Session 2010-11
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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 688-i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Public Accounts Committee

Ofcom: The Effectiveness of Converged Regulation

Tuesday 14 December 2010

Mr Ed Richards

Evidence heard in Public Questions 1 - 140

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Oral Evidence

Taken before the Public Accounts Committee

on Tuesday 14 December 2010

Members present:

Rt Hon Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Dr Stella Creasy

Austin Mitchell

Ian Swales

James Wharton

________________

Amyas Morse, Comptroller and Auditor General, and Alex Scharaschkin, Director, gave evidence. Gabrielle Cohen, Assistant Auditor General, and Paula Diggle, Treasury Officer of Accounts, were in attendance.

Examination of Witness

Witness: Mr Ed Richards, Chief Executive, Ofcom, gave evidence.

Q1 Chair: Welcome to the Committee, Ed, and thank you for coming. Looking at this Report, on the whole it supports the assertion that Ofcom is doing a good job as regulator on behalf of the taxpayer. I think what we want to tease out of you this morning is where we could get an improvement in performance. So we put that against the background that, on the whole, Ofcom’s performance has been supported and found to be good by the NAO. I’m going to ask you the first question, which I think perhaps reflects the criticism in the NAO about your performance management approach, in that you don’t really relate your inputs to what you’d seek to achieve so people can’t quite tell how the money you spend gets the outcomes and outputs you want.

I’m going to take the example of the money on spectrum, because if you read the Report, the income from the management of spectrum is £200 million a year. I know we also get the spectrum auctions, which bring in a lot of money to the taxpayer. But your expenditure is £75 million, and that just looks jolly high. As you look through the Report, you think, "How do you justify it?" How do we know that you need to spend £75 million-that the £75 million brings value for money to the taxpayer? Or is it simply that that’s the money that’s given to you by Treasury, so you live within the cap?

Ed Richards: No, we don’t just live within the cap at all. In fact, we have tried to drive those numbers down every single year and I think I’m right to say that they have gone down every single year.

Chair: You’re going to have to speak up a little bit because the acoustics in this room are pretty poor.

Ed Richards: We do try and drive it down every single year and we try and take a multi-year horizon of that. I think you have to disaggregate what we do with spectrum and ask whether we have the right information, whether we have the right approach to the strategic analysis of that cost information and whether we are trying to ensure that we get best value for money. There are essentially four things that we do. The first is we license spectrum to people-everyone from yacht users, amateur maritime users, through to people like Vodafone. We then manage interference across the country, so if somebody’s mobile phone system is being interfered with, or even televisions are interfered with, we send people out to fix those if necessary. We then have a programme of clearing spectrum, which is then linked to a programme of releasing spectrum-the auctions that you talked about.

Looking at each of those, the first two are essentially programmatic pieces of work. Over the years, we have, I think, concentrated very hard on reducing the amount of spend in those areas, and we’ve been successful in doing that. So, there are far fewer people doing interference management now across the country than there were, and they do it much more effectively, and we have very good information to understand whether they’re doing that well or badly. In terms of licensing, again, we are on a journey to automate licensing and I think when we’ve fully automated it those costs will go down again, but once more we have very clear KPIs in those areas. We know what we’re trying to do: we’re trying to license people as effectively as possible, and we test that through our budgeting process every year.

I think the clearance and the auctions are really very different. They are major projects that are designed to ensure that we can release spectrum for economic use, whether it be in public services or, more typically now, for commercial purposes. There’s been a bit of uncertainty in relation to clearance because we’ve been investigating what clearance needed to be done, and that is not a simple task. When we plan to use the 2.6GHz and the 800MHz, which is what will be used for mobile broadband in the future – the iPad and all those sorts of things – we have to clear the existing users from the spectrum in order to be able to release it. That has involved a huge amount of work with BIS and the Treasury to understand what those costs are, but that is work that is being carried out literally as we speak. For example, we need to move the various military radars and change those radars, and we have to fund a change-out programme for those, so they can use-

Q2 Chair: Does that come out of the £75 million?

Ed Richards: No, that would come out of a different pot, which is spectrum clearance funding, but that’s where the most uncertainty in terms of costs lies.

