Examination of Witnesses (Questions 40
- 59)
TUESDAY 24 MARCH 2009
MR STEVE
BROOKER, MS
SUE EDWARDS,
RON GAINSFORD,
MR PULA
HOUGHTON AND
MS SARAH
VEALE
Q40 Dr Naysmith:
What do you think about the government's attempts to develop a
coherent and intelligent approach to addressing the regulatory
issues in the financial services sector? Do you think they are
on the right lines or do you think that they are totally wrong?
Mr Houghton: One important point
to make is that so much of the regulatory work that is happening
is very much focused on, as I said before, the prudential side,
so talking about capital requirements of the banks and all things
that are eminently sensible. What we would caution against is
meaning that that loses the focus on the consumer side. The FSA
does have to balance its responsibilities for prudential with
also being a conduct of business regulator, and that is a very
important part of its work and there has been a certain amount
of comment that part of the reason that it took its eye off the
ball on the prudential side was because it was too focused on
things like treating customers fairly. What we would say is that
it is very important that that work continues as well and that
both things are important. There are risks to the consumers—there
have been lots of various bad products, various mis-selling and
that sort of thing, so it is very important that work continues
whilst also taking this new approach to the other types of regulation.
Ms Edwards: Obviously I also agree
that risk-based regulation is the right thing but I think in the
past it has always been assumed that risk-based regulation is
about dealing with businesses on the margins—home credit,
rogue traders—and actually it has not looked at the enormous
consumer detriment from some mainstream high street firms' selling
practices, products and so on. Alternatively, it has been, "Let
us take the easy wins," and the OFT in the past has done
that in relation to consumer credit licensing. But more recently
it has taken a different view now it has the additional powers
from the Consumer Credit Act and it has actually begun to take
action against larger firms.
Q41 Dr Naysmith:
Do you think that there might be a danger of a knee-jerk reaction
taking place in the way that the media and the press everywhere
is saying, "You have to do something about it", we do
something and then the government does the wrong thing.
Mr Gainsford: I think there is
a danger. Let us face it, it has been an enormous wakeup call
for any regulator, but also for those that have suffered from
the consequences of a poorly implemented or ill advised regulatory
framework, so in that sense it has been quite a wakeup call. I
think out of that, as I say, good will emerge in the context of,
if you take financial regulation, that this is not just about
the financial world looking after the financial world, there are
some hellish consequences that arise when it goes wrong. This
is a real people issue and that will be a good thing. The danger
then—and I think it is quite interesting—is how do
you emerge from that with the right balance of approach? I would
like to think that any regulation is risk-based, to be frank,
otherwise why are we doing it at all. So there ought to be that
research and science behind any proposal for regulation; I would
like to think that that does happen and in my experience it often
does. I think in the current climate it is quite interesting to
see how regulators might queue up now to demonstrate how tough
they are. For example, I was interested to see yesterday the Chief
Executive of Ofgem, Alistair Buchanan, on the television and listening
to him on the radio, clearly doing the rounds and using language
like, "We are going to nail them." I am sure he understood
what he was saying but none the less it is interesting to see
that sort of language from an upfront organisation that to me,
to be frank, has not been known for nailing those in their industry.
Why was he doing that? We would say that there is a big issue
about mis-selling of energy and so in the sense of risk we are
moving towards asking the government to stop that altogether;
we think it is archaic in this day and age that energy should
be sold on the doorstep in this country and not in other countries.
So in that sense why is he doing that? I think that is the curious
bit. I would like to think—and obviously there is significant
research behind their announcement yesterday—that they are
looking at this in the sense that there are some mischiefs there
that we have to deal with and the consumer is not getting a fair
enough deal, so we are going to emerge from that as a tougher
regulator. I would not want to think that they are one of those
"We want to be ahead of the queue to demonstrate how hard
we are." So in that sense there is that danger, I think.
Q42 Dr Naysmith:
Just a final question—and there may not be a response to
it—are there any lessons that we can learn from the way
that other countries are responding to changing their financial
regulations of which any of you are aware that you think we ought
to know? It is a bit early days.
Mr Gainsford: Talking to some
of my colleagues who are not directly financial regulators overseas,
but we have quite a broad framework of collaboration with our
equivalent in other Member States particularly, I think that they
are looking towards the UK as coming up with the solutions in
a regulatory sense and otherwise. I think there is that mood that
we have been perhaps particularly exposed on this and therefore
our regulatory answers, response to that should itself serve as
indicative of the way markets should be regulated from hereon
in. So I think there is that mood. That is not a very scientific
answer but certainly that is the hearsay answer that I have picked
up.
