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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 809-iii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRANSPORT COMMITTEE
THE WORK OF THE CIVIL AVIATION AUTHORITY
Wednesday 25 January 2006 MR KEITH MANS, PROFESSOR CALLUM THOMAS, MR DAVID STARKIE
DR MARK THATCHER and MR RICK HAYTHORNTHWAITE Evidence heard in Public Questions 403 - 532
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Transport Committee on Wednesday 25 January 2006 Members present Mrs Gwyneth Dunwoody, in the Chair Mr Jeffrey Donaldson Clive Efford Mrs Louise Ellman Mr Robert Goodwill Mr John Leech Mr Eric Martlew Graham Stringer ________________ Memoranda submitted by Royal Aeronautical Society, Centre for Air Transport and the Environment, Mr Starkie and Cranfield University Safety and Accident Investigation Centre
Examination of Witnesses
Witnesses: Mr Keith Mans, Chairman, Royal Aeronautical Society, Professor Callum Thomas, Centre for Air Transport and the Environment, Manchester Metropolitan University, Mr David Starkie, Senior Associate, Case Associates, and Dr Graham Braithwaite, Director of the Safety and Accident Investigation Centre, Cranfield University, Department of Airport Transport, gave evidence. Chairman: Good afternoon to you, gentlemen. You are most warmly welcome. I am afraid we have one little bit of housekeeping. Would members of the Committee having interests please declare them? Mr Martlew: I am a member of the Transport and General Workers Union and the General Municipal Workers Union. Clive Efford: I am a member of the Transport and General Workers Union. Graham Stringer: I am a member of Amicus. Chairman: I am a member of ASLEF. Mrs Ellman: I am a member of the Transport and General Workers Union. Mr Leech: None. Q403 Chairman: Thank you very much for that. Gentlemen, could we begin by identifying you for the record, starting on my left? Dr Braithwaite: I am Graham Braithwaite. I am the Director of the Cranfield Safety and Accident Investigation Centre at Cranfield University. Professor Thomas: I am Callum Thomas. I am the Head of the Centre for Air Transport and the Environment at the Manchester Metropolitan University. Mr Mans: I am Keith Mans, Chief Executive of the Royal Aeronautical Society. Mr Starkie: I am David Starkie, Consultant and Visiting Professor of the Sauder Business School, University of British Columbia. Q404 Chairman: Thank you very much, gentlemen. Does anybody have anything they want to say briefly before we go to questions? If not, we have been told that it is impossible for the CAA as a single organisation to reconcile all the conflicting pressures upon it because of the different areas of regulation. Is that fair? Who wants to have a go? Dr Braithwaite: There is not a simple answer to that question. It is something that the CAA appears to have accomplished very well. That is not to suppose that that could always be the case. There are certainly examples overseas, and I can think of one from Australia, where the Civil Aviation Authority found it very difficult to execute both its safety regulation and its other duties and that led to it being split but I do not necessarily see the same problems within the CAA as it stands. Q405 Chairman: Does anybody have any other comments on that? Do you have any other view of this, Mr Mans? Mr Mans: No, I do not. I think if it is properly organised it is a perfectly sensible way to go forward. I do think some external auditing is probably necessary though. Chairman: We will come to that in a minute if you do not mind. Q406 Mr Leech: You said that they separated it in Australia. Were there some benefits in doing that? Did it improve the situation? Dr Braithwaite: I do not think the answer is clear-cut. There were some disbenefits from it as well. It was not a simple issue. There were problems within the CAA which later led to accidents within ----- Q407 Mr Leech: Could you possibly elaborate on that? What were the benefits and what were the disbenefits? Dr Braithwaite: One of the benefits was that the Authority was very clear what its remit was, particularly in terms of safety regulation. I think we achieve that in this country by the Safety Regulation Group being a clear and distinct part of the CAA here. I would say that was the clearest distinction, that people knew exactly what their organisation was about. Q408 Chairman: Can I ask all of you what will the Civil Aviation Authority look like in 20 years' time? Mr Mans: Very different. Q409 Chairman: Mr Mans, yes, I think we can guess that. In what way? Mr Mans: The whole aerospace or aviation community is expanding in all sorts of different directions and I think the Authority has to keep up with what is going on. On the one hand, clearly more regulation is going to start off from the other side of the Channel with EASA and I think the tasks that the CAA will be doing in 20 years' time will be rather different. As an example, I suspect that, compared with what has happened in the past, the CAA will have to pay more attention to general aviation in the future. Q410 Chairman: Apart from general aviation, Professor Thomas, if we were starting from somewhere new would it look the same as it does now? Professor Thomas: I think the extent to which environmental issues are going to drive the industry in 20 years' time means that this is an area which is going to have far greater influence than it has had in the past. We are going to need to look at trade-offs between different impacts. We are going to have to optimise different environmental impacts and trade-offs between economic benefit and environmental cost, so there are a number of different issues that will contribute to deciding what is required for the sustainable development of the industry. Q411 Chairman: Mr Mans, you said that the CAA should delegate and subcontract more of its functions to competent third parties on a competitive basis. Which bits? Mr Mans: I would probably say that some of the pieces associated with general aviation were a good example, but I