Examination of Witnesses (Questions 808
- 819)
WEDNESDAY 10 JANUARY 2001
PROFESSOR CHRISTOPHER
HOOD
Chairman
808. Thank you very much, Professor Hood, for
coming along and giving evidence to us. I am sorry you have had
to wait while we had the previous session. Thank you, too, for
sending us papers on Risk Management, and then your memorandum
on Risk and Regulation. Would you like to say anything, by way
of introduction?
(Professor Hood) Only to say that my
memorandum reflects what I have worked on over the last few years,
I have mainly worked on regulatory issues; obviously, your remit
as a Committee goes much wider than that, but that is the area
in which I have mostly worked. I could tell you something about
what I have observed about regulation of the public sector, I
have done some research work on that, and I also included in my
memorandum some remarks about risk management.
809. Let us take the two issues, if we may.
Perhaps you would say something about what you think about the
developing regulatory system within Government and where you think
some system and order needs to be put into it; what are your main
findings here?
(Professor Hood) I have found substantial growth in
oversight of the public sector, under both the last Conservative
Government and the current Labour Government. This has been a
substantial growth point in public administration. I looked at
a 20-year period, up to the late 1990s, and over that time I found
that the population of the Civil Service generally had gone down
by about 30 per cent, local government service by about 20 per
cent, a bit more, but the population of overseers had risen by
90 per cent, in staff terms, so there seemed to be a kind of opposite
process going on. No doubt, it is important for public services
to be properly inspected, evaluated, overseen, etc., but it did
seem to me that there has been a substantial growth. There does
not seem to have been any general investigation of what principles
should inform this kind of activity, and of what, indeed, accounts
for the different approaches that different overseers and regulators
take. If I could just give an example, if I may, to take three
overseers of the public sector: the emerging Commission for Health
Improvement, OFSTED and the Prisons Inspectorate. There, you see
three overseers, inspecting and overseeing very important public
services, but they work in very different ways. The Commission
for Health Improvement is planning to base its inspections on
a predictable cycle, and it will work, I think, largely on the
basis of current Trust chief executives inspecting other current
Trust chief executives. If you take the OFSTED system, you see
a completely different principle for oversight, you also see regular,
announced inspections, but in that case you do not see current
school principals or headteachers inspecting other school headteachers,
you see people who are not currently heads doing that. Now, why
should we operate differently for health from education? If we
look at prisons, we see a different kind of principle again; there,
we see a mixture of insiders and outsiders doing the inspection,
you have an ex-military person as the Chief Inspector, but below
him you have people who are prison governors, and they operate
not only by predictable inspections but also by a substantial
basis of random inspection, they just turn up, without announcement.
And when I talked to them they said that this was the only way
that they could really get good information about their charges.
Well, what I am saying is, if there is such a variety of practice,
what accounts for it, can we identify principles that would apply
throughout, or can we explain these variations by differences
and the technical nature of what is being inspected?
810. Is your conclusion, therefore, that we
need a new regulatory body to oversee the regulatory bodies?
(Professor Hood) In part, I think that was one of
my conclusions. I argued that there were four kinds of deficits
that could be observed in this field. One I thought was a mutuality
deficit, if I can call it that; what I mean is that many of these
regulators operated independently and they did not have much understanding
of what was done in other areas. Well, that is very understandable,
people are busy, they focus on their own field of interest and
expertise, but it struck me that there was not very much in the
way of learning across from other overseers. In fact, I did assemble
some of them together, in a room at the top of the LSE, some years
ago, and it was the first time that most of them had met one another,
which partly makes my point. I thought that there was a deficit
in that area; but I also thought that there was a deficit in terms
of oversight of the regulators themselves. As I said, I observed
substantial growth and diversity of practice but there did not
seem to be a point in Government which had responsibility for
thinking about this process and developing ideas about it. I think
that is now starting to happen, with the Regulatory Impact Unit,
which now has got a public sector component in it, but it is at
a very early stage of its work, I think it is fair to say, but
I believe that that work is important and I think it should go
much further. I thought, as well, that, in some areas of this
regulation, there was what you could call a randomness deficit,
in the sense that I did not think that there were enough, as it
were, surprise inspections going on. It seems to me that, with
inspection and evaluation, there are two ways in which that process
can work. One is by, shall we say, the terror effect of an announced
inspection that is going to occur at some time in the future,
and then even if, when the day comes, you cancel the inspection,
a lot has happened between the time that the inspection is announced
and the day; you know, the place gets painted up and the organisation
looks at itself. And that is one thing that inspections do, they
cause organisations to look at themselves and evaluate their own
activity. But the other approach is, as I say, the random inspection,
as with the prison case, where what you are trying to do is get
information about how the organisation operates in normal mode,
as it were, not when it is in inspection mode, and it seemed to
me that that mode of inspection was remarkably little used across
the public sector.
811. So, just so that we are clear, you are
not one of these people who are saying the public sector is groaning
under the weight of audit and inspection, you are saying the way
in which it works is a mess, across the public sector, and needs
sorting out?
(Professor Hood) Yes. I think that some people are
certainly groaning about the weight of audit and inspection, some
of the people I spoke to certainly said that they were; but I
think some of the people who said that were people with private
sector backgrounds who did not have experience of the kind of
inspection and evaluation methods that apply in the public sector.
