Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 480-499)


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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