think some of the activities that are at present carried out by, for instance, licensing of lighter aircraft could be delegated to the governing bodies of those particular types of operation. Q412 Chairman: Do you think that would be cheaper for those involved in general aviation? Mr Mans: I think they would probably get better value. Q413 Chairman: So you are not suggesting necessarily that they will pay lower costs? What you are saying is that they will get a much better deal? Mr Mans: I think that is probably true, Mrs Dunwoody. I would say it is better value. Better value is not always cheaper but I suspect we could get inefficiencies. May I also agree with Callum Thomas about the environment. I think the CAA will have to take an increasing lead in promoting sustainability within the aviation sector. Q414 Chairman: Dr Braithwaite, what are the implications of delegating some of the CAA's safety roles and its inspection work? Dr Braithwaite: The first thing is to avoid any sort of capture by the industry. If things are delegated there still needs to be a responsible adult, if you will, and the CAA has played that role very well. The word "Authority" in "CAA" carries with it great weight and there needs to be some sort of responsible agency in authority. I would say that is one issue. Q415 Graham Stringer: Can I follow up on Mr Mans' answer? I think it would be helpful if we got one definition sorted out because it is a word bandied about regularly in aviation which I do not understand. I would be interested in your definition of "sustainability" so that we are all clear what we are talking about. Secondly, you say that the CAA will have to be more involved on environmental issues. Why? Are there not an almost infinite number of regulatory bodies, from English Nature and English Heritage to the European Union and local authorities, all of which monitor the standards of air quality, biodiversity, a whole range of environmental issues? Why should the CAA get involved? Mr Mans: Let me try to answer the first of your questions, Mr Stringer. I might ask for a bit of assistance from Professor Thomas on my right. As I understand it, you are trying to run a sector in a way that is socially, economically and environmentally successful. In other words, you cannot just run it from an economic point of view or indeed a social point of view. You have to take into account the environmental aspects of what you are doing in order to have a sustainable industry in the long term. Why should the CAA be involved in that? I think it is because it is becoming increasingly central to how the aviation community progresses. I think regulation plays an important role in promoting sustainability and, if you like, at least beginning to change the business model so that when economic decisions are taken they take into account the issue of the environment. Professor Thomas: There are a number of different environmental issues that are associated with the air transport industry, some of which are specific to the industry, such as aircraft noise, and others, such as local air quality, where the air quality around an airport can be determined by the aviation industry itself and other industries, such as a motorway passing by or other industries in local proximity. In that situation, where you are dealing with an issue such as aircraft noise which is specific to the air transport industry, one can envisage how the CAA has a specific role. Where you are dealing with other modes of transport, and indeed other industries, there are other regulatory bodies that have an interest and one assumes that the CAA will need to operate with those in order to secure the optimum ----- Chairman: I am not sure that that answers your question. Q416 Graham Stringer: It is a very interesting answer because it really means, I think, that you are saying that the CAA should deal just with aviation matters and that all the other issues that are common to other regulatory bodies should be left to those other regulatory bodies, which seems to contradict Mr Mans. Professor Thomas: I would have to say immediately that although it may appear that I am saying that I am not an expert. I am an expert on the environmental impact and perhaps not on the regulatory role of the CAA, so I would defer in some elements to Keith Mans in terms of the response that he has given. However, there is obviously an interface between the air transport industry and other industries on the other issues and in respect also to climate change, which is the third major environmental impact of the air transport industry. Mr Starkie: I think we need to bear in mind that in terms of environmental standards, noise and emissions from aircraft, those are set at an international level through ICAO and they often lead to very tortuous arguments and negotiations between the Member States and particularly between the United States and the European Union on this. I have a difference from the other panel members. I do not see the CAA getting heavily involved in environmental matters in future basically because of that international perspective and also because I think most environmental issues arise at a local level and are probably better tackled at local level and not by a national body. Q417 Mrs Ellman: Is the CAA sufficiently accountable? Mr Mans: I think it can be improved. In certain aspects of what they do I think an external audit function by an organisation like the NAO is a good way forward. Dr Braithwaite: I tend to agree on that. Some sort of external scrutiny would be good but the accountability should not be spread so much that the industry it is supposed to be regulating is pulling the strings of the CAA. I know there would be big concerns if the industry itself was pushing the CAA to be overly accountable to them as opposed to an independent agency. Q418 Mrs Ellman: Do you think that is what is happening at the moment? Would you say that it is overly accountably to the industry? Dr Braithwaite: I think there are elements of the industry which can shout rather more