Examination of Witnesses (Questions 480-499)
MR RICK
HAYTHORNTHWAITE AND
DR MARK
THATCHER
25 JANUARY 2006
Q480 Graham Stringer: Or the idea
that there should be a regulator for all of these regulatory bodies?
Mr Haythornthwaite: If I might
ask, is the implication the Commission as a regulator of these
regulatory bodies?
Q481 Graham Stringer: No, the implication
is there are a lot of regulators out there, particularly since
the nationalised industries were privatised and other areas, and
I think the Better Regulation Task Force four or five years ago
indicated that, by and large, the costs of the regulators are
increasing. As competition within the industry increased, costs
were going up and you would have expected costs to go down. I
am merely asking if that is the case, what needs to be done about
it?
Mr Haythornthwaite: I think in
response to the first statement about whether there should be
a regulator of the regulators, we would be absolutely clear that
there should be a regulator of the regulators which is why that
is not the way and we choose to operate in a very different way
to that. We are a small group and we choose to operate in a way
that challenges the regulators to the utmost in their costs and
their governance. In the end, the rate at which costs increase
is a function of the regulatory environment as a whole and we
can only use the tools that we put in place and the architecture
that we put in place and police that architecture, so the regulatory
impact assessments, the governance we put in place, the simplification
plans, our right of scrutiny, and of course inside the government
the considerably better-resourced Better Regulation Executive,
are all areas that over time will serve to bring down the regulatory
burden and with it, one would expect, the scale of the regulators.
There is no hard and fast executive route to bring these down.
It is a slow process and we will whittle away at it.
Q482 Graham Stringer: Is there any
reason you can think of—either of the witnesses really—why
the CAA should have a different form of regulation to most of
the other similar regulators where there is a requirement for
a 6% return on capital and there is a more or less automatic referral
to the Competition Commission. Can you think of any justification
for that?
Mr Haythornthwaite: First of all,
I think, as you probably are aware, our job is not to address
government policy; it is the administrative burden, and I think
if one looks at the two aspects of the question you asked, on
the 6%, it is a Government policy decision, it is really not within
our purview to comment on it. I think in terms of the Competition
Commission and referral to it, that is a question in terms of
the effectiveness of policy implementation, and one cannot help
as an independent observer but ask questions ask why is it different.
It has created a circumstance where not only is the CAA an outlier
in its need to agree with the Competition Commission but more
importantly it has effectively removed a route of appeal for the
regulated community, and therefore I think against the standards
we would set, against the principles, it would appear to be an
odd situation, and indeed if all parties were agreed one would
hope that the Government would look to correct that anomaly.
Q483 Graham Stringer: Is it sensible
to have an economic regulator within the same organisation as
the safety regulator? Or to be the same organisation?
Mr Haythornthwaite: I think in
the end what we would be concerned about would be, firstly, simplicity
and, secondly, the quality of outcomes. The record of safety in
UK aviation is strong. I think therefore one would only wish to
address the status quo if it was over-complex or ineffective.
In terms of ineffectiveness, that would be my only observation.
In terms of complexity, I am afraid I do not know enough of the
topic to comment on it.
Q484 Graham Stringer: You are in
favour, as I understand it, of light touch, risk-based regulation.
Perhaps you could explain to us why and do you think that the
application of those two principles to a safety regulator is different
than it is to an economic regulator?
Mr Haythornthwaite: First of all,
I do not think light touch or risk-based regulation ever imply
a lowering of standards or a compromising of protections. I do
not think they need to. I think both of the terms fall in the
same camp. Light touch" simply means that one can take a
lesser approach if the risk of non-compliance and the consequent
harm has been assessed to be low. On rare occasions that might
happen. I personally do not like the term light touch or risk-based
regulation.
Q485 Chairman: You do not like the
term or you do not like the tone?
Mr Haythornthwaite: I do not like
the term because it is an emotive term when applied to a safety-related
situation. Light touch" sounds as if it is light standard;
it is not. It is a decision that is based on analysis and a decision
that is based on looking at all of the facts as they stand. Risk-based
regulation has been around for a long time. If you do not have
unlimited resources decisions have to be made as to where the
priorities are put, and I think in the area of regulation the
assessment should be made around risk, and so as long as the protections
are not compromised and the standards are not lowered, it is a
sensible way to make decisions in the aviation industry. Again,
I come back to the good safety track record of the industry to
suggest that this approach which has been used for many years,
particularly when it comes to inspection and maintenance, has
been largely effective.
Q486 Graham Stringer: Do you have
any views particularly on the CAA about when the economic regulation
part of its remit is not required? We have heard from a number
of witnesses both last week and this week that competition between
airports is increasing. When do you believe it would be right
or what criteria would you use to say that competition can deal
with price now, we do not need a regulator? How would we know
when we had got to that desirable point?
Mr Haythornthwaite: Given I have
said we have not looked at this in a great deal of detail in the
past, therefore I hesitate to offer an opinion without the facts
of the matter—
Q487 Chairman: That makes you fairly
unique in this Committee, Mr Haythornthwaite.
Mr Haythornthwaite: Thank you
very much, Chairman, therefore I will keep the answer very short.
