Examination of Witnesses (Questions 520-532)
MR RICK
HAYTHORNTHWAITE AND
DR MARK
THATCHER
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.
| 