loudly than other elements of the industry. Q419 Mrs Ellman: What about the Government's requirement for a six per cent return on capital? Do you think that is reasonable? Mr Mans: Personally I think that is too high. I think it should be self-funding and, as you know, the accounting rules are fairly complicated. One of the reasons for the six per cent return is the building of Gatwick, as I understand it, being capitalised. I think a six or six and a half per cent return is probably too high and I would say that whilst the Authority needs to be self-funding a return of that sort is probably putting unnecessary burdens on the industry itself. Q420 Mrs Ellman: Dr Braithwaite, you seemed to be implying that you thought the CAA was more accountable to some partners than to others. Do you have any examples of that? Dr Braithwaite: Certainly in terms of the funding that is going to the CAA there are parts of the industry paying a lot more in and therefore expecting a lot more out. That is not necessarily the same as the levels of risk. For example, the general aviation industry, whilst it may be paying what it perceives to be high fees individually, is paying rather less overall than perhaps some of the major carriers might be paying and therefore there are clearly different views as to where the money should be spent by the CAA on development. Q421 Mrs Ellman: Do you think that general aviation gets a rough deal from the CAA? Does anybody have any views on that? Mr Mans: I would probably say, yes, on balance, and our evidence is along those lines. I think it is true to say that general aviation in the past has been very much the 'Cinderella' of the aerospace and aviation community. I think in the future it is going to play a rather more central role, particularly in the training of both engineer technicians and aircrew, and therefore it has a bigger role to play and I think it needs to be treated a little more fairly, I would argue, by the CAA in the future. I am not saying that what they have done in the past is necessarily wrong; I am just saying the nature of the beast is changing, and I think the deal that general aviation gets is not a brilliant one. Dr Braithwaite pointed out some of the fairly loud voices in the aviation community and I do not think many of those are in general aviation. I think there is a case to be made because a lot of the people who end up in the airlines and who end up generally in commercial aviation will increasingly start life in general aviation, so from that point of view I think it needs to be nurtured in this country more than it has been in the past by the regulatory organisation, and we want to go more over towards an America or possibly an Australian model where we encourage aviation and we encourage the sector rather than step too heavily in terms of regulation on it. Q422 Mrs Ellman: What are the main challenges being faced by the CAA Safety Regulation Group? Dr Braithwaite, do you have any thoughts on that? Dr Braithwaite: I would say the overwhelming challenge at the moment is the uncertainty with the rise of EASA and knowing what its function will be as the European Aviation Safety Agency takes over more of a role, so I would say during that time of uncertainty it is not only in terms of their human resources and whether people will want to stay working for an organisation that is starting to evaporate, but also making sure that EASA is up and running and capable to take over the role that the Safety Regulation Group appears to have done very well. Q423 Mrs Ellman: How do you perceive the state of the European Aviation Safety Agency at the moment? Do you think it is effective? Dr Braithwaite: I think it is enthusiastic and optimistic but not necessarily fully capable and able to do all of the roles that are expected of it. They have got a big task to take over and whether they are spinning up as fast as some of the regulatory agencies are spinning down is something that needs to be watched. Q424 Mrs Ellman: You have said that there is a need for 'active regulation'. Could you tell us what you mean by that? Dr Braithwaite: By active regulation I mean that a regulator needs to be able to be responsive to respond to events and concerns that arise, that it also needs to have the capacities to be proactive to look at what the future challenges are going to be and try and understand those before they start to cause incidents and accidents. That is really what I mean by active regulation. Q425 Mrs Ellman: Is that the same as 'light touch' regulation? Dr Braithwaite: In my opinion, no, it is not. The inference of light touch regulation suggests that self‑regulation rises to the fore and I would have some concerns about that in safety regulation. Q426 Mrs Ellman: Are there any general concerns that the move to light touch regulation will have an impact on safety standards? Mr Mans: It should not is the answer to that, in my view. Indeed, you could argue that light touch could actually promote safety because it encourages more innovative designs, particularly of light aircraft, and as a result hopefully safer designs as well. I think the key about light touch regulation is that it is proportionate to the risk and it is quality assurance, not quality control. Those are the two phrases that I would use to describe good light touch regulation. Q427 Mr Leech: Are you aware that BALPA take a very different view to that? We had Mervyn Grimshaw here in front of us and he took totally the opposite view. Have you got any comments on BALPA's comments to our Committee? Mr Mans: Yes, I think it is horses for courses. If we are talking about the regulation ‑‑‑ Q428 Chairman: Pilots for planes I think in this sense, Mr Mans! Mr Mans: Yes, you are absolutely right! If we are talking about the regulation of commercial operations/airline operations, I think I probably have more agreement with Mervyn over that, but when we are talking about the regulation of general aviation I think there is a role to play in delegation and a lighter touch. As I say, I stick to the phrases I