Q3 Chair: I can understand those are the tasks you do, but what I find difficult to get a handle on, as I read the Report, is where there is a justification that £75 million is what is needed to carry out those tasks. That, I think, leads into the criticism that I know you were a bit sensitive about, which is that there isn’t really a link in the way you manage your finances between inputs, outputs and outcomes. It’s all good work, all necessary work, but when I read the Report I was struck by the thought that £200 million income in and £75 million expenditure out, set aside the spectrum auctions, just seems to amount to jolly high management costs.

Ed Richards: Okay, well, I don’t agree with that element of the Report and I think that you have to ask yourself what would support the supposition that that is too high.

Q4 Chair: Nobody is saying it’s too high.

Ed Richards: Or why do we not understand that it could be lower? Let’s think about what you would want to do. You would firstly want to understand what your costs are. Do we understand what our costs are in this area? Unequivocally so. You’d then want to make sure that you had a good analysis of those costs and that you understood what different factors determined whether they went up or could go down. We absolutely do that. You’d then want to understand whether or not the organisation was effective and, typically annually or more often, interrogated those costs and made sure they were as low as possible. We absolutely do that; we do that every year through our budgeting process and those costs are crawled all over in order to make sure they are as low as possible. The final thing you’d want to do is make sure that mechanisms like competitive tendering, good procurement practices and so on were in place to ensure, once again, that those costs were as low as possible. We absolutely do all of those things. So I would say that we do all those things-we have all that information-and they are well understood, and that that process of interrogation to ensure that they are as low as possible happens every year and, indeed, has a cross-check through our internal review process, both through the board and, indeed, through the audit committee. So, I’m unclear as to what else it is that we should be doing, in order to drive those costs down, that we’re not actually doing already.

Q5 Mr Bacon: What is your definition of value for money?

Ed Richards: I think the definition of value for money in this context and in any context is that, for a given objective, you deliver that objective for the least possible resource. So, in other words, you spend as little as possible to deliver the desired objective.

Q6 Mr Bacon: You make it sound as though value for money is about reducing costs.

Ed Richards: No, it’s not so. It’s about spending as little as possible to deliver the desired objective. If the desired objective changes or is greater, then clearly it may cost more. Clearance is a very good example of exactly where that has happened. So, the desired objective is to release the spectrum, which will generate many billions of pounds of value for the economy. As a consequence of that, we are actually going to have to spend about £200 million-plus, more than we would otherwise have done, but that is well worth spending because the value for money created is some billions as a result of the released spectrum. So, I think value for money is a much more subtle question than just lower cost.

Q7 Stephen Barclay: Just building on that issue of reducing costs, looking at the figures, my take on the situation was that Ofcom, in terms of its total spending, now spends around £70 million, over the period it’s been in formation, less than the precursor bodies would have spent. Is that your analysis?

Ed Richards: Yes, we think we are about 27% cheaper than the legacy regulators from whom we took over, on a like-for-like basis.

Q8 Stephen Barclay: Sure, that’s the analysis at paragraph 1.27. I broke it down: in 2004-05, it was £9 million; in 2005-06, £6 million; in 2006-07, £8 million; in 2007-08, £7 million; 2008-09, £17 million; 2009-10, £23 million – if one’s comparing what the precursor five bodies would have spent with what you’re spending. So, would you recognise that £70 million figure?

Ed Richards: Yes, that is one approach to calculating efficiencies, and that is a perfectly reasonable approach.

Q9 Stephen Barclay: We’ll get on to efficiencies and whether they’re being double counted. What I’m looking at is just total spend. So you’d agree total spend wise, that the gap is £70 million during the lifetime of Ofcom?

Ed Richards: That we have reduced it compared to what it would have been?

Stephen Barclay: Yes.

Ed Richards: Yes.

Q10 Stephen Barclay: The merger cost £80 million, so your total spending is still £10 million short of what it cost for the merger.

