the second thing we would do would be to
try to encourage Government to take some sort of responsibility
where customers simply did not have the money and were not likely
to have the money. We said, "We can't really go about reducing
the price of electricity, either across the board or selectively,
just because of this. Maybe some of the poverty payments that
are made could be channelled directly, if that were to help matters".
Thirdly and above all, we took the view that if we could get the
price of electricity down as far as possiblewhich meant
making the companies more efficientthat would be by far
the best way of helping people across the board. So we had a broad
range of approaches.
81. On page 5, under "Accountability to
Parliament", you make plain that you take very seriously
the accountability to Parliament; but before that, at the bottom
of page 4, you also make it plain that you consider that there
are implications, because of the "considerable overlapping
of government and regulatory actions", for the working relationship
between Government and regulator. Does it mean that you are concerned
that the regulator may come to be seen, even if he does not see
himself, as a creature of Government rather than an independent
figure, working on the whole on the behalf of the consumer?
(Professor Littlechild) I did not so
much have in mind that he or she may be seen not to be independent,
though I think that is a consideration. It was primarily the fact
that if governments took the view that in general they were either
to do the same things as the regulator, or do things instead of
the regular, or second-guess the regulator, this would reduce
the effectiveness of regulation. It would reduce the confidence
that all parties in general would have in the way the regulator
worked. It was therefore the substance rather than the perception
that I was concerned about.
82. You have never felt at any stage that you
were leant on by Government?
(Professor Littlechild) I did not, on
the whole, because I had a Government that broadly took the philosophy
I explained in my paper"We think it is better to step
out of the involvement in this industry"and therefore
there was not a difficulty. There are areas where they took a
view that I would have preferred them not to have taken. I would
have preferred, in some ways, a little less involvement at the
very end in the New Electricity Trading Arrangements. I suppose
I took the view, however, that they had a legitimate interest,
they had views to express. I took account of those interests and
I was not precluded from saying what I wanted to say and doing
what I wanted to do.
Lord MacGregor of Pulham Market
83. I think that regulators have a very difficult
task, not least because you are having to stray into areas that
are almost political. You are making a one-man judgment on issues
that people have all sorts of different views on. Some of the
points you raised in answer to the Earl of Mar and Kellie are
in that area. I wanted to explore a little with you the point
about being prosecutor and judge, as you have put it in your paper.
When you were a regulator, to whom did you feel you were accountable?
To whom did you think you had to justify your decisions? In the
judge's case there is an appeal to a higher court. Were you ever
conscious of the need to take account of higher courts who might
question or overturn your decision?
(Professor Littlechild) First, I agree
with your point about the political context. After all, regulators
are taking decisions that previously had been the decisions of
Government. Part of the reason they have got them is because they
were such uncomfortable decisions for politicians! Who did I think
I was accountable to? I would say no one single person or organisation,
because otherwise one would simply be carrying out the orders
of that organisation and there would not be such a thing as an
independent regulator. If anyone, it would be Parliament. The
various select committees of Parliament, it seemed to me, discharged
their duty of appraising what regulators were doing. We were always
very conscious that the media was following practically everything
we did in great detail. They would always want to run a story,
as of course they do about politicians, if they sense anything
can be made out of it. That would include the investment analysts
and the financial community, who would be constantly commenting
on regulatory judgments in their reviews, and that would often
make its way into the press or on television. Of course, what
are sometimes called the stakeholdersthe customers and
the companieswere constantly expressing a view about what
we were doing. I suppose you could also say Government, in the
sense that there is a formal ability of a government to veto a
licence modification. In a sense, therefore, you have to carry
Government with you when you have in mind to make a change. So
all those constituents, all those groups, we felt we were having
to explain ourselves to and to justify what we had done. Did we
feel there was a higher court? Very definitely. There was the
Monopolies and Mergers Commission, now the Competition Commission,
without whose approval the regulator simply does not have the
power to change the licence and impose anything on any of these
companies if they do not want it. That was a very real threatthat
the Commission would refuse. I suppose that a reference to the
Commission happened to me three times; it has happened to my successor
about three times.