used about proportionate to the risk and it is quality assurance rather than quality control. This is not an alien concept to many other aspects. The engineering industry in Britain operates on that principle in the main. Q429 Chairman: Can we just ask Dr Braithwaite about this because you did say that the CAA were not going to be able to keep up with the regulatory approval of safety‑critical equipment because it is running down its operations as it runs into EASA. How many examples of that have you got? Dr Braithwaite: I can think of several where operators have wanted to import aircraft into this country and it has arrived with equipment fitted which the CAA is not yet able to certify as being safe to fly, an example being an enhanced ground proximity warning system on a particular aircraft which was not yet approved and was effectively taken out of action because of that. That is not an implied criticism of the CAA but people are wanting to improve their own safety for all sorts of reasons and we need a regulator that can keep up. Q430 Chairman: So would that be helped by what Mr Mans is suggesting? Dr Braithwaite: It may in part. I get the impression that Mr Mans' interpretation of light touch regulation is more around the risk‑based approach to regulation, which does make sense, but I think we also need to recognise that if we ease off on our style of regulation the effect it is likely to have on any future incident or accident may take a number of years to actually eventuate. Q431 Mr Leech: I was going to follow on from asking Mr Mans to ask whether you accept that there may be an argument for more active regulation, in the words of Dr Braithwaite, in the commercial sector as opposed to the general aviation sector? Mr Mans: Absolutely right. I think the key to good regulation is that the people doing it have got the experience and the knowledge to carry it out, and if a lot of that experience and knowledge resides in, say, the individual governing bodies of a particular part of aviation, like the Popular Flying Association or the British Gliding Association, then there is a good case for saying that that should be the main body that regulates that sector. Where I think you get bad regulation is where you have the people actually doing the regulating not being as competent as they might be and therefore they are actually trying to regulate people who probably know a bit more about the subject than they do. I think that is one of the issues about EASA. I think we do have a situation now, or will do very soon, where the people doing the regulating in Cologne will not necessarily have the sufficient knowledge and experience to at least keep the present safety standards that we have at the moment, particularly when a lot of the people doing those tasks in the CAA in the past will not be there very much longer in the future. Q432 Mr Leech: So how would you deal with that because at the moment EASA are paying the CAA to do a lot of the work? You do not expect that to continue then? Mr Mans: No what I think, Mr Leech, is that EASA has to take a step back and start looking at the activities for which it is already responsible and do them better before it takes on new responsibilities and that we have, if you like, a longer handover period so that the experience and knowledge of people at the CAA is not lost before the task is fully up and running with EASA. Chairman: Mr Efford? Q433 Clive Efford: Dr Braithwaite, you have touched on EASA but we have heard from the CAA that EASA is not yet fit for purpose. Do you agree with that? Dr Braithwaite: I think that is quite a strong statement but certainly it is an agency which does not necessarily have the same levels of expertise and experience that the authorities it is replacing have, so whilst certainly the intent and the idea of EASA is a very good one, whether it has managed to reach its recruitment targets and whether it has managed to establish a credible level of experience and training, I would have my doubts. Chairman: So that is yes, only longer! Clive Efford: You took the words right out of my mouth! Chairman: Sorry! Q434 Clive Efford: So what needs to be done to overcome these problems, in your view? Dr Braithwaite: I think we need to look at what we have currently in the UK, what the CAA has done for us and what investment that has established in the knowledge and skills and so on which Mr Mans was just talking about and make sure we do not lose that, and one of the things we can do is to try and remove some of the doubts within CAA employees and potential CAA employees that there will be a job and that there will be an Authority in the future and that it is not just going to keep disappearing across to Cologne which is not yet able to do the jobs that it is taking over. Q435 Clive Efford: Do I take it from your answer that what you are saying is the CAA should continue to function at its current level and not scale down any of its operations in anticipation of EASA until such time as EASA has proved that it can perform? Dr Braithwaite: Not scale down in anticipation but scale down only when the capability is there. Q436 Clive Efford: Do you believe that the creation of EASA and its proposed remit is a good idea in principle? Dr Braithwaite: In principle it is a good idea. If it leads to harmonisation at the higher levels across Europe then that is a good thing. If it leads to harmonisation at the average across Europe then that will be a bad thing for the UK. Q437 Clive Efford: Could you paint a picture for us and give us an example of where EASA practically will fill a void that is in the regulation of the industry? Dr Braithwaite: I think in terms of communication there is the example of findings from an accident investigation body such as the AIB in the UK which fed into a European agency could then benefit the whole of Europe rather more rapidly than it could by going through the CAA and then being passed on to other agencies, so there are some benefits there in spreading the good lessons and learning from values. Q438 Clive