Q43 Gordon Banks:
Some observations and some questions at the same time if you do
not mind. I wonder whether the public and indeed industry and
business in general has this view now because of the impact of
the financial sector crisis on everyone that regulation is very
important, but providing the regulation is there that I deem to
protect me and not to encumber me. I come from the construction
industry, which is a fairly well regulated industry, and I do
not think there is anybody in the construction industry that would
not think that the financial sector needs to be better regulated,
but they think that the construction industry does not need to
be better regulated; it needs to be less regulated. So a question
and an observation. Doug has touched on a point that as a result
of the impact of what is going on just now basically whether the
outcome may be a more intrusive approach, not just in the financial
sector but everywhere. The part he did not go into was whether
there is a conflict between this and the agenda for better regulation.
So if I could ask you to address those points first before I move
on.
Mr Houghton: If you truly believe
in better regulation and you are doing it properly and you are
taking a risk-based approach, then there does not necessarily
need to be a direct read across—that just because you need
to be tough on the financial sector right now you need to be tough
on the construction sector. As I said earlier, the danger is being
too ideological about it. Whenever we look at a particular market
it is all about doing a robust detriment analysis—is there
a problem here? Are consumers being in some way mis-sold or treated
badly? If they are then there may be a need for some form of intervention.
In terms of the way in which it is done you do not necessarily
need more regulation. What might be the case is that, as Ron has
said, regulators just need to be tough where they need to be and
where there are problems that should be their approach. I suppose
that is the thing about what is the culture? One of the things
that Lord Turner seemed to be very hot on was this thing about
the kind of zeitgeist—is it acceptable to regulate financial
firms, and the implication was that it was not. I think not being
ideological about it and if there is a problem then taking the
necessary steps is the way to go.
Ms Veale: I think the construction
sector is quite a good place to start although, like you, I doubt
whether very many employees would feel that they were encumbered
by health and safety regulations. But I think there is an important
point there actually, which is from what we can see are the best
models for risk assessing and preventing accidents is when you
engage the workforce with the employer together in managing the
whole package of risk regulation and enforcement of quite prescriptive
regulation. I would just take this opportunity to extol, as an
example, the role of trained up safety reps in the construction
industry, mostly through trade unions. I think there are lessons
to be learned there which should be read across into society more
widely. A group which I think gets into a terrible tangle about
risk assessment, partly because of seeing things through the prism
of the frantic media sometimes, is parents because when you are
a parent you have responsibility for extremely vulnerable young
citizens and because the newspapers are lecturing you and you
see horrendous reports of accidents you very quickly get into
that over protective mode of thinking, and I think public education
about what a risk is and what a sensible balance is towards making
sure that the people who are exposed to the risk take some responsibility
themselves—otherwise you get into a ridiculous, I hesitate
to use the word nanny state, but over protective approach to regulation.
But in order to do that you have to devote resource to it and
public education is woeful on this. Members of the public generally
struggle with statistics and making sense out of reports from
various organisations about the impact, for example, of MMR jabs
and the inability to actually assess what the real risk is and
then this inappropriate high risk behaviour unwittingly. So it
is a massive issue and, again, while I am speaking I would commend
the work of the Risk and Regulation Advisory Council, of which
the TUC and Consumer Focus is part, which has done some very exciting
and innovative work on risk assessment and how that marries into
regulation and how proper risk assessment can help governments
to regulate appropriately and to bring other parties in on the
regulatory process.
Mr Gainsford: If I used the words
"intense supervision" then I suspect I would be pilloried
by the Better Regulatory Executive and by the Local Better Regulation
Office. In my role intense supervision is not acceptable language
and that is because of the world in which we live post Philip
Hampton's report, which is a philosophy that we as trading standards
and our colleagues in environmental health, etcetera, were buying
into for many years and so that was not a great culture for us
but it just confirmed the journey we are on, which, as I say,
is not about intense supervision other than those that we assess
require that intense supervision—whether they are rogues
in overalls or rogues in suits, to be quite frank. That is the
world we are in. So our efforts are on, yes, intrusiveness where
there are those rogues, criminals and fraudsters whether they
are targeting businesses or consumers in a way to defraud and
to rob them of their well earned money. In that sense I would
say that we will continue with what we will term our proportionate
approach, which is about assisting businesses in many ways; trading
standards officers, environmental health officers across local
government will be looking at start-up businesses, helping to
regenerate the economy; they want to help businesses. And in my
experience businesses want the certainty of good advice knowing
that they can get support; it would be wholly wrong for them to
be fearful of seeking advice from their local trading standards
officers, for example. That is where I take issue on some of the
language that would suggest that all regulation is bad regulation
when of course it is not; there is much that is of great help
to businesses and the important thing is that they have access
to good, supportive advice whenever that is necessarily.
