Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 500-519)


25 JANUARY 2006

  Q500  Chairman: But you would get yourself into an immediate problem with the CAA, would you not, because they are about the only ones who charge?

  Dr Thatcher: Absolutely.

  Q501  Chairman: So you would suggest that they did not charge? If you have 23 nations and 22 of them charge and one does not, does it not seem to you that possibly harmonisation would mean that the 23rd should abandon its practice and fit in with everybody else, or am I being unduly censorious?

  Dr Thatcher: What has tended to happen in European legislation is that other countries have followed on from Britain's example and charging for economically valuable assets very much fits in with European philosophy.

  Q502  Chairman: Who has done it apart from us? Who has followed us in this sensible and puritanical approach to economics?

  Dr Thatcher: Nobody yet. But the same was true in telecoms 20 years ago or electricity or gas 15 years ago. Britain stood out as an exception and then other countries followed on. So hope may not be lost if you believe in charging.

  Q503  Chairman: Do the statutory provisions and the sponsorship statement from the Department of Transport provide a sound framework for the CAA?

  Dr Thatcher: I think the more important thing, if I may say so, is the statutory objectives given to the CAA because that is a little different from most of the other economic regulators. It is a form of universal service obligation and there is no mention, as far as I know, of promoting competition. The CAA is something of an exception amongst the regulators on that. I think what tends to happen is that the heads of regulators refer frequently to their statutory objectives in defending and deciding their action. These are, after all, supposed to be independent regulators. The Department may provide guidance but they are supposed to be independent.

  Q504  Chairman: So are you saying the structure is better or worse? I am not clear, is it a good idea or is it a bad idea?

  Dr Thatcher: I think it is odd that there is no mention of competition in the CAA's statutory objectives.

  Q505  Chairman: So are you suggesting that that would improve the service it offered everybody if it had specific reference to competition, although are you aware of any area where it is not doing the job properly?

  Dr Thatcher: Two questions there.

  Q506  Chairman: Yes, there are two questions there. I will give you two bites of the cherry.

  Dr Thatcher: Thank you. Yes, I think it would improve it, if you believe in competition.

  Q507  Chairman: Why?

  Dr Thatcher: Well, because the authority would then have to look at how and why there was not more competition in the airline industry.

  Q508  Chairman: But we have already been told that particularly in airports, not so much in airlines but certainly to some extent in airlines, there is much more competition than there was even five years ago.

  Dr Thatcher: That may be true. Again I am not an expert in airports but it is a sector that is different from other network sectors in the domination by one large—

  Q509  Chairman: Yes, but you are not suggesting this is a failure and an omission. It would be helpful to know how it would improve things if it was put in when it was not there, would it not?

  Dr Thatcher: The CAA would then have to balance different objectives. It might have to give greater priority to competition, if you believe in competition. If you do not believe in competition, clearly you would not want it in the statutory objectives, but the trend throughout the network industries has been to increase competition in the belief that it increases customer choice.

  Q510  Chairman: So demand more competition even when more competition is the basic thing that has happened in the industry over the last 20 years consistently and to quite an astonishing extent?

  Dr Thatcher: I think there are different segments of the industry. There is no doubt about it that in the low-cost segment there is very high competition but, as I understand it, BAA owns the three largest airports.

  Q511  Chairman: So you have a view on that?

  Dr Thatcher: It runs counter—

  Q512  Chairman: Are you suggesting that the BAA should be broken up? Is that what you are suggesting?

  Dr Thatcher: It certainly runs counter to the other network industries, say, telecoms or gas or electricity, where incumbents have been broken up but there are reasons for doing that. One of them has been to introduce competition between companies but the other has been to get information or comparators, in other words the ability to check what one supplier is saying against the performance of another supplier.

  Q513  Chairman: Yes, frankly, the absence of comparators has never inhibited the Government's attitude towards rail because they do not have a comparator of their own, it is all franchised and handed out to private companies who perform with greater or lesser ability. There is no problem with the rail industry so why should there be a problem with the aviation industry where so far there has been no clear demonstration of any difficulty?