Efford: Right. EASA has been very complimentary about the CAA in evidence to us. Does this evident respect feed through into the regulatory policies developed by EASA? Dr Braithwaite: I am not sure I have an answer for that. Q439 Clive Efford: Do you think the CAA could do more to influence EASA's policies? Dr Braithwaite: I think the CAA is trying very hard. It is a bit of an uphill battle, I think. Q440 Clive Efford: In terms of the employees of the CAA, we have had witnesses who have been concerned about the scope and the abilities of those employees, and you yourself have just made reference to one example where they were not able to inspect a new piece of technology. Do you think there are sufficient skills and knowledge within the staff of the CAA? Dr Braithwaite: It is an answer in two parts. First of all, the CAA does some things extremely well, and around the world the CAA is renowned for its quality of regulation and its commitment to safety and it has done some spectacularly good things, but we cannot be complacent on that. There are other areas where people are deciding that the future is not with the CAA in Gatwick and the future is not in Cologne or in aviation and they are leaving and we are losing some of the expertise that the CAA has. Q441 Clive Efford: More specifically, do you feel that there are skills shortages in the Safety Regulation Group? Dr Braithwaite: I could not give you a specific example, no. Q442 Clive Efford: Right, do you think that there is anything the CAA could do to improve the attractiveness of being employed by the CAA, people's career paths, et cetera? Dr Braithwaite: I think the CAA and perhaps at even higher levels than that needs to have a clearer view of its future and just how quickly things are going to disappear across to EASA, yes. Q443 Clive Efford: Are you aware of any areas of safety research that have been cut back by the CAA? Dr Braithwaite: I am certainly aware that their research budget is shrinking fast and meanwhile the EASA research budget has not been announced. It has been talked about as a wish-list but we are certainly scaling back quite rapidly in this country. Q444 Clive Efford: Sorry, just to be clear, the impact on EASA of cutting back here? Dr Braithwaite: EASA has not, as far as I know, published a research budget or a research strategy at the moment although there is talk of a wish-list that it would like to publish. Meanwhile the UK's capability and funding for research is shrinking at the same time. Q445 Clive Efford: Right. Do you think that the CAA has sufficient powers in order to inspect aircraft that are registered abroad? Dr Braithwaite: To the best of my knowledge, yes. Q446 Clive Efford: And you think it fulfils that role in full? Dr Braithwaite: I think that is getting beyond my knowledge. Q447 Clive Efford: Just one last one, Sir Roy suggested to us that Europe should move towards the American system of reviewing the regulatory regimes in all countries that have aircraft flying into the United States. Do you think this would be the best way to ensure safety on incoming foreign‑registered aircraft? Dr Braithwaite: I think it is fraught with all sorts of political issues if we start to become a little bit too suspicious of our neighbours across Europe and across the world. It is not an easy task to do. Chairman: Heaven forefend that we should be suspicious of our neighbours, Dr Braithwaite! Mr Stringer? Q448 Graham Stringer: Mr Starkie, do we need economic regulation of the airports that are economically regulated at all? Mr Starkie: No, I do not think so. We have had economic regulation now for nearly 20 years. During that period of time the aviation market has got very much more competitive, including in the airport industry itself, and I think as a consequence the time has certainly come to review whether we need to subject Manchester and Stansted, in particular, to this. They have designated airports under the Act, which means they are subject to a price cap, and I think the time has come really to review that situation, particularly in relation to those two airports. Q449 Graham Stringer: Against what criteria? I agree with you that there is more competition from Schiphol and Liverpool and Birmingham and Manchester and Stansted competing with other airports, so one could say that generally, but how would you quantify that? What criteria would you use to say that now we have reached a point where competition is really there and it is a good control on prices? Mr Starkie: Well, the CAA at the moment are carrying out a competition review, you might say. They are looking at market areas for different airports and seeing to what extent these overlap. I think there is evidence in the pricing strategies of different airports that they are now much more competitive. As you mentioned, Liverpool is quite a ferocious competitor of Manchester these days, and I found it interesting at the last price cap review that Manchester set itself a very challenging target of reducing its operating costs by, I think the figure was, seven and a half per cent per annum, but it seemed willing to do this and to go along with the regulator in this regard, and I think it was willing to do that because of competition from Liverpool and Leeds and so on and it knew that, in the absence of economic regulation, it really needed to get its cost base down, so these various bits of evidence I think lead me suggest that we do not really need it. Manchester is also a different animal from the other three, the other three being Stansted, Gatwick and Heathrow, because of course it is owned by local governments, and it is arguable in those circumstances whether we should be subjecting Manchester in this case to price control. In many other instances we would expect the local governments with trading organisations to still act in the public interest and I would be expecting that of Manchester. Q450 Graham Stringer: You mention Stansted which of course is in the private sector and owned by BAA. Do you support the idea of independent regulation for