Q44 Gordon Banks:
Moving on from those points, as a result of the financial crisis
could there be this tension between the government's aim to support
business and the need to respond to the financial crisis? I think
that everybody involved in regulation wants better regulation
not more regulation, but do you think that there is potentially
some conflict between government's objectives, industry needs
at this point and the financial sector, and the objective of this
better regulation?
Mr Brooker: I think there is a
shared interest between government, between consumer groups and
between business groups in having the right level of regulation
and the right approach to regulation. Consumers are not in favour
of businesses being suffocated by red tape—it costs consumers
money at the end of the day and it restricts innovation.
Q45 Gordon Banks:
But often consumers do not have any idea of the regulation that
the business or whatever it is might be under.
Mr Brooker: No, but it is our
role as consumer organisations to represent the views and interests
of consumers and I think it is important for us not to jump on
a bandwagon which welcomes intrusive regulation; it is incumbent
upon us as consumer organisations to maintain a proportionate
approach as well. In fact I spend more of my time arguing for
deregulation, whether it is the liberalisation of the legal services'
market or removing quantity controls on taxis in town centres
than I do arguing for more regulation. It is about having the
right balance. What I would say in addition is that that should
also mean that the government must not shy away from introducing
new regulation that is needed to protect consumers. One issue
that we are about to look at is the issue of consumer prepayments—what
happens when you buy a sofa from a furniture store which you pay
for in advance and the company goes bust before it delivers the
goods? With all the corporate insolvencies going on at the moment
that might be an area where the government needs to enhance consumer
protection and it will be a mistake for the government to say,
"Businesses are suffering right now so we will leave them
entirely alone."
Ms Edwards: I think the important
thing is basically that regulators need to look at what the market
is doing to consumers, what the impact of the way the market works
is on consumers. Some regulators have done that; other regulators
have not and have yet to move in that direction. So it is about
looking at the market impact on consumers and what the detriment
is.
Mr Gainsford: One of the things
I would say, if I can, is that I think consumers have expectations;
they do not have knowledge of regulation. It is how we collectively
respond to those expectations and I think that is what is emerging
quite strongly. The most simple example—if I can give you
a very simple example—was a report done by Steve's predecessor
organisation, National Consumer Council and the National Weights
and Measures Laboratory, and what that did was to try to go out
with the very old fashioned weights and measures controls, said
to be the cornerstone of consumer protection, and it asked people,
"When you go and fill up your vehicle with fuel how do you
know that the petrol pump is accurate?" The general response
was, "Because Trading Standards inspect them." "Do
they? How often do they inspect them?" "About every
two months." If only! Not at all. In fact resources are such
that they would not be looked at for a long time and in that context
that was really a small example but it was indicative of what
the population expected and that was a wide scale piece of research
that suggested from our point of view that we do not know best,
it is about consumer expectations rather than consumer knowledge.
Q46 Gordon Banks:
So it is a comfort blanket of regulation being met to protect
me when something goes wrong or to prevent something going wrong.
Mr Gainsford: Absolutely. When
I fill up my petrol I want to make sure that I am going to get
my full and accurate measure.
Q47 Gordon Banks:
I want to know I get six gallons.
Mr Gainsford: Absolutely. Or litres
of course.
Ms Veale: You are a much braver
man than I am a woman because I certainly would not have had that
written down in the record because all the consumers who hear
about this now will suddenly realise that the Emperor has no clothes!
And no inspector rushing into the local garage every two months!
Just one serious point, I agree with you that there are inherent
tensions in a lot of this and one thing that particularly caught
my eye is that the Small Business Lobby is understandably very
agitated about the activities of no win no fee high street solicitors
and are now beginning to call for them to be regulated and have
their activities restricted; but actually they are small businesses
as well and they would argue—and I am sure that Consumer
Focus would argue—that there is no state legal aid effectively
for employment protection, therefore the public has an absolute
right to choose a no win no fee solicitor to argue their case
for them and get them some money. So if you pick away at the arguments
being made by the most vociferous lobbies there are huge tensions
in there that need to be unravelled.
