Select Committee on Transport Minutes of Evidence

Examination of Witnesses (Questions 520-532)


25 JANUARY 2006

  Q520  Chairman: Yes, there was a clear instance for example that something like 3,000 various regulations were scrapped immediately, were they not, when we moved from control by the CAA to control by EASA? Is that the sort of thing that you think demonstrates that they were over-regulated or is that the sort of thing that you think may put at risk some of the services which the CAA now regulates?

  Mr Haythornthwaite: Again one has to be specific, how many of those regulations were obsolete or duplicative regulations that just were coming off the statute book. I think one needs to be specific about the instances. If there is anything that was removed that potentially endangered lives and aircraft, and it was done without full analysis, then there would be an issue, but I see no evidence that that has happened, or I have heard of no evidence.

  Q521  Chairman: Who ought to scrutinise the cost base of something like the CAA?

  Dr Thatcher: It is rather odd, as I have said, that the CAA is not scrutinised by the National Audit Office.

  Q522  Chairman: Although it is not answerable in the same way as some other organisations; it is entirely funded by the industry.

  Dr Thatcher: Yes, but it remains a public body with public powers.

  Q523  Chairman: Yes, but I mean it is a nice point, most of the National Audit Office work would be with organisations employing public money and therefore one has the right to demand why are you doing this?" and what is it going to cost?"

  Dr Thatcher: Yes.

  Q524  Chairman: That is not the case with the CAA even though they are an independent corporation.

  Dr Thatcher: Yes, but the CAA imposes levies which are pretty mandatory for the industry.

  Q525  Chairman: Could I ask you whether you accept the argument that one of the problems with the CAA is that they are too open to persuasion by the airlines because of the incestuousness of their relationship? If that is the case, I do not see how the other argument comes in. Be patient with me!

  Dr Thatcher: My apologies, I have been teaching all afternoon so I have been engaging in—

  Q526  Chairman: Good, well, I am always open to education!

  Dr Thatcher: The danger of capturing is probably worse in this industry by the BAA given that it is the dominant supplier. The airlines might well be an ally of the CAA because they want lower costs, but to an outsider what is striking about this industry is that you have such a dominance by one supplier. I would like to say one or two things about costs, which is the real costs that matter tend to be the costs of the suppliers rather than the direct costs of the agency. Agency costs in Britain and elsewhere are tiny as a proportion of the size of the industry, so if there a complaint about cost it is going to be along the lines of we have a high administrative burden and we are being forced to take decisions which are economically inefficient". In terms of the NAO, the question really would be what would be lost from having NAO scrutiny because the NAO is a very high-class organisation and would perhaps be one of the ways of checking against too much of a cosy relationship, say, between the CAA and BAA.

  Q527  Chairman: That would be perfectly true if of course there was not this automatic reference to the Competition Commission, would it not? Most of the people who go to the NAO do not have this automatic reference. Irrespective of what they want to do, bang, straight into the Competition Commission who are themselves an interesting, frequently unique and, dare I say, idiosyncratic organisation.

  Dr Thatcher: They are certainly no soft touch, but again one of the big issues here is about maintaining a flow of high-quality information and getting the right kind of information. That is a task which the CAA is in a very good position to perform. The Competition Commission, you are right, comes in and, unlike other industries, comes in automatically, which is a check against too much cosiness, but I think it comes in on an infrequent basis, and for it to really get information it would have to start a big inquiry and demand data. Information is one of the keys to regulation. If you can compare suppliers in Britain or between Britain and other countries and you have a flow of information over time, your job as a regulator is made much easier.

  Q528  Chairman: Could I ask you both is it feasible to create a single `super' economic regulator for all of the transport industries?

  Mr Haythornthwaite: Although our preference is always for simplicity and we are deeply supportive of the Hampton principles, I would take a lot of convincing that there is any great merit to creating it here. Really I would go back to the behaviour of the CAA and the transparency of the CAA, and provided there is a belief in the CAA that the real licence to operate depends on being accountable and answerable to all stakeholders, then it can operate very well in that fashion and I do not think one needs more than that, but to put a super regulator here is another layer of bureaucracy that if they are operating in the right way and according to the governance principles that we have laid down and recommended, then I think it would be totally unnecessary.

  Q529  Chairman: And yet Offer and Ofgas were merged to form Ofgem, were they not?

  Mr Haythornthwaite: They were but I think there was a well-argued logic under those circumstances and I am saying here that I do not see that logic and would take some convincing. If it is looked at there needs to be an argument that this is really a rationalisation that could be more efficient and remove regulatory burden and make these institutions more accountable and more transparent.

  Q530  Chairman: Dr Thatcher, is it fair to expect the CAA to recover all of its costs, because they are coming from industry?

  Dr Thatcher: There is a theoretical answer and a practical answer to that. The theoretical answer is no if there are what are called public goods", in other words some kind of benefits which accrue which you cannot get out through the price system. The practical answer is yes because governments find it very difficult to raise cash and raise taxes for publicly desirable activities. Can I just go back to your question about a broader regulator, I think it might depend a great deal on the extent of linkages between the airline industry and, say, the rail industry and the coach industry. If these are highly-linked industries it would be valuable to have a single regulator.

  Q531  Chairman: If we found ourselves, for example, with First Group running in large swathes of the country buses but also rail and moving into airlines, or just two out of the three; what is your line of demarcation?

  Dr Thatcher: There is an issue not over whether the companies become integrated but more are whether the modes of transport are integrated, are you trying to have what I believe is called an integrated transport system".

  Q532  Chairman: That is a theory which has been knocking around for a long time.

  Dr Thatcher: And are airlines a key part of it? If they are not, you are probably better off with a specialised regulator. If they are, then you would want to integrate them. I have to say there is little sign, in my view, that these industries are so integrated that you would want to have a super regulator. The big argument against a super regulator is one about concentration of power in a small set of hands.

  Chairman: I see. Gentlemen, you have been extremely helpful and you have given us a whole lot of useful thought. We shall go away and think seriously about what you have been saying. Back to teaching, Dr Thatcher. Thank you very much indeed.

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