the three London airports ‑ Stansted, Heathrow and Gatwick ‑ or, asking a tougher question, do you believe that BAA should be broken up completely into different commercial units? Mr Starkie: I am not so sure that is a tough question actually, but to take the first --- Q451 Graham Stringer: It is for BAA, maybe not for you Mr Starkie! Mr Starkie: Just for BAA. To take your point, I think the answer is, yes, there should be some ‑‑‑ well, if I could go back one step, the CAA have decided now to subject the London airports to what it calls 'stand alone' regulation. Previously they were regulated as a combined system which in effect allowed Heathrow to cross‑subsidise Stansted. It was not in a direct sense but indirectly the systems approach allowed for that. The CAA have set the systems approach aside and are now approaching it on a stand‑alone basis. I totally agree with that because I think the systems approach led to a lot of problems for other airports, particularly Luton, which suffered as a consequence from the competitive effects of Stansted being cross‑subsidised, particularly in the past. I think stand‑alone regulation is very important indeed. In terms of breaking up BAA, I have long been an advocate of that. I was 20 years ago when the whole system was set up and I have seen nothing to change my views on it. At the time that BAA was privatised in its entirety, the Secretary of State, Nicholas Ridley at that time, said it was a very fine decision as to whether they should have been separated, and I think now the time has come to review that issue again. Q452 Graham Stringer: The airlines complain quite a lot that regulation is not tough enough, particularly around Stansted, but generally. Do you think their criticism is unfair? Who do you see as the customer of the airports; is it the airlines or is it the passenger because you get a different outcome with the regulation in terms of price impact on airlines than you do on passengers? Mr Starkie: Are you referring to the Stansted airlines? Q453 Graham Stringer: Well, I mention Stansted because there has been quite a lot of criticism, but Stansted and more generally? Mr Starkie: I think certainly there have been problems at Stansted in terms of the BAA reaching a view with the airlines there on a forward investment programme. I think to a very large extent that is a consequence of two very different cultures. Of course, the BAA really came out of the nationalised industry, and my view is that it still has a great deal of that culture about it, whilst the low‑cost airlines using Stansted are driven by a totally different commercial culture, and therefore I would have anticipated that it would be very difficult for the Stansted airlines to agree with the BAA on a forward investment programme. I think that is less true of the airlines using Heathrow and less true of British Airways which is the principal airline at Heathrow. The problem at Heathrow is the issue of trying to expand runway capacity. Q454 Graham Stringer: Do you believe that the constructive engagement process, which is now the precursor to decisions on economic regulation, is a good thing or are you critical of it? Mr Starkie: On the whole I think it is a good thing. I anticipated that there would be difficulties with it because the airlines are not necessarily skilled in airport matters. They do not necessarily have the resources that they would need to fully engage with the BAA. Again, I would have expected that to be less the case with large companies like British Airways. On the other hand, the low‑cost airlines will have problems, and I anticipated those problems, but nevertheless I think it is a desirable direction to move in and it is the sort of approach adopted in other competitive industries. Q455 Graham Stringer: You think that is an improvement but you would prefer the regulation to disappear? Mr Starkie: The regulation not to disappear entirely but to stand more in the background and be more of, if you like, a threat to the airports that if they did abuse their dominance (if they do have dominance) then a stiffer form of economic regulation will come back into the picture, so I think there are opportunities for withdrawing. Q456 Graham Stringer: I do not think you answered my point, unless I missed it, about who is the real customer, is it the airlines or is it the passengers? Mr Starkie: My own view is that the real customer for the airport is in some ways the airlines. Q457 Chairman: Not the passenger; the airlines? Mr Starkie: Not the passenger directly. My reasoning on that would be that the airline market is very competitive in many sectors (although not totally because there are some flights to some parts of the world which are not competitive) and as a consequence the airlines will tend themselves to reflect what the passenger wants and will convey that on to the airport, but I see the airlines being the principal customer of the airport. Q458 Graham Stringer: One final question if I may. Uniquely amongst regulators there is a referral to the Competition Commission after the CAA have looked at economic regulation. Is that a useful device or is it double regulation and expensive and bureaucratic? Is it necessary? Mr Starkie: I do not think it is done in the right way. The airport industry in terms of its economic regulation differs from the other regulated utilities because the Competition Commission only comes into the picture with the other regulated utilities in terms of an appeal. That is to say, if the regulated industries cannot agree with their regulator, at the end of the day they can go to the Commission on appeal. With the airports the approach is very different because the Competition Commission is drawn into the picture almost from the very start. There is a mandatory reference to the Competition Commission and to my mind this does lead to duplication. It can lead and did lead last time round to a lot of conflict between, if you like, the two regulators, and that has quite a high cost to the industry, I believe. Regulatory uncertainty is