Examination of Witnesses (Questions 1050
WEDNESDAY 12 NOVEMBER 2003
1050. Good afternoon. Thank you very much for
being with us. Perhaps you would like to introduce yourself for
(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 Parliamentand we do think there
is room for some improvement thereand they must also be
accountable to the public through clear independent operation,
through good consultation and through transparency and openness.
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.
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 committeesthe
Treasury Committee is a very good examplewhere 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
(Ms Hutton) He has.
- 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.