  Dr Thatcher: I am not sure the rail industry is regarded in academic circles as a success in Britain. Secondly, there might well be different types of incentives. In the rail industry you have got a set, as you know much better than I do, of interlocking actors who depend on each other, so you have those who are providing the trains, those who are providing the infrastructure, and those who are providing the services. Airports may be a little different. It may be possible to isolate the provision of the airport infrastructure from these other services, and therefore you may be able to have competition, and competition may be more effective.

  Q514  Chairman: I see. Both of you, is the CAA sufficiently transparent?

  Dr Thatcher: Well, I think there are at least two or three different forms of transparency or accountability

  Q515  Chairman: Any old transparency will do for the sake of argument. Is it sufficiently transparent?

  Dr Thatcher: It depends on your criteria. I think there is transparency in term of inputs, who is actually sitting on these bodies, there is transparency in terms of outputs, providing performance tables, but also transparency in terms of process, so you might look at those three. Whether the CAA is is a very good question. I think what one can say is that the CAA like other independent regulators has been much more transparent than government departments. We now know much more about these industries than we did 20 years ago. I should say the other thing about transparency is it is greatly helped if you have several competing companies because then you have these comparators and you can dig into the data that is being provided. One of the biggest problems regulating an infrastructure industry is lack of good data and the difficulties for a regulator to get underneath the figures that are provided by suppliers.

  Q516  Chairman: What are the pros and cons of asking regulators to promote self-regulation, in fact giving them a duty to promote self-regulation?

  Mr Haythornthwaite: Self-regulation does give the opportunity for any regulator or any regulated community to put in place far more flexible processes, processes that are far more adaptable to change as circumstances change and as technologies change so that there are many benefits from self-regulation. That is not to deny that in such a safety critical industry that a regulatory framework is not important in the aviation sector, but it is potentially arguable that there is more space for self-regulation than there is today. It is not in the interests of airlines to crash their planes and kill people and there is a natural self-policing in the way people manage and run their companies. So we would see self-regulation as something that always needs to be tested for its possibilities.

  Q517  Chairman: Even when there is no evidence to suggest that in safety critical industries the existing machinery is not working? I can understand your argument, Mr Haythornthwaite, if there is some evidence somewhere. In some areas you would say the existing machinery does not work and therefore it is important that we test alternatives, and one way in which we can do it is to look in this particular field, but I do not see the argument if you cannot demonstrate evidence that says there is a problem here. I suppose what I am saying to you is why regulate that which does not appear to require regulation if what you are talking about is doing away with regulation? I do not follow it.

  Mr Haythornthwaite: Our sole goal is to see the administrative burden of regulation brought down without compromising protections and the level of safety of the industry.

  Q518  Chairman: When you were assessing an industry—let's move away from aviation for a moment—you would not just say, I think that our responsibility is to look closely at this and even if there is no evidence they are not efficiently performing their tasks, we believe that the whole set of rules should be changed so they can operate differently", would you, or would you?

  Mr Haythornthwaite: No, we would not.

  Q519  Chairman: So you are not envisaging taking a series of theoretical let's set up a nice little exercise here to see whether a better theory will work"?

  Mr Haythornthwaite: No, we are not. We start with the real administrative burden that is carried around any particular area, and so if we take the Civil Aviation Authority, clearly if one takes just the maintenance and inspection regime, it is very burdensome and there may be a very, very good argument why it is burdensome, and that is it is necessary to maintain levels of safety. Our sole view would be where you see that much of an administrative burden it is always worth re-visiting and challenging to see whether or not one can get the same behaviours and the same protections in a way that delivers a lighter administrative burden. I agree with you that this is not topic that can be discussed in the abstract. One has to pick specific areas and clearly the areas you target are those carrying the largest administrative burden.

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