I did not get anything that I could call good evidence that there
was too much audit or too little audit, I would not find it easy
to make a statement about that, but what I can say is that there
is remarkably little evaluation of the effects of audit and remarkably
little, at the time when I looked at the audit and evaluation
and regulation oversight agencies, even of indicators of effectiveness,
or otherwise, and such as there were were often very limitedly
developed.
812. Have you looked, at all, at all the performance
measures and targets that are part of the Modernising Government
programme, and the extent to which they are being applied consistently
and the extent to which they are being systematically monitored
as well?
(Professor Hood) No, I cannot say that I have good
information about that.
813. But they would come under your general
argument?
(Professor Hood) Yes, they would. And I would say
that the Modernising Government initiative has moved in some way
towards developing some coherent ideas about public sector evaluation
and oversight. There were at least some attempts to develop mutual
exchanges across different kinds of public sector regulators and
overseers, and there was some recognition, in the Modernising
Government White paper, of the compliance costs of public sector
audit—the first time, I think, that that issue had ever
been recognised, but it was a very vague statement—since
then, the Regulatory Impact Unit has started actually to try to
find something out about these compliance costs.
814. Yes, I wanted finally just to ask you that,
because I thought the paper that you gave us was very interesting
on that. Basically, what you argued was, we have had these compliance
cost assessments being done for the private sector, for a number
of years now, but we have got these huge compliance costs in the
public sector which do not have the same treatment and they ought
to have; that was the essence of what you were saying?
(Professor Hood) Yes. I think compliance costs are
difficult to measure, both in the private sector and in the public
sector, and the way that I tried to measure them, in the study
that I did a few years ago, was to look only at the costs of interacting
with regulators or overseers, so I did not look at any of the
costs that might be associated with changing your policies or
changing your practices, but only what it cost you to set up the
meetings, provide the papers, provide the information, etc., so
just that very sense of compliance costs. And my figures, I will
immediately say, were very rough, approximate estimates, but I
believe that there are good reasons for assuming that compliance
costs in that sense, just the interaction with the regulator,
of public sector overseers, cannot run out at less than £1
billion a year, cannot do so.
815. And just as we produce these assessments,
when we introduce legislation, for the impact upon business, would
it not be a sensible idea to have similar things with every piece
of legislation for its impact on the public sector, in terms of
cost, too?
(Professor Hood) This is what I have argued for, and
I think it would be in the spirit of transparency. And I believe
that we are beginning to know more about these compliance costs,
and I think we will know more as the Regulatory Impact Unit develops
its work.
Chairman: Thank you very much.
Mr White
816. Just to follow on that point, is not the
compliance costs, that we do, a very crude measure at the moment,
it does not distinguish between a large company and a small business?
And, in the public sector, the Conservative Government introduced
regulations for parish audits, and I have got one parish which
is about 60 people, which has a budget of £600 a year, of
which £300 is the audit fee, to the Audit Commission. Is
not that, we are getting the level of compliance costs, whether
it be public or private sector, one of the issues that is crucial?
(Professor Hood) Very much so, and we also found that
in the study that I did with my colleagues some years ago. I believe,
in fact, that there is a very close similarity between the public
and the private sector in that sense; the compliance costs do
tend to be higher for the smaller organisations.
817. Did you look at the voluntary sector?
(Professor Hood) No. We only looked at the public
sector.
818. Is not one of the cases that the role of
the media, in terms of the generation of regulation, is one of
the issues that tends to be forgotten, because what happens is
the media whip up an issue, create a scapegoat, the Government's
response is, "Well, we'd better create a regulatory unit,
to make sure it never happens again," another regulatory
body gets added, and when the issue has died down in the press
this regulatory body is still there and the original reason for
it is gone?
(Professor Hood) This is the so-called tombstone theory
of regulatory creation, and I think that it does apply to some
cases, though I do not think it can explain absolutely every kind
of regulatory initiative. I think, actually, in many cases, it
is a well-publicised minority. But if that really is an issue,
one of the things that I suggested, in my earlier writing on this,
is that if that is the case then should we not have some set testing
of these regulators, that if they have to be created in response
to some perceived crisis could we not put a fixed life on them
after which point they have to be investigated? On the whole,
we did not find, among the regulators that we looked at, that
there was very widespread use of sunset, that is fixed terms of
existence for these bodies.
819. One of the issues about the different regulators,
and I will just quote an example in my own local authority, where
they have combined education and children's social services into
one department, they have just recently been inspected by both
the SSI, the Social Services Inspectorate, and by OFSTED, and
both OFSTED and SSI found it very hard actually to work out, because
their own little tick in the box was not there, in one separate
silo. The two had been joined together and they found it very
hard to work out the interaction between the two. And you had
two different sets of inspections, with two different inspectors
coming to try to get to grips with the problem. And, as the Modernising
Government argued for more joined-up government, is not that going
to become more of a problem?
(Professor Hood) Indeed, we found that, with the regulators
that we looked at, in many cases the demands that they made on
the bodies that they were inspecting, or evaluating, were not
co-ordinated, so that, indeed, you might find that you suddenly
had a rash of inspections at a single time, which might be hard
for an organisation to cope with, and might, indeed, ask for the
same kind of information in different forms, and the like. And
this goes to the point that I have been making earlier, that there
is a case for looking at these practices across the piece. If
there is a real case for diversity, and if there is a really good
reason for one inspecting or evaluating body to work in a different
way from another, well, that case can be made; but if it is simply
an inertia process then there ought to be ways of coping with
that.
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