Ed Richards: This is back exactly to the point I was making: it depends how you calculate these things. We have reduced the base against which one should be comparing it and that is one of the reasons that we calculate, unlike the NAO, cumulative cost, because every single year that goes by that you’re not incurring those costs, you can-

Q11 Stephen Barclay: Sure, but what I’m saying is do you accept that since Ofcom was formed the reduction in total spending by Ofcom is less than the cost of the merger in the first place?

Ed Richards: No, I don’t accept that.

Q12 Stephen Barclay: Well, the cost of the merger was £80 million.

Ed Richards: I don’t accept that, because you have to compare that cost with the cumulative cost that would otherwise have been incurred had the merger not taken place. That seems to me the right way to calculate that against that particular investment, because what you’re doing when you make an assessment of a merger of that case is saying, "What is the one-off cost of the merger?" which is £80 million. You then need to compare that against the cash flow savings in the future cumulatively and then discount it back to the present day and then compare the two. If you do that-and it’s illustrated by the fact that we’re 25% cheaper on a like-for-like basis-and add that up over multiple years-you could take five years, 10 years or 20 years-you are bound to have a net present value that is substantially positive.

Q13 Stephen Barclay: I just don’t follow your argument. Perhaps other members of the Committee will. What I’m driving at is this. The cost of the merger was £80 million. I am not even allowing for the fact that, actually, the shortfall is probably more than £10 million because the predecessor organisations would have been expected to have efficiency savings themselves, so in that baseline figure we’re assuming no actual efficiency savings by those predecessor organisations. You accepted that the total spending since Ofcom was formed is £70 million less than that unadjusted figure from the precursor organisations, yet the actual cost of setting you up was £80 million.

Ed Richards: No, I don’t accept that analysis, and there are two points I’d make. The first is that your assumption that there would have been efficiency savings originally is right, but it’s also true that when we took over, the legacy regulators had already diminished their spend very substantially in anticipation of the merger, and the true running costs of the organisations were, I think, very substantially higher than that. So, the task was much more difficult than it appeared according to that data because they’d essentially shut up shop in some respects and, therefore, the running costs were lower. The second reason I don’t accept it is that you have to calculate it on a cumulative basis because each of those savings is a step down from the previous year’s savings. If you take the 25% on a like-for-like basis and you say, "Today we are 25% less expensive on a like-for-like basis," then you merely say, "Well, that is 25%, roughly speaking, every year since the merger," given our budget is now £143 million, you can immediately see that that number is going to be in excess of £80 million.

Chair: To be fair, Ed, nobody does that across government. I can’t remember the CSR rules, but the rules are you can only count a saving once during that CSR period. It has to be a real cash saving. We don’t look at it that way-nowhere in government does-and I’m afraid I don’t think you should either.

Q14 Stephen Barclay: With respect, there are two flaws in your argument. First of all, as Figure 7 sets out, there is the flaw that you’re actually double counting your savings and that’s why there’s the gap between the savings that Ofcom are putting forward and the savings that the NAO are putting forward. My reading of what’s happening is that when you get rid of a member of staff in, say, 2004, instead of counting that as a saving just in 2004, you’re continuing to count that as a saving in subsequent years. That’s the first issue. Secondly what you’re doing is you’re dressing up the benefits of the merger-the savings we should have expected as part of the merger-as efficiency savings. So, if we look at Figure 7, the key savings you have made are from the disposal of surplus properties-with five bodies going into one, you would expect that-and the reorganisation and sub-letting of London headquarters.

So, we have an organisation that spent £80 million on the merger, on being set up; the actual reduction in total spend is £70 million; and a fair chunk of that £70 million is being made up of the benefits of the merger, such as getting rid of properties, rather than what I would call traditional efficiency savings-and we’ll come on to some of the issues as to where Ofcom is spending money and where it’s inefficient. You’re dressing up merger benefits as efficiency savings and then you’re double-counting them over the years compared to the methodology set out by the NAO.

Ed Richards: Well, I just don’t agree with that. I think the NAO has one approach to calculating savings; we have a different one.

Q15 Chair: I don’t think you can.

Ed Richards: One is one way and the other gives you different answers. On the CSR savings, if you take a three-year horizon and you say, ‘What is the cost of merger?’ and all savings need to be identified within that three-year period, then clearly the numbers are going to be much, much tighter. I can’t recall the precise costs of the merger-

Q16 Stephen Barclay: But you’re counting £19 million of efficiency savings from the disposal of properties.