very undesirable; it pushes up the cost of capital. Although the decision rests at the end of the day with the CAA and there is no appeal to the Competition Commission after that final decision, nevertheless the CAA acts very cautiously in circumstances where it is in conflict with the Competition Commission, and generally I find it leads to a muddying of the waters. It would be very desirable if they reverted to the standard model. Q459 Chairman: I want to release you quite soon, gentlemen, but I am just going to ask one thing of Dr Braithwaite really. You have given us a lot of detailed evidence. Do you think it is true that the CAA's approach to flight training means that there has been a huge transfer to overseas providers? Dr Braithwaite: No, I do not think that is solely the result of the CAA. There are some that will go overseas because of costs and so on but there are other more practical reasons such as the strength of the pound and the weakness of the dollar and where you can fly in rather better weather so it is not a simple picture of regulation. Q460 Chairman: Do you think new pilots have got to go abroad to get adequate practice because of the climate and things like that? Dr Braithwaite: It is certainly an option but whether they get adequate practice of the sort of weather they might fly in is a different matter altogether. I would certainly agree with Mr Mans' comment earlier on that GA is a part of the industry that we need to nurture. The supply of pilots is drying up not just in the UK but across Europe and beyond that. Without a ready supply of pilots the growth of the aviation industry will start to struggle. Q461 Chairman: What about this two per cent of private pilots in the UK who hold instrument ratings as compared to 50 per cent in the United States? Dr Braithwaite: I do not think the answer to that solely lies with the CAA. Q462 Chairman: But is it correct? Dr Braithwaite: I do not know. Q463 Chairman: You do not know? Dr Braithwaite: No. Q464 Chairman: So you do not have any view about the effect that would have on safety? Dr Braithwaite: It is a different flying environment. There are some reasons why holding ratings would be rather more useful and we should encourage more people to do. There are other factors such as people holding those qualifications may already have been snapped up in the airline industry, so I do not think there is a simple answer to that. Chairman: Gentlemen, you have been very helpful, thank you very much indeed. Witnesses: Mr Rick Haythornthwaite Chairman, Better Regulation Commission; and Dr Mark Thatcher Reader in Public Administration and Policy, London School of Economics, gave evidence. Q465 Chairman: Good afternoon, gentlemen, you are most warmly welcome. Could I ask you to identify yourselves for the record, please? Mr Haythornthwaite: My name is Rick Haythornthwaite and I am the Chairman of the Better Regulation Commission. Dr Thatcher: I am Mark Thatcher ‑‑- no relation I should add! Q466 Chairman: It never crossed our minds and it is only accidental that you were going to have a hard time! Dr Thatcher: Not here, I hope! I am a Reader in Public Administration and Policy and I have worked on regulation and independent regulated agencies in Britain and elsewhere in Europe. Q467 Chairman: That is very helpful. Mr Haythornthwaite, could you just tell us the most important conclusions and recommendations you have made to independent regulators about better regulation? Mr Haythornthwaite: I think the most important really relates to the governance of the independent regulators first and foremost. The independent regulators do need to have a very clear idea of their objectives. They have to have a very clear sense of their governance to ensure that there is an appropriate governance, preferably with a separation of chairman and chief executive, that there is a mix of executive and non‑executive board, that they have a clear commitment to the governance principles of consultation, they have clearly accessible and affordable means of appeal, that they are committed to impact assessments, and I think therefore, Madam Chairman, the process of the independent regulators is important but also the way they conduct their business in terms of spirit is equally as important. It is no good being independent unless you really have the support not only of those on whose behalf you regulate but also the regulated community. Therefore the way the independent regulators conduct their business, the relationships they adopt, the transparency with all of the communities is as important to their licence to operate as the governance that they have in place. Q468 Chairman: How have they responded in general to the seven recommendations? Mr Haythornthwaite: The Task Force (before it became the Commission) did go back and have a look at how the response had been during the course of last year and actually the response has been positive. There is far more consultation than there used to be. There is more practice of impact assessments, although there are still very considerable questions about the quality of those impact assessments. Q469 Chairman: And presumably differences between one regulator and another? Mr Haythornthwaite: It is very variable, yes indeed. We have not looked at the CAA and the aviation industry in particular, although one can say, looking very briefly at the sponsorship statement, there are many of the aspects we would wish to see in there, not least the commitment in any primary and secondary legislation to impact assessments, and to driving down the administrative burden, which is very encouraging. In the corporate plan of the CAA I think the words we read about adhering to the principles of better regulation and about the adoption of the principles of the enforcement concordat, all of that is very positive. We have also found in the meetings that were started in 2004 that were convened by the National Audit Office and the Task Force, and now the Commission, where we brought independent regulators together, there is no doubt there