The judgments have sometimes gone in our favour and sometimes
gone in the favour of the licensee. We have always felt that we
have had to explain ourselves in great detail, because the first
thing the Commission will say is, "Why did you do that? Give
us your reasons". Unless they look convincing, you are going
to lose. I was therefore constantly saying to myselfwhen
I made a decision, when I made a proposalif it came to
it, could I justify this before the Competition Commission? That,
I found, was a very significant factor in my decision-making.
The second factor is the judicial review. I was judicially reviewed
three or four times; I am not sure about my successor's situation.
You win some and you lose some. I am sorry, I did not mean that
lightheartedly! I won some and I lost some. Again, it was a very
thorough investigation. I think what this means is that anybody
potentially adversely affected has a real, practical possibility
of challenging what the regulator does, and there is evidence
that parties have challenged and have won.
84. That is very helpful. In fact, Ian Byatt,
in front of us last week, made the same points about the Competition
Commission and judicial review. Could I explore one or two of
the bodies in a little more detail, just to be clear? The National
Audit Office is one you mention in your paper but did not refer
to just now. In terms of the National Audit Office, was that just
the cost-effectiveness of your operation and the value-for-money
aspects, or did it stray into policy?
(Professor Littlechild) If I recall
correctly, all this is presented as value for money, is it not?
I suppose, however, that the National Audit Office takes quite
a broad interpretation of what that is. Since the regulators are
influencing the expenditure of rather a large amount of money,
that does not seem to limit to any degree what the National Audit
Office thinks it can look at. The first one that I recall was
really a question of are the regulators doing a good job, what
changes have happened in the industries, and to what extent can
they be attributed to regulation? After that, it looked a little
more specifically at, for example, whether the costs of opening
up the whole of the domestic market to competition were worth
incurring. So I think there has been a mixture as to how specifically
they have looked at cost-effectiveness.
85. That means that in some cases it can be
a very detailed investigation of the attitude you are taking to
the way you approach the job of regulation.
(Professor Littlechild) I think that,
with their latest investigationthe report was entitled
Pipes and Wiresit amounted to saying, "Is the
RPI minus `x' form of price control the appropriate control or
not? What have people said about it? What do the regulators say
in response?". That is quite a wide-ranging issue, I think.
86. In terms of select committeesI will
say this, perhaps you cannotselect committees from time
to time do vary enormously in their effectiveness, the way in
which they approach their task, the number of people who attend,
and all those sorts of issues. How did you see your relationship
with the select committee? Was it something that you felt enabled
you to justify your position and to answer criticisms, or were
you concerned that the select committee might make recommendations
which could affect the way you worked? Do you see the distinction
I am trying to draw here?
(Professor Littlechild) Both of those
things were true, and I think that you are right about the mixture
of the select committees. That, in a sense, is part of their strength
as well as part of the problem from the regulator's point of view.
You have people coming from very different perspectives and political
attitudes, with very different concernssome sympathetic
to some of the things you are doing and some not sympathetic.
That, in a sense, reflects the country as a whole, and you have
to explain yourself to everybody. I never had any criticisms about
not being given the opportunity to defend myself. I knew the kinds
of things that were likely to be on their minds and I was given
a fair opportunity to say what I wanted about that. Of course,
one does not always agree with the conclusions that come out.
As you say, it is not just conclusions but it is recommendations.
Sometimes I did not find those helpful and sometimes I did. If
you do not find it helpful, having considered the matter later
on, you have to explain why you have not gone along with it; but
that does not seem to me to be a bad thing. That has to be accepted.
I suppose I did sometimes feel that the publicity given to these
reports, and the press releases written associated with them,
did not entirely reflect an unbiased account of the contents of
the reports, but maybe that goes with the territory.
87. I was at a meeting last night where the
chairman of one of the select committees was complaining that
the way in which the media had treated her report did not actually
reflect what they were saying! The last question on this aspect
is this. You seemed in your paper to be slightly doubtful about
the value of a board, as distinct from a single regulator. One
other point you make, quite legitimately, is that it slows up
the process and does not necessarily mean consistency and continuity
in the same way as you will get from the regulator, if the board
changes. I wonder if you feel that is a price you have to pay
for having a wider set of viewpoints about the regulatory process
you are engaging in from a well-chosen board?