Ed Richards: What we’re doing is taking the operating costs of the organisation as we inherited it and we’re comparing the operating costs of the organisation post the merger-

Q17 Mr Bacon: Can I just clarify on this £19 million that Mr Barclay mentioned, where it says, "Disposal of surplus properties," "Ofcom methodology, £19,039,000." That estimate of efficiency savings is based on rent that would otherwise have been paid by those predecessor bodies that is no longer being paid. Is that right?

Ed Richards: Essentially, what we did-it’s important to understand the relationship-was to say, "What are the tasks in front of us? How can we do them at a lower cost?" And one of the ways we did it at lower cost was to reduce the headcount. Reducing the headcount enabled us to liberate property; we were able to dispose of that and reduce the ongoing cost. That does seem to me to be to be a reasonable source for-

Q18 Stephen Barclay: Sorry, can I just come in there? You just said one of the ways we reduced cost was to reduce headcount.

Ed Richards: Yes.

Q19 Stephen Barclay: But your overall staff bill has gone up even though your headcount has come down.

Ed Richards: The overall staff cost has gone up over the entire period-that’s right.

Q20 Stephen Barclay: But by more than inflation.

Ed Richards: I think we inherited about 1,150 on the staff rolls.

Q21 Mr Bacon: Can I just keep going with the rent for a second?

Ed Richards: That was reduced.

Chair: Let’s have that from Mr Bacon.

Q22 Mr Bacon: Yes. Logically, we should come on to the staff if indeed one of the reasons you were able get rid of the buildings was that you were able to reduce staff. But let’s just stick with the building for a second. So, you were saying you were able to reduce the staff and thus you were able to free up a building you no longer needed from the predecessor bodies. So the lease came to an end and you didn’t renew it, or you broke the lease, paid the penalty and got out, is what you’re saying?

Ed Richards: I can’t recall the precise detail because this was 2004, which is quite a long time ago, but essentially, it would have been mechanisms of that kind.

Q23 Mr Bacon: Right. Was it just one building?

Ed Richards: In all cases actually, it would have been a mechanism of that kind because we moved everybody to a new building, so it would’ve been the release of existing leases or negotiated closure. So, that’s right.

Q24 Mr Bacon: I’m just trying to get at what this £19 million is comprised of.

Ed Richards: I think that’s exactly the kind of thing it’s comprised of.

Mr Bacon: Rent-rent that didn’t get paid?

Ed Richards: Yes.

Q25 Mr Bacon: For how many buildings?

Ed Richards: Well, there were a number all over the country. There were multiple buildings in London; there were buildings in a variety of towns and cities across England. I think there were also offices in Scotland, Wales and Northern Ireland, but we have retained offices in Scotland, Wales and Northern Ireland. Essentially, the change has been in England, particularly in London, but in other parts of England as well. So there were properties that the legacy regulators had leases on that were let go.

Q26 Mr Bacon: You said this happened in 2004. In 2005, 2006, 2007, 2008, 2009 and 2010, there were therefore rent and business rates savings on those properties.

Ed Richards: Yes.

Q27 Mr Bacon: And that’s what that £19 million basically comprises.

Ed Richards: I believe so, yes.

Q28 Mr Bacon: How far do you think it is reasonable to carry that number forward-or do you carry it forward infinitely? On this basis, my goodness, if in six years you can save £19 million, then logically in 60 years you’ll be saving £190 million.

Ed Richards: I don’t think-

Mr Bacon: But why wouldn’t you do that? Logically, if that’s your methodology, you’d keep it going.

Ed Richards: I don’t agree that you should keep it going for ever.

Q29 Mr Bacon: Why not?

Ed Richards: Because the question-

Mr Bacon: Why not? On your methodology, you’re counting it forward. What is the criterion by which you choose to stop?

Ed Richards: Because the question that was put to me was in relation to the £80 million investment.

Q30 Mr Bacon: No, no, no. I’m sorry, but my question is this: if you are rolling it forward, which you are, what is the criterion by which you stop?