Q48 Gordon Banks:
If I can move on and talk about an issue, again which we have
touched on but to throw in some personal experience here. It relates
to prescriptive regulation and interpretation of regulation, as
I like to call it. I am deeply involved in regulations regarding
the blind cords that hang from all our blinds which end up killing
at least two children a year in the UK. There is a regulation
that says that where danger of strangulation exists or occurs,
something must be done to prevent the strangulation. It is an
interpretation as to whether a risk occurs; somebody has to interpret
whether that risk occurs, and that is clearly the installer or
the manufacturer. Whether they interpret that the risk does not
exist and does not do anything about it, as we were saying, you
were saying earlier on, that is where that risk occurs at that
minute of that day because there may not be children in this house
but this house may be sold, the blinds may stay and children may
come into this house and therefore there is an inherent risk in
the product. I think consumer expectations and interpretations
in this area differ to that which the industry may hold and may
deliver. I suppose that takes us on to the questions of whether
government and regulators have the skills and abilities to be
able to regulate effectively. And after this current crisis do
you see that there is anything lacking in capacity, enforcement
resources or will of enforcement. I will give you an example in
trading standards. A fatal accident inquiry of the last little
girl who died in my constituency, which is still ongoing but it
is being heard in public, the trading standards impact manager
had never inspected any blind manufacturer at all—never,
ever—so they had not helped the blind industry determine
whether there was a risk or not. So is there a problem with enforcement
of resources? We have heard basically that there was a fatal accident
inquiry. What also interests me most—and it kind of links
into the last one—is sector expertise, knowing the sector
in which you are involved in trying to regulate. If I can give
you an example. I have been involved in the construction industry
for 30-odd years and I have to be faced with an auditor who knew
my industry. Auditors come and they have auditors dealing with
the auditing process but they do not know my industry. I think
that is a failing in that area. I am sorry; I have thrown a lot
at you.
Mr Gainsford: There is a lot there.
Clackmannanshire I think was highlighted in a report by Audit
Scotland in 2002—
Q49 Gordon Banks:
Yes, it was.
Mr Gainsford: —for having
woefully insufficient resource.
Q50 Gordon Banks:
And then that merged with Stirling.
Mr Gainsford: And there is a shared
services arrangement to try to overcome that and the reality is
that in Scotland, as in other parts of GB, particularly the trading
standard resources are incredibly scarce and getting scarcer,
and that reflects some of the woes in local government funding
and different priorities if local government needs to respond,
as it should, to perhaps the Baby P crisis and report, and then
resources are finite and it may well be that resources are leaked
from services like trading standards or environmental health to
those other services. So there is no doubt that there is an enormous
mismatch between the requirements and expectations on trading
standards by society, by business and by consumers and their ability
to deliver. Having said that, I think we still have something
to be pleased about in the sense that the UK has this one-stop
shop trading standards service that is not replicated anywhere
else in Europe or the world, and that is of enormous value to
business and consumers. Then you come to your sector specific
type issue. I think what is happening there—and I absolutely
take your point—is that in my role of trading standards
you have an incredibly broad canvass so how do you try to understand
business and the industries with which you are dealing? In that
context there is quite a lot of effort to try to find sector specific
expertise. The difficulty, in local government terms, is how you
share that amongst the world of local government. So in that context
I think there is some way to go. But we are seeing that by way
of the development of the home authority, primary authority scheme
through the Local Better Regulation Office. Tomorrow there is
a launch for an initiative called Trading Places by the Local
Better Regulation Office at the CBI, which is around regulators
moving into various industries and business sectors to better
understand. I think that is incredibly important. Equally, I would
say, it would be quite helpful for business to understand regulators
as well, to develop from that "them and us" mentality.
So, yes, a big issue around capacity; I will not dwell on that
now because that will take a very long time. And, yes, I think
any professional would want to understand the business that they
are trying to regulate.
Mr Houghton: I will make a series
of points and they are in no particular order. In terms of the
will, you have certainly seen the change in language from the
FSA, as we have already discussed, and Ofgem as we have already
discussed; so there is a prevailing change. Another important
observation would be around the OFT's role with regard to competition
policy; competition policy is one of the things that they have
observed as potentially coming under threat.
Q51 Gordon Banks:
Can I just ask does it matter what is driving that change of will?
Going back to what Mr Gainsford said about why Ofgem came out
and said that, does it matter what is driving that change of will
or is it just the change of will that is the important thing?
Mr Houghton: I suppose it is case
specific. In terms of the FSA, they are being driven by the fact
that there were clear failures. I would hope that Ofgem are responding
to the fact that there are genuine consumer problems. The OFT,
I believe, are responding to the fact that with the HBOS and Lloyds
merger they do not want to see lots of firms coming to them with
the kind of failing firm defence that is not a failing firm defence.