(Professor Littlechild) I agree that
there are pros and cons. I served as a single regulator and I
did not serve as part of a board, so I do not have direct experience
of that. I did serve on the Monopolies and Mergers Commission
for about eight years, in which one operated in panels, so I had
some feeling for that variant. I think that there is something
in what you say about being a price you have to pay for getting
the advantages of a board. However, I thought that I could get
quite a lot of the advantages of different points of view by bringing
in advisers to help me on specific issues. On the price control,
for example, the first time round we had technical advisers, financial
advisers and so on, but we did not have any businessmen there,
and I felt afterwards, "That was a limitation. I wish I'd
had a businessman on". The next time round I had a panel
of three very distinguished and senior businessmen to help me
on that aspect of it. I think I felt that, insofar as I needed
different views, I could get access to them as an individual regulator.
However, it is true that, if you have a board, you have those
various views not just for one topic but on an ongoing basis.
There is something to be said for that, and there is something
to be said for having a board so you can say, "We have taken
the view" and not "I have taken the view".
88. Perhaps I can ask a supplementary on the
first question Lord MacGregor raised. I noticed in your paper,
when you referred to the potential to appeal to the Competition
Commission or the use of judicial review, you said you thought
that had been used effectively and not excessively. I think that
in answer to that first question you gave some indication of the
quantitative aspect not being excessive. I did wonder how you
defined effectiveness. Do I infer from your first answer it was
the fact that sometimes people are able to appeal and to win their
(Professor Littlechild) I think that
it is two things. It is that, from the point of view of the licensees
or those who appeal, they feel that they have got justice; there
has been a mechanism for appealing against the regulator, and
it is effective from their point of view. I am saying it is effective
from the regulator's point of view in that one thinks very seriously
about one's decisions. There is no doubt at all in my mind that
having that possibility out there, to some extent modified either
the substance or the timing of what I did.
Lord Jauncey of Tullichettle
89. Pursuing Lord MacGregor's point a little
further, did you ever feel that you would have been happier if
you had had a board with you to join in the taking of the decision,
or were you perfectly content to make the decision yourself, guided
by such expert advice as you have just been describing to us which
was available to you?
(Professor Littlechild) It certainly
was a lonely job at times, particularly when you had made decisions
that were not popular and you had to take the stick all on your
own. I do not know whether at that point my reaction was, "I
wish I had a board" as much as, "I wish I had done it
a little bit differently"as an individual. Sometimes
you think you are right"I have just got to explain
to the world". Sometimes you think, "In retrospect,
I should have given a little more weight to this or a little more
weight to that". Whether you would have been saved by being
a board, whether you would have made a better decision, I do not
know. I suspect that sometimes it might be helpful; other times,
it might not be. So it is a possibility.
90. If you were asked the straight question,
would you prefer to have a board or to have the method which you
used with the expert advice, where would your preference lie?
(Professor Littlechild) I think if that
question were asked of me and I were in the situation as I was
at the beginning, I would still have gone for being an individual
regulator, primarily because I think that you can do bolder things
either more quickly or more radically if you are on your own.
I knew what I wanted to do in general terms and to have to carry
a board with me could have been rather onerous, and I do not think
that I would have liked so much the chairman aspect of that. Now,
I suppose, I do not feel that there are the great dramatic changes
needing to be done, because the system is bedded down to a much
greater degree. It is not so crucial to make more radical changes
now. You can argue that the situation now is more one of ticking
over in a sensible and reasonably responsive sort of way, and
therefore the frustration that one might have felt with a board
would probably be less now. So I would be willing to consider
it now, I think.
91. You did say a moment ago that anyone who
was really adversely affected by one of your decisions, apart
from going to the Competition Commission, could also go to judicial
review. Is not one of the difficulties there that, while somebody
may be adversely affected by a decision of yours, it may very
well be that many others benefit? There is a difficult balancing
exercise here, is there not? You were basically balancing the
matter in a utility context between the suppliers and the consumers.