Ed Richards: Well, we calculate these things against the original investment. If you’re calculating the question of the return against the investment, it seems to me if you were doing a cash-flow analysis of that kind, you would take it forward a number of years-

Q31 Mr Bacon: How many?

Ed Richards: Well, it’s typically 10 years.

Mr Bacon: 10 years.

Q32 Chair: Okay. I’m going to stop this because I think, to be honest, there’s a disagreement here and all I can say to you, Ed, is you will be judged by us on the criteria set by Treasury. So, in a sense, whatever the economic argument about how long you assess it for, I think your organisation has to accept that as a government organisation that is then held to account by us, we have to stick by Treasury rules, which are that the savings have to be within the CSR period-go on, just remind me.

Alex Scharaschkin: Each saving has to be new within the period, so you can claim the saving once.

Chair: Once.

Amyas Morse: May I add something? I just want to talk about the methodology that Ed’s been discussing. I do think that when you made the business case for the merger, it would have been entirely reasonable to have taken the net present value of the savings that you expected and discounted them back, because at that point when you put the business case together, you would have said, "Look, by making this merger we expect to achieve x." You’re making a point-in-time decision and you’re able to compare the cost of doing the merger with the benefits of future reduced expenditure. This should allow you to make a good decision. Then subsequently, you should be able to look at that business case and compare it with what the actual running costs are and say, "Is that right or not?" That would be a reasonable thing to do. It doesn’t mean you go on asserting these are real savings, but you do say, "Did you deliver the benefits intended in the business case?" I just fear that in the middle of the discussion, we may lose sight of that. I think that’s not an unreasonable thing to do as part of assessing whether you’ve delivered the business case for merger.

Ed Richards: I entirely agree with that and that is why I was making the connection to the £80 million cost because I think when you look at-

Chair: But the accounting-

Ed Richards: I understand that and I’m very comfortable with that, Chairman. I do see your point about the CSR and how it’s calculated today, and I accept that completely, but when calculating against the £80 million, one has to see it on a value over multiple years.

Q33 Chair: I think the discussion on spectrum and the cost of that all comes to the heart of the issue of how we can better understand your costs in relation to what you’re trying to achieve and the outputs you’re getting for what you spend. I really think there is an issue. But let me come to staffing, which I think a number of us want to talk you about. Have a look at Figure 4 on page 12. Your numbers went down; they’ve gone up a bit. I assume these are in real terms. Is Figure 4 in real terms or cash terms?

Alex Scharaschkin: This is in cash.

Chair: It’s in cash.

Alex Scharaschkin: That doesn’t include pension contributions; it’s not fully apportioned, but it’s cash.

Q34 Chair: It’s cash, so the point is not actually as strong, but staff costs, professional services, temporary staff and contractors and outsourced services are all really quite considerably up. There’s a question there again as to how you would set about justifying that. If I took just took your staff costs, the crude top figure there, the average cost for a member of staff is about £72,000, which seems jolly high for an organisation and, again, it is very difficult for us to assess, on a value-for-money basis, that that is justifiable.

Ed Richards: There are a number of points to make about that, if I may. The first is that these are cash numbers, so they don’t look very dramatic to me. The second is that we made a conscious decision when we created the organisation, which has not changed, which is that we were going to pay fewer people more in order to be better, as a clear calculation about delivering a better-quality organisation and better overall value for money. I am of the view that we have done that. The reason why in this area you have to pay people reasonably well is that you’re asking them to go head to head against some of the most highly paid people in the entire economy. They are taking on City lawyers working on behalf of massive global companies that have huge resource to throw at this, professional consultancy and professional economist firms, the Big Four and so on and so forth. We end up having to make and justify decisions that are appealed multiply in the Court of Appeal and then beyond that. So we have to have a quality of people who can actually stand toe to toe with those kinds of individuals.