I suppose the reason why they are being driven does matter, and
as long as they are being driven by appropriate reasons then I
think it is fine. With sector expertise it is very important that
there is a balance. One of the criticisms that might be levelled
at the FSA is that the culture was too close to the industry that
it was regulating. We would always say that any board of a regulator
should have an appropriate mix of expertise. We are looking at
the regulatory system of legal services at the moment. It is very
important that there is a split of regulatory representative powers
and that there is adequate representation of all sorts of different
interests, not least consumer interests. The final point, if I
may, in terms of regulatory approach, yes, resources are always
going to be limited in any regulator and therefore I suppose it
is important to get the maximum bang for your buck. Particularly
looking at the financial sector two of the things that you said
could be done are bigger fines that make a really big impact when
there is a serious transgression and also more use of naming and
shaming. That has the dual benefit of being a powerful regulatory
resource as well as empowering consumers to make decisions from
a position of knowledge.
Mr Brooker: Can I build on Pula's
point about the balance of perspectives that go into the intelligence
that the regulators receive and then they act upon it? The FSA
does not have any consumer expertise on its board and so it is
difficult for us to have confidence that the FSA actually understands
what consumers are experiencing out there in the market place.
One of the reasons why the FSA's Consumer Panel Chair resigned
was because he felt that he did not have enough resources in terms
of staff resource to support his panel. When we looked at the
FSA as part of our Rating Regulators study we found very little
formal consumer research. All those things pointed to one conclusion:
that the FSA was too close to the industry that it was supervising.
When it came to the financial crisis, what we would observe is
that the industry and the regulator framed the issues in the same
way because there was no external independent challenge; so the
philosophy that Adair Turner articulated, that markets were self-correcting,
became a self fulfilling prophecy in a way. I think if there had
been more balanced perspectives at the FSA we might have seen
a slightly different story.
Q52 Chairman:
Before we move on it struck me that Houghton and Mr Gainsford,
you both alluded to something in terms of use of resources particularly
at a local level. Just as a matter of interest—and it does
not directly impinge upon this inquiry—do you maintain a
register across the country of where expertise is and do you have
mechanisms to reach across local authority boundaries to help
draw in some of that expertise when it is needed?
Mr Gainsford: There is a local
government organisation called LACORS, which is a central body,
which helps to coordinate these activities and that has a number
of specialist groups that are designed to be sector specific in
many ways; so there is that mechanism that is being set up by
the local government family. We as a professional body would train
into those individuals both generic and specific skills in that
sense and I know my colleagues in environmental health do exactly
the same as well. So it does register very closely on the radar.
The important thing for trading standards, coming back to the
point, I will always say that trading standards can never be just
local, can never be just regional or national; it has to be all
of those things, and indeed international. So the challenge is
how we find a local authority based service that can actually
meet the challenges of global markets and localism versus globalism
do not sit very comfortably together. So in that sense we are
very dependent upon central government funding, which is now drying
up totally, on helping regional coordination; so we are finding
within the nine English regions that trading standards are coordinating
and collaborating, but that has been very much based on BERR additional
funding to facilitate that, and the same with intelligence sharing
and intelligence gathering based on BERR money and, in the past,
OFT money, and that is all disappearing. If you look in Scotland
then the regional coordination of those or national coordination
of those various authorities in Scotland was based on BERR money
and that is now drying up, so my colleagues in Scotland had to
go to the Scottish Government and they have rescued the situation,
if I can put it that way, by way of money for tobacco enforcement,
which will be applied for that, but it helps them to keep that
sense of collaboration. So the mechanisms are there but it would
not be right for me to do other than to expose the fact that they
are increasingly frail at the moment because of the fact that
local government money is not being targeted into regional and
national collaboration and that is, as I say, back to localism
versus globalism.
Q53 Chairman:
The same dilemma faced by other authorities, including the police
and so on?
Mr Gainsford: Yes.
Q54 Lorely Burt:
First of all, I would just like to say what a tonic it has been
to have you all here this morning. We have had the regulators
and they have been patting themselves on the back; we have had
industry and they pat themselves on the back and say how well
they are doing in meeting all the regulations. Now have the real
story. I particularly feel for Ron Gainsford because you really
are at the coalface of implementation. And I take Sue Edward's
points very strongly as well; you are representing the ultimate
people who have the biggest challenge with the implementation
of a lot of regulation. I still agree with Steve that we have
to go for a risk-based approach and I think you all agreed with
that and I certainly believe that is the basis. But there is no
point in going on a risk-based approach if you are not implementing
and I do believe that implementation is absolutely the key to
this. So what I want to ask you about is we are tremendously well
served by the National Audit Office—and we happen to have
an adviser here this morning—and they provide us with the
grist for the mill for us to be able to understand what is going
on. We talked about just how diminishing the resources are in
the implementation of regulations. I am sure that the National
Audit Office would not possibly have planted this question I am
about to ask, but do you think that we should have more resources?
Does the government need to collect better information to better
understand the complexities of the sector and the markets that
they are regulating?
Mr Gainsford: If I start on that?