What might seem to be marvellous for the consumer with, let us
say, a very cheap commodity, was not by any means the answer for
the supplier. Indeed you might have made a decision which would
have involved increasing prices in order, for example, to carry
out long-term maintenance, repairs and so on.
(Professor Littlechild) Absolutely.
92. There would be, would there not, many cases
where people might complain of being adversely affected but where,
if you looked at the whole thing in the round, there was really
no other reasonable answer?
(Professor Littlechild) I think that
is correct. In electricity that issue arose mainly at the beginning,
when people were saying, "Look, prices are going up. This
doesn't seem right". I think that was a fair comment and
basically that had not been the intention. It took us a few years
before we were able to turn things round. It was fortunate that
we were able to stimulate sufficient efficiency improvements.
The companies responded magnificently on the whole, in terms of
reducing their costs, increasing their productivity, and improving
their quality of service. For the most part, therefore, it was
not a question of higher prices or not; it was more a question
of how fast you reduce the prices, or should you spend some of
that potential reduction in terms of putting more investment in
and improving quality of service. You are quite right, however.
In principleand this has been the case in other countries
and could be the case in Britain in futureit could be that
higher prices are necessary, in the interests of keeping an effective
and balanced set of
93. For the long term?
(Professor Littlechild) Yes.
94. On page 6 of your very helpful memorandum
you refer to the fact that consumer committees had given you much
valuable assistance. You add, "...which is no longer available
since restructuring of the regulatory framework". Does that
mean that these consumer committees have been done away with?
(Professor Littlechild) It does, and
the legislation created Energywatch as a separate entity in place
of the consumer committees. As we touched on a moment ago, there
are some potential benefits there in terms of an independent voice,
but it also means that that independent body will have its own
view as to what it wants to work on and what it wants to explore,
promote and press for. It so happens that Energywatch has chosen
to focus on the competitive supply market for domestic customers,
which is a legitimate interest, but it has, I think more or less
explicitly, chosen not to look at the situation of the distribution
businesses, which remain as monopolies. In consequence, it has
not taken a particular interest in what value the customers place
on improved quality of service in terms of fewer outages. I think
therefore that my successor would have felt that there was not
that source of information coming in from a consumer representative
body there otherwise previously had been.
95. So from the consumers' point of view that
was a minus rather than a plus point?
(Professor Littlechild) I perhaps would
say that, but I have to recognise that Energywatch has been set
up with a view to representing the customers and it is for Energywatch
to decide how best to represent the interests of the customers.
Lord Holme of Cheltenham
96. I want to go back to the central issue of
accountability, which is the main concern of this Committee. First
of all, there is a case for a board which does not have to do
with the collectivisation of decision but should rather be seen
through the perspective of corporate governance. There is, in
terms of the accountability of the regulator, a single person.
A board is a check and balance. Rather than simply being seen
as a way of getting a group of colleagues making a collective
decision, it could be that you have a relationship of a different
sort, where the chief executive, if you likethe single
regulatoris making the decisions but is subject to the
review of a board. So, rather than thinking of it as a way of
gathering colleagues round a collegial decision, it could be seen
as a matter of the checks and balances of corporate governance.
The other thing I wanted to press you on is that, in the response
to Lord MacGregor, you went through a whole set of stakeholders
and other interested parties. Many of those I do not think one
could possibly describe as accountability. The media are there
to haunt us all. I am not sure that they are a group to whom you
are in any way accountable. I am not sure that you are accountable
to teenage whizz-kid investment analysts. You therefore come back
in your list to the first group, which is Parliament. I think
that you did say that you were primarily accountable to Parliamentwhich
is a prejudice we would obviously share. Yet in your description
of accountability to Parliament you take, if I might say so, a
very conservative view that it is all perfectly fine, and let
us carry on with it the way it is, although there is an implicit
criticism in your paper of the randomness, as it were, of select
committees and that they are going to follow whatever their own
particular hobbyhorses areand we all know that to be the
case. The question I want to ask you is, if you really believe
your first accountability is to Parliament, is there a better
way, in terms of proactive reporting on your part, to try to shape
more meaningful discussions and get the input of Parliament in
a more structured way than the slightly unsatisfactory relationship
you describe? I suppose the problem I am having is that you say
accountability to Parliamentand you are obviously not wholly
satisfied with the way that operates, and I can see whyand
yet you do not, at least in this excellent paper, have any proposals
to improve the way that relationship could work.