I think one only has to look at the outcomes. Economic theory
will always point to monopolistic outcomes. If one is seeing those
then there is an argument for a regulator. If one is seeing the
movement of prices that suggests real competition, then there
is an argument for removing it. I do not know the facts in this
case and therefore really cannot tell you which is more applicable.
Q488 Graham Stringer: It is a good
theoretical answer, I think, so you would say that if the price
of tickets to passengers was declining very quickly and the price
of sending cargo by plane was declining, that that would be an
indication that economic regulation was no longer needed?
Mr Haythornthwaite: I am going
to refrain from answering that, if I may, because there are circumstances
that one can see declining prices in a monopoly situation.
Q489 Chairman: What a spoilsport!
Mr Haythornthwaite: I know and
I am sorry but it is an area I think it would be dangerous to
be drawn down without the facts.
Graham Stringer: What a shame!
Chairman: Very perceptive of you! Mr
Efford?
Q490 Clive Efford: What influence
do you hope to bring to bear on EASA as it takes an increasing
amount of responsibility for regulating the UK aviation industry?
Mr Haythornthwaite: I think in
terms of EASA and European-sourced legislation as a whole we are
pretty early on in the process here. The Task Force has produced
three reports that have been received well in Europe, one on process
simplification, one on consultation, one on alternatives, and
we are in the process now as the Commission of taking those reports
and working out where the best point of influence is, where do
you take it to the stakeholders, where to take it to the Commission,
where to take it to the Parliament, and how to leverage those
three reports. I think it is early days to see how much impact
we can have on any European legislation. I have been in this job
three weeks and I would hesitate to say how much we influence
it.
Q491 Clive Efford: With that answer
in mind, and I suspect I am going to get a similar answer to this
one, are you in favour, in principle, of the transfer of regulation
and control to a European-wide body in areas such as aviation?
Mr Haythornthwaite: I think again
it depends on outcomes. In terms of the safety level as a whole,
in terms of the management of airspace, in terms of the training
of pilots there are areas—and I should perhaps mention,
Chairman, that I do hold a pilot's licence so I have seen this
in operation at times—I think there are areas where the
European influence could work well provided that it remains proportionate
and has accountability and consistency and transparency and it
is targeted. I think if we lose that and it becomes over-complex
and we see the legislation and regulation becoming obscure and
over-complex, then any benefits to the simplicity one could have
from a pan-European approach would be lost very rapidly, and obscure
regulation can be as dangerous as no regulation at all.
Q492 Clive Efford: Do you have a
view of EASA at this stage of its development? If you do, what
is it?
Mr Haythornthwaite: I have no
view at this stage of its development.
Q493 Clive Efford: Given the increasing
impact of European legislation, do you believe there is a need
for a European equivalent of the Better Regulation Commission?
Mr Haythornthwaite: While I am
sitting here as the UK Better Regulation Commission and looking
across the Channel and wondering how to have influence and also
reflecting on the Presidency's sixth recommendation that there
should be a business-led advisory group, I cannot help but think
that it is an impractical proposition.
Q494 Chairman: You do not envisage
being translated into 23 languages, Mr Haythornthwaite?
Mr Haythornthwaite: I am just
thinking picking membership would be the first aspect that might
be a little difficult to overcome, Madam Chairman, and it is just
very difficult to see. I think our influence really stems from
the fact that we can stay close to all the stakeholders. The Government
does respond to us in 60 days. There is an intimacy in this whole
process that gives us an effectiveness and a simplicity because
of the scale of what we are doing. All of that would be lost on
the European stage, so whilst I am not knocking it completely
on the head I would take a lot of convincing.
Q495 Clive Efford: Dr Thatcher, you
have published extensively on issues to do with regulation at
a European level. I have always thought that Mark Thatcher ought
to be cross-examined and certainly you are not the one and this
is not the forum where I thought he needed it! Would you like
to comment on those questions?
Dr Thatcher: On the European side?
Q496 Clive Efford: Yes.
Dr Thatcher: There has been a
general move in Europe towards networks of regulators. I should
say that there have been almost no European regulators but you
do get networks of national regulators co-ordinated more or less
formally or informally by the Commission, and that is happening
across most of the network industries. I do not know very much
about the CAA network but that may be because the CAA is a pretty
unique regulator. There are very few other countries I know of
which have an independent economic regulator in this field. I
would say one other thing, that quite often European regulation
is used as a form of blame-shifting. Nation states find policy
change difficult and so they then try and get matters done at
the European level and then they can blame Brussels. That is a
way of getting round—
Q497 Chairman: That seems like a
very reasonable attitude to me, Mr Thatcher!
Dr Thatcher: I cannot comment
on whether it is a good or a bad thing; I just point out quite
often it is easier to use Brussels to get round vested interests
and then to blame Brussels for decisions which may be seen rightly
or wrongly as necessary.
Q498 Clive Efford: Can you tell us
of any pros and cons that you see of regulating at a European-wide
level?
Dr Thatcher: Through these networks
of regulators?
Q499 Clive Efford: Or through EASA
as a single body?
Dr Thatcher: Yes, there are a
couple of issues which are obvious. One is that you get policy
learning, in other words regulators learn from each other, and
they can compare data methods and processes, which may be quite
useful. It may be very useful if you have economic integration
so that you may wish to have similar standards because that is
a way of encouraging Europe-wide firms and increasing efficiency.
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