I could just say yes, but I think it is much more than that because
in a way we have gone a long way down the road. There are mechanisms
that have been introduced which are around intelligence gathering.
We now have national Consumer Direct Centres that are run by Trading
Standards in partnership with the Office of Fair Trading and BERR,
so that has improved things a lot. As a result of that there is
a central database collecting details of complaints specifically
and in trends that can then be translated into the use of enforcement
resources by trading standards. We have seen the appointment of
Regional Intelligence Officers; we use national intelligence mechanisms
to bring that information together. So, in a sense, we have gone
a long way in terms of reinforcing the infrastructure that enables
us to say, "How can we best use the scarce resource we have?"
The worry I have is that that could quickly evaporate as we see
the pressure on the public purse and that will not be picked up
by local government, absolutely not, and yet I will always say
to government that there is a responsibility here for government
to ensure that there is a national framework in place that allows
us to serve consumers and businesses effectively. So there is
a lot there. Equally, having said that, there is still a lot of
scope for doing better with what we have, and that is something
around collaboration between national regulators and certainly
the Hampton Implementation Reviews have been quite interesting
in that regard as to how national regulators can learn from one
another and, indeed, to think about how they share activity and
resource. In the local context how we can see national regulators
working much more forcefully towards having a better central local
dynamic in terms of servicing markets that we had. So a lot in
place but we could do much more in terms of what we have. But
all of that will be wasted, to be quite frank, unless we see some
of the real investment patterns that are now not happening changing
in a significant way. So workforce futuring in trading standards
and in environmental health is now at a very worrying stage and
whilst I would not want to say it is broken it is clearly moving
towards that, and that has to be a worry that we face; it is not
something that local government itself will stand up to and it
is not something, in my view, that national government can step
back from. We have to find that right solution and, to be quite
frank, that is not happening at the moment.
Q55 Lorely Burt:
That is quite scary, is it not, really?
Mr Gainsford: It is very worrying.
Q56 Lorely Burt:
Regulators can regulate to their hearts' content and some might
say that we have too many regulations but unless they are actually
enforced then there is no point in having them in the first place,
is there?
Mr Gainsford: A lot of my members
will be beholden on enforcing against rogues that I have mentioned
to you—they will be very dedicated to that—but they
are also equally frustrated if they cannot help start-up businesses,
if they cannot help their local businesses survive and prosper.
They want to be allies of those businesses and not foes in that
sense. But they simply cannot—picking up the point like
Clackmannanshire—they simply do not have the wherewithal
to do what they would like to do in that sort of sense.
Q57 Lorely Burt:
I just want to explore this for a moment longer. My magic wand
solution, if you like, to a lot of the enforcement problems that
I see—because I speak for business and enterprise for my
own part—would be if the people on the enforcement end,
on the coalface end actually had—and you talked about changing
the culture of the regulator—a much more helpful advisory
type of role could not those people actually have multi roles;
in other words, a small business person is supposed to know a
whole raft of different regulations, and is it too much to ask
that one regulator should know the basic regulations which apply
to that small business and advise them rather than having a whole
series of regulators coming up and down the drive, taking up their
time at different times of the day?
Mr Gainsford: In a sense I understand
where you are coming from. Even in trading standards the regulatory
canvass is so big that, to be quite frank, it is impossible for
any single trading standards officer to know that regulatory canvass
and that is just trading standards. There is however room for
regulators to be seen to be working more closely together to assist
businesses—absolutely. I come back to the point, I think
that every contact between a regulator and a business should be
a productive contact, it should be a productive transaction on
both sides and if it is not then what is the point? But it is
interesting. I was talking to Sarah Anderson recently on her report
about guidance that BERR commissioned and she reflected on the
retail enforcement pilot project that BERR and now the local Better
Regulation Office are leading and we are supporting it because
we do want to explore this. But the whole idea of this is can
you have in the sense of environmental health, trading standards,
fire and rescue, an officer that goes in and is sufficiently well-versed
to be of real help to the business. She has spoken to small business
about this and she quoted the example of a food establishment
that had been visited by a fire and rescue officer wearing the
"I am here to help you" across the piece. Of course,
once they got past the fire doors etcetera the food establishment
said, "I would like some more advice on the detail of this,"
but the fire officer obviously was not equipped to do that. That
in itself is fairly predictable. So I think there is a scope for
saying, "I would like, if it were operational, to go into
a business and say `I can tell you a bit about environmental health'
but I cannot give you the whole story." That has a place
but equally I come back to my core point that in my many years
experience what businesses want, if they are going to have those
people walking through the door they want that to be a valuable,
productive experience and then they do not mind actually that
it is more than one walking through the door, if they have some
output from it. That is the essence of it. It is a complete waste
of walking through the door for no purpose but just to tick the
box we have heard of before; but if that is a productive transaction
with the right level of expertise that is what the business wants
in terms of ensuring its minimising the costs and maximising the
compliance.