Despite that, we benchmark our salary information very carefully every year and in the key areas we are way below the actual market rate. So, when I hire someone from one of the City law firms, which I occasionally do, the pitch I make to them is very clear. I say, "We cannot pay you anything like what you would earn in the City law firm that you are currently in. However, we will do our best to be as competitive as we can and you’ll get a different mix of things. You’ll be doing really interesting work that really matters for the people of this country." But you should be under no illusion: when we make that proposition to people, the proposition is that they are going to be getting paid substantially less than they could otherwise earn.

Of the people at the top of Ofcom, I think five or six out of the top eight all came from the private sector with those kinds of backgrounds. That is the pitch we make to people, not just there, but in other parts of the organisation. So, this was a deliberate and conscious attempt to make sure that we had the quality of people to be able to do the job well. I think, as the Report indicates, and as our own work indicates, the outcomes that the organisation has delivered in terms of price reduction, range, competition and things of that nature suggests that that wasn’t too bad a decision, because the outcomes are reasonably good.

Q35 Stephen Barclay: Can I just clarify? Staff costs are now higher than if the merger had not happened.

Ed Richards: I’ll have to come back to you and double check on that.

Q36 Stephen Barclay: Okay, well, perhaps then I can take you through my quick look last night at the numbers. In 2002, there were over 1,000 staff-1,062-at a cost of £46.5 million. In 2009-10, as you would expect from a merger, staff numbers had come down-to 873 at a cost of £62.3 million. So, if we take the first figure-the 2002 figure of £46.5 million-and adjust it for inflation, staff costs today would be £56.39 million, but you’re spending over £62 million. So, even though you have far fewer staff, your actual way bill, if we were comparing your organisation against the precursor organisations had they stayed in place, is higher.

Ed Richards: But you’re not comparing like for like.

Q37 Stephen Barclay: I’m comparing the total wage bill. You can argue as to whether the people you’ve hired are more skilled than those in the previous organisations-that’s a separate argument. I’m saying your total wage bill is higher than if the merger had not taken place.

Ed Richards: But you really aren’t comparing like for like-not because of the different types of people but because we’re doing different things. So, we are doing

Q38 Stephen Barclay: No, again, that’s a separate thing. I’m just saying your total wage bill has changed.

Ed Richards: No, because your total wage bill is informed by what you are doing in total and we are doing a substantial number of things that our previous regulators did not do. We have additional tasks for which we’ve had to hire additional people who cost additional money. Let me give you one very clear example, which is probably the most costly that we have. The previous regulators-Oftel, the ITC, the Radio Authority, the Broadcasting Standards Commission-had no competition powers. We are a concurrent regulator, so we are a competition authority. We have to undertake competition investigations; we have to therefore have economists and lawyers who are able to act in light of the Competition Act and the Enterprise Act. That’s a very substantial cost that we have used significantly over the last few years, which the legacy regulators did not do. We have had to hire people and pay them in order to do those kinds of tasks.

Q39 Stephen Barclay: Shall we look at numbers then? Since you were chief executive, between 2006 and 2010, staff numbers have gone up 12.5%.

Ed Richards: Yes.

Q40 Stephen Barclay: And you’re now about to cut staff numbers by 20%.

Ed Richards: By 170.

Q41 Stephen Barclay: Yes. Well, I thought one in five.

Ed Richards: It’s roughly that.

Q42 Stephen Barclay: That’s the figure that you’ve put forward, which I would’ve thought was 20%. So, in other words, since you’ve been chief executive it’s gone up 12.5% and now you’re cutting it. We’re actually really talking about a cut of 7.5%, to just beyond where we were in 2006.

Ed Richards: No, because, for example, one of the reasons why staff numbers have gone up since I became chief executive is that we again took a conscious decision on value for money grounds to insource significant aspects of our IT services. The reason for that was that we’d inherited an outsourcing model. It was highly unsatisfactory; the quality of service was a disaster.

Q43 Mr Bacon: Who was your outsourcing contractor, by the way?

Ed Richards: Well, in those days it was CMG. We ended it and insourced the support for people in the building, which has massively improved the quality of the service. I used to get complaints every day of the week from people about it-about their computers not working and systems going down all the time. That has gone away, and it has gone away because we insourced the staff to support it so they cared about what they were doing. That increased the total headcount in the organisation. I accept it did that, but I have no regrets about doing it, and anybody who works in the organisation has no regrets about it either. So, the headcount went up, yes, but that’s one of the reasons it did.