(Professor Littlechild) I agree with
you that Parliament is the prime route for accountability. The
other parties that I mentioned are occasions on which you have
to explain what you are doing, but obviously less formal and less
serious. I do not think that I meant to be critical of parliamentary
select committees for jumping around. It may be inconvenient to
have a select committee jumping on you just at the time you are
doing something that is going wrong, but it is probably necessary.
At one time I thought that there was quite a lot of merit in having
a select committee for the utilities. That probably was the leading
runner a couple of years ago. I think that would more explicitly
seem to be dealing with the problem of accountability, because
if anybody said, "Who are you accountable to?", you
could say, "That committee there. That is their job".
On the face of it, therefore, I think that it would be a more
satisfactory situation. Secondly, it is fair to say that that
committee could become more expert in what is going on and in
that sense it could, it might be said, ask more probing questions.
Having said that, I think the resistance to that, or the lack
of enthusiasm, came, if I may say so, from the parliamentary sidea
feeling of, "Do we really want to tie ourselves down to investigating
these regulators every year?". The kind of advice the select
committees get, coupled with the continuing expertise of a number
of their members, means that they are able to ask the kind of
probing questions that they would be able to as a specialized
committee. I have therefore come to the view that I do not see
an obvious source of improvement in the way that I once thought,
in terms of a specialised committee.
97. Assuming that Parliament did not want to
change to a standing utilities committee but to keep it as select
committees, I suppose the question I am asking you is can you
see, from your side or from the parliamentary side, any way of
making that accountability more meaningful in terms of the way
you structured your reporting, the way that you pre-prepared the
meetings and the way that the parliamentarians pre-prepared for
those meetings? I think that this is getting to the heart of what
we are trying to consider. How could you have a better quality
of accountability? It is certainly not a criticism; I am just
interested in your perspectives on that.
(Professor Littlechild) I myself think
that the system is presently effective, in the sense that it forces
regulators both to explain themselves in detail on particularly
serious issues that are sufficiently serious to be taken up by
a select committee and, secondly, before taking those decisions
to think seriously about what a potential select committee might
say. If you are now looking to say what better kind of dialogue
or examination can we have between the regulator and the select
committee, I feel that the regulators produce an annual report
of what they have done and it summarises the set of actions to
which they might be held responsible. It would be for a parliamentary
committee to indicate a greater interest in one or other of those
itemswhich I think happens when a select committee is set
98. This is just a wild suggestion. Did you
specifically seek feedback from a select committee on the shape
and content of your annual report and how usefully it was organised
and presented, the content of it, and on the way you did it?
(Professor Littlechild) No, I did not.
I did not think that it was appropriate to do so, I might say.
I suppose I thought that if a select committee had views about
that, they would make those views known at an early opportunity.
Nobody ever did. No select committee ever said, "This is
not the sort of information we want" or "Can you not
produce this or that on a more routine basis?".
99. I suppose I am suggesting that it takes
two to tango. Certainly a number of public companies now go to
some pains to consult on the shape of their annual reports, with
the stakeholders most keenly involved, simply to make sureto
put it in market termsthat the accountability they are
showing is one that those to whom they are accountable want.
(Professor Littlechild) Specifically
in terms of the annual report, we had a bit of feedback from consumer
committee chairmen at the beginning, for example, saying, "What
is all this doing here? We want something short and sweet"and
it may or may not be sweetand so we produced a little summary
in two or three pages. We never had any indication from anywhere
else that what we were doing was inappropriate or insufficient.
If there were such indication, I think that we would have explored
4 Note by the witness: During my term, one licence
modification reference and two parallel merger references. During
my successor's term, one licence modification reference. Back
Note by the witness: Two judicial reviews for my successor
(one electricity, one gas). Back
Note by the witness: Moreover, a customer (Redrow Homes)
succeeded at judicial review, and a domestic consumer won her
case at a Tribunal. Back