Ms Veale: Can I just add to that?
From the other perspective actually, the other sad thing in all
of this is that it does not work terribly effectively in the current
system in terms of giving enforcement of people's employment rights.
We estimated that last year 170,000 were not being paid the national
minimum wage and that is just the people who are above radar.
I think the problem is that you get the Revenue going in to look
at that and they see some very obvious health and safety problem
but they are not allowed to phone up the HSE and say, "By
the way, when I was in that company they had a very dangerous
piece of machinery operating." So I entirely agree with Ron's
point about the need to join everything up. The other thing I
think needs to be looked at is the fact that certainly on employment
protection a lot of aspects of health and safety are entirely
reliant on an individual employee making a complaint. You would
have to be quite a brave person to get up on your own and go to
an employment tribunal and even if you do, what happens at the
end of that is that you get the compensation, which is good for
you, but there is no attempt made to address the systemic problems
that there are, especially at some of the larger companies that
are producing these individual cases. So I think there is a really
desperate need to look at the whole package of enforcement, rights
and the rest of it to see why it is not achieving either effective
regulation or helping businesses to cope with regulators and carry
on making money and flourishing.
Q58 Chairman:
I think we have established—and nobody has dissented from
this—that there is a need to have greater cross fertilisation
of ideas and operational practice as well and that obviously has
very significant resource implications. So would you regard that
resource issue as being the biggest obstacle standing in the way
of achieving change in that respect. Is it money or is it will?
Mr Gainsford: The will is not
a problem; there is a tremendous will from trading standards to
support business and consumers. The will is not the issue at all.
Working smarter across the piece absolutely is important and we
are on a journey in doing that, but capacity is incredibly challenging,
I have to say. I do not see that we have a clear vision on that
at all. BERR once articulated a vision but now they do not do
so. Philip Hampton said that there ought to be a consumer and
trading standards agency in government; the recommendation was
accepted by the government at the time and then rejected, so he
had seen it. So it is how we find that greater cohesion and coherence
in the models that we have that I think are the biggest challenges.
Mr Brooker: Can I add to that?
I was on a leek farm two weeks ago, talking to the farm manager
and the farm manager described how he was visited by the gangmaster's
regulator one week, the national minimum wage regulator the next
week, the HSE the following week and the supermarkets to whom
he provided his leeks the week after. So I think there is scope
to streamline and join together regulatory forces, although at
the same time when it comes to trading standards I would totally
back up Ron's point that they are chronically under-resourced.
They are our heroes on the high street and they need to have the
right financial backing to do their job properly. But when it
comes to the FSA and some of our other national major regulators
they are generously resourced and that is about those regulators
having the right focus. It is also about those regulators having
a smarter approach to enforcement. One thing we would like to
see them do more is to provide consumers with the compliance histories
of the firms that they supervise. So to take the Food Standards
Agency, it has its scores on the doors scheme where it publishes
the food hygiene inspection results of restaurants and that allows
consumers to vote with their feet and regulators can harness consumer
power to do their job for them and prevent the problems from occurring
in the first place rather than to chase problems after the event.
That is something that regulators across the piece can do more
of.
Q59 Chairman:
I would ask you finally to get out your crystal ball and look
at what you think the future of the regulatory reform agenda will
be like. Secondly, because it seems to have been parked in BERR
somewhere for no stated reason, what are your views on regulatory
budgets and whether they should still be adopted?
Ms Veale: The TUC is on record
as having been very critical of the proposal for regulatory budgets
in departments, for a whole range of reasons; and that is on the
TUC website if people are interested in looking at it. Frankly,
it was not the right way to proceed at all. It is a crude instrument
that has been universally applied to a whole range of totally
different departments and the concept of applying a regulatory
budget to a process that is governed ultimately by a politician
just seems to me to be an absolute non-runner. I think the intention
was absolutely right but the whole thing has to be rethought,
I would suggest. In terms of where we are going, I do not think
the better regulation agenda will go away; I think it is very
good but now I think that any government would be concerned about
being a good regulator and there are plenty of lessons to be learned
from all the various commissions and task forces that have looked
into this and I very much hope that there is a continuation of
some form of independent body comprising various people who have
expertise—regulators, consumers, trade unions and all the
rest of it—to keep the government gingered up, to keep on
looking at these issues and to ensure that the government—and
there is to be an election in at least a year's time and who knows
who will win the election, but whatever party does—I would
imagine that they would keep a pretty keen eye on the whole regulatory
process, and given the volatility of things at the moment it is
inevitable that there is going to be a lot of thinking about it,
so it is hard to predict but something different, I suspect, is
going to emerge.