Looking forward, it is true to say that we are now going to reduce by 170 roles. That is a result, obviously, of the budget constraints that everybody in the public sector faces. We have a variety of ways in which we’re going to do that, but it’s important to understand what they are. The most important, or the first port of call on this, is that we are going to stop doing some substantial things that we have done in the past. A good example of that is media literacy and digital participation where, under the previous Government we had a substantial role in that area-a multi-million pound activity-and we will not be doing that, outwith the research that we do.

Q44 Stephen Barclay: I think we’ll probably come on to the future and the restructuring, but just while we’re on the staffing, just to clarify, since your appointment you’ve been paid over £1.5 million in terms of total package. Is that correct?

Ed Richards: I don’t know; I haven’t calculated it.

Stephen Barclay: £392,343 in 2006-07. £417,581, which includes a £56,400 bonus, in 2007-08. There was a £66,692 bonus in 2006-07. In 2008-09, the figure was £392,056, although you didn’t get a bonus. In 2009-10, it was £381,713. So in total you’ve received £1,583,693. Is that the case?

Ed Richards: I haven’t got the numbers in front of me.

Q45 Stephen Barclay: It’s just that the reaction to this Report-and I’ll just come on to travel in a moment-was to attack the NAO and to say that you have a "rigorous grip on costs," I think the phrase was. And so I was surprised that under your tenure staff numbers have gone up 12.5%, which we’ve just touched on. I was also surprised that the travel costs were just over £1.4 million in 2010, which breaks down as £1,612 per member of staff, which seems quite high.

Ed Richards: Rather like the IT point, for the staff costs, there’s an explanation that is rather more prosaic. We’ve had a very busy couple of years on international work, for a variety of reasons, but for one particular reason that stands out, which is that we’ve had the formation of the Body of European Regulators and the lead-up to the formation of the Body of European Regulators, which is a massive change to the way regulation is done across the whole of the European Union.

Q46 Stephen Barclay: And how much of that travel was first class or business class? I read from your guidelines: "Members are entitled to travel first class where available within the UK and to claim expenses accordingly. Travel overseas may be on business class". Do you have a sense of the £1.4 million? How much of that was first class?

Ed Richards: I don’t have a sense, but the guidelines are very clear and, as I recall the guidelines, they are that anything over two hours is permitted to be business class to ensure that people are able to work. Anything less than two hours is not. That is as I recall what the guidelines are, but you might have a copy of the guidelines in front of you, so you might be able to recall them in all the detail. We have checked those guidelines against other organisations and I believe them to be reasonably standard.

Q47 Mr Bacon: Sorry, when you say "standard", are you talking about first class travel by train?

Ed Richards: No, there’s no presumption of first class travel, as I’ve just said, as I recall the guidelines.

Q48 Stephen Barclay: So where it says "Where available in the UK" when on business, it’s saying that if you do business for Ofcom you go first class.

Ed Richards: No, I don’t think that is right. I’m very happy to come back to the Committee and correct this if I’m not right, but as I recall our guidelines, our policy is that under two hours is not first class and that you are only able to go first class if a journey is of two hours or greater in business time.

Q49 Mr Bacon: The board members’ code of conduct states: "Travelwhen on Ofcom business, members are entitled to travel first class where available within the UK and to claim expenses accordingly."

Stephen Barclay: Point 35.

Mr Bacon: "Travel overseas may be on business class. Travel and accommodation should be arranged through the secretary". The first sentence-"When on Ofcom business, members are entitled to travel first class where available within the UK and to claim expenses accordingly"-doesn’t have any riders around it about the length of the journey.

Ed Richards: I think that’s for board members only, so that’s nine people out of 873.

Q50 Mr Bacon: Right. Army generals travel second class now, you know that don’t you?

Ed Richards: I didn’t know that.

Mr Bacon: So do MPs, by the way.

Ed Richards: I believe what I’m explaining to you about the two hours is in the guidelines that work for 864 people in the organisation.

Q51 Mr Bacon: Do you have any plans to change these guidelines to save money and make everyone travel second class?

