Examination of Witnesses (Questions 500-519)
MR RICK
HAYTHORNTHWAITE AND
DR MARK
THATCHER
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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