is a strong commitment to drive better regulation through, although it is very noticeable that quite often they are quite hidebound by the founding statutes, so often when quite simple areas of deregulation are desired they are not always easy to push through. Q470 Chairman: What happens when the regulators fail to follow your recommendations? Mr Haythornthwaite: First of all, we make our recommendations to the Government and the Government has, by and large ‑‑‑ Q471 Chairman: Well then, put it another way, what has the Government done to encourage regulators to take up your recommendations? Mr Haythornthwaite: The Government so far has done it first of all by very willingly and rapidly accepting the recommendations that we make. The most important sets of regulations were around the regulators as a whole and certainly by endorsing those there was a strong degree of pressure put on the regulators, even though they are independent, to adopt them. There was really a 'why explain?' tone to it and certainly most of them have responded. Now it is an important time in the evolution of this because the Less is More Report and the Hampton Report laid out quite clearly some challenges for simplification, making sure that any new regulation was accounted for by a net reduction in the existing stock of regulation and by a very thorough process of administrative burden simplification being adopted by the departments. Now there has to be visible evidence, I think, that the independent regulators are picking up the tone and spirit and the process that we are seeing in departments. Q472 Chairman: Are you rather implying that that has not happened totally yet? Is that the burden of your argument? Mr Haythornthwaite: No, it is just very early days. The departments are really in the earliest stages of measuring their administrative burden. One has to say that we see the right words in most quarters, but from the standpoint of the Better Regulation Commission we are only interested in outcomes and until we see real outcomes we will retain a tinge of scepticism. However, there is no hard evidence as of today that they are not being adhered to. Q473 Chairman: You did identify in the 2003 Better Regulation Task Force report a number of examples of good practice particularly in relation to accountability and answerability (horrible word). Have you seen any evidence of the CAA adopting that best practice? Mr Haythornthwaite: I think from our standpoint, bearing in mind we have not beyond that initial report (where we did look at the economic side of the CAA and compare it to Ofgem and Ofwat) looked at it in any detail. Q474 Chairman: You mean you have not looked at the CAA in detail? Mr Haythornthwaite: The CAA in detail. Q475 Chairman: But you have looked across the board at this? Mr Haythornthwaite: We have looked across the board and in terms of accountability and answerability, yes, we have seen improvements in quite a number of departments. I think if one takes an independent regulator such as the Financial Services Authority, the Financial Services Authority has made significant strides in moving towards a principle‑driven regulatory environment, consulting widely with the stakeholders, and there is a transparency and accountability that is being built up, and there are other examples throughout, but it remains patchy. Q476 Chairman: Who apart from you evaluates the performance of regulators? Mr Haythornthwaite: There is no hard and fast systematic evaluation of the regulators as far as we see it. Obviously each regulator is accountable to the Secretary of State of the relevant department, just as the CAA is accountable to the Secretary of State for Transport, and one would hope that they would be judged against the sponsorship statement and their performance against that. Moving forward, the only other areas are really what we see through the Independent Regulators Conference where we are able to make an assessment of the direction in which that is moving, and one hopes that this current simplification exercise will expose poor performance and poor levels of commitment to better regulation, but there is no other systematic process that I see to judge the independent regulators. Q477 Chairman: To be mildly unfair for a moment, since you found there were differences between the different regulators has it not occurred to you as a group that possibly one thing that you could do would be to create your own set of rules for evaluating the performance of regulators? Is that something that is happening? Mr Haythornthwaite: I think there is a set of rules. Q478 Chairman: Not the ones that you originally laid down. I am saying do you have any way in which you can evaluate the gaps between what you have asked them to do, what you think they ought to do, and what they are doing? Mr Haythornthwaite: Bearing in mind that what we asked them to do represents only a proportion of what the day‑to‑day job of the regulator is, and therefore I think one needs to be mindful of that, I think we can lay down, as we have, the basic principles of better regulation and a clear goal that we wish to see a net reduction in administrative burdens and regulation as a whole. Against those areas we have the right to scrutinise and vet and we stay in contact with people. Do we have a hard and fast measure that we can throw back in the faces of the regulators? No, we do not, but does that mean that we cannot influence through the various methods you talk about, yes we can, and that is the way we choose to operate. Q479 Graham Stringer: I think that meant that you do not believe there should be a regulator of the regulators? Is that what you are saying? Mr Haythornthwaite: You are referring to the Commission as a regulator of the regulators. 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 six per cent 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 six per cent, 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. 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. 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. |