Ed Richards: Well, changing the guidelines for the board is something I’d obviously want to discuss with my chairman and the board itself. But for the organisation as a whole-

Q52 Mr Bacon: Do you have any plans to do that?

Ed Richards: I’m very happy to raise it as a result of this discussion, but I have to confess-

Q53 Mr Bacon: Let me ask you a question more seriously, because to set an example in these straitened times, Ministers are flying long haul in economy class. The Minister for Sport, I happen to know, went to South Africa for the World Cup and flew economy class.

Ed Richards: I’m very happy to raise it when I get a chance.

Q54 Mr Bacon: So, why should regulators be any different from Army generals and Ministers?

Ed Richards: That’s a very fair point.

Chair: I think Ed is saying he’s taking it back.

Q55 Ian Swales: Can I come on to the cost savings that you’ve announced? You spoke about getting rid of some activities. Can you say more abut how you think you can achieve this huge cut in numbers of people, and will any services that the public enjoy or depend on disappear as a result of these cost savings?

Ed Richards: We’ve been preparing for this challenge for some time because I think it was very clear that it was going to happen. We have approached it in three different ways. One is that there’s a category of things where we are going to stop doing things or substantially reduce things. The second is the area where we are going to bear down on overheads or suppliers re supply costs. The third is where we have to just completely change what we do and how we do it.

On the first of those, I think the headlines are things like we’ve completed two years of pay freeze ahead of most of the rest of the public sector-so we are already in our second year of pay freeze. And we have stopped accruals, or we’re proposing to stop the accruals of defined benefit pensions, which has another very substantial saving. That is not an easy thing to do, as I’m sure you’re aware. People feel very unhappy about these sorts of changes, but those are the ones that we proposed. In terms of overheads and suppliers, we’ve retendered the element of IT that is outsourced and we’ve borne back down on suppliers like research providers and so on and so forth, and we believe we can make substantial savings there.

The third area is, I think, the most challenging and the most pertinent to your question, which is that the only way we can deliver those benefits at that level without undermining or diminishing the quality of what we do is by significantly changing the way we do some things. For example, we are accelerating our automation of licensing; we are changing the procedures very significantly around broadcasting complaints, where we went right back to the law, examined the statute and asked ourselves whether we could simplify those procedures significantly such that it took time, and, therefore, people cost, out of those processes. We have to consult on that externally because it is a policy and we’ll probably be putting that in the next few days. That will be a significant change to the way we actually do something and there’s a host of areas of that kind where the process has been redesigned to ensure that the total cost is less for the same service.

Q56 Ian Swales: Okay. So, let’s just home in on what we as members of the public or our constituents are likely to see. For example, you mentioned broadcasting complaints; what is going to change?

Ed Richards: If we receive complaints and we then decide to investigate, there is a procedure with the broadcasters to consider the complaint, take representations from them, share our views with them, then there’s an appeal regime for them and so on and so forth. So, there’s a multi-stage process before a decision is finally arrived at, and what we’re proposing to do is simplify that process quite significantly, which will involve fewer people and less time. As I said, we’ve gone right back to the statute to ask ourselves what’s the minimum we can do consistent with a fair process. I hope that the answer to that is that the public will not see any detriment, but I think that’s what the consultation will elicit. It wouldn’t surprise me if some of the broadcasters say, "You’ve pared back right to the bone and we’re slightly concerned about this." I wouldn’t be surprised by that reaction at all. If that happens, we’ll have to sit down with them and say, "Well, we have a budget constraint here, so we can’t do it the way we used to do it. We have to find a more efficient way of doing it." And they will say, "Yes, but we want fairness and justice," and then that debate will unfold. That is what is going to happen in the first quarter of next year.

Q57 Ian Swales: And would you say your changes are going to be a big slice of the pyramid? Are you going to take people out at every level or is it going to be front-line services? Or are you mainly going to do it in the management structure?

Ed Richards: Every single level of the organisation is losing jobs. Every single level.

Q58 Chair: I think there are a few more questions around budget and then I want to come to the user/customer thing. In the Report, we see that you’ve found £