Mr Houghton: We also raised concerns
about the regulatory budgets as being a crude tool. For me it
is symptomatic of an approach that sees regulation as this kind
of thing that is out there that you need to somehow control. I
have no wish to see the end of the Better Regulation Agenda; I
think there are many valid things in it and I think the basic
principles of how you do the better regulation are right. I would
hope, and I think that possibly with what has happened with the
crisis and the things we have talked about today, it would take
us to a place where it is less ideological and it is more of what
is the appropriate way of dealing with a particular problem that
we have had in a risk-based manner on a case by case basis, and
I think that is where the regulatory budget is a problem. If two
things need doing and they both need doing and then you cannot
do one because you are constrained by your budget then that does
not feel like a very sensible approach, whereas on another occasion
you might not have been able to do either of them and then you
have even less regulation. So moving away from that very sterile,
good more or less regulation towards genuinely better regulation
at appropriate times feels like the crystal ball or want we want.
Mr Gainsford: From our point of
view we thought good idea when it was first announced, the regulatory
budget; but then quickly thought bad idea. In our response we
made reference to an open day that I think BERR had called to
discuss this and we noticed that all of the audience arrived at
that meeting and thought good idea and by the time the meeting
had finished they were thinking a very bad idea. Not quite the
result, I am sure, that was anticipated. I think what was interesting
was some comments that may have emerged from Davidson—I
cannot remember—which was around if the idea was to prioritise
what you decide to spend your regulatory budget on, but then the
problem is that three-quarters of our legislation is EU led, so
is requiring transposition and implementation, so unless you want
infraction proceedings you have to do something about it. So actually
you do not really have a lot of choice in trading standards. We
estimate that over 90% of legislation we enforce is Brussels sourced
now, so in that context it just flew in the face of reality, it
seems to us. As I say, good idea but actually do not do it because
it will not work. Then I think it has a real danger of forcing
officials and ministers to take their eye off the ball about what
regulation is really meant to be about, which is a benefit to
those that are being regulated and those that have a dependency
upon that regulation. That is our view on that. As far as the
future is concerned, a lot of what we are doing is right; there
is no doubt about it. I think in that sense the review of regulatory
impacts, having a mechanism for ensuring that we are risk assessing
our regulation, ensuring that we do not impose unnecessary burdens
on businesses is absolutely right. So in that sense I would like
that to continue regardless of some of the recent peaks. I do
think it is important that somewhere along the line messages are
sent to society, to consumers and to businesses and employers
that actually it is not just about light touch, removing burdens,
removing regulation; this is about responsibilities being shared
and consequences being shared in a way that benefits us all. So
I think that the current peak will have that impact. What we would
like to see, to be honest with you, we would love Lord Mandelson
to change his title to the Secretary for Business and Consumers.
We do not understand why—and it is something to do with
the fact that we had a very fine agenda in this country—modern
markets, confident consumers—that works for any business;
in other words, give your consumers the right product, give them
the right service at the right price with the right back up and
they will respond in a positive way to what you are offering and
any good business would do the same. So we do not understand why
in France the equivalent of Lord Mandelson would announce himself—and
I have seen him do it—as the Secretary of State for Consumers
and then say, "By the way, I do cover business as well",
and in this country it is the Secretary of State for Business.
I think both go together and I think it is not helpful if there
is such a focus on reducing burdens without the equivalent focus
on consumer/employee protection.
Ms Edwards: We have no reason
to disagree with the rest of the panel on regulatory budgets.
On the issue of the future, we would basically like regulators,
business and consumers to learn from the current crisis. It would
be a disaster after the economic crisis is over and the economy
is back on its feet if we went back to a very light touch regime.
So the regulators still need to look at the problems in the market
and how to respond to those, rather than say that most business
is good and let us just focus on the margins.
Mr Brooker: I think I can understand
what the government was trying to do with regulatory budgets in
terms of achieving a culture change but I do not think that is
the right mechanism to achieve it. For me the budgetary proposal
identifies the cost of regulation without identifying the benefits.
That leads me on to my final point which is that there has been
a lack of balance in the debate about better regulation, which
needs to be corrected. Regulators have taken kicks recently and
rightly so, but we should always remember that they do an incredibly
important job on our behalf in terms of ensuring safe products,
guaranteeing access to lifelong goods and services and raising
competition. There just needs to be a better balance in the debate
going forward.
Chairman: Ladies and gentlemen, thank
you very much for your time and if you have any further thoughts
on the questions we have raised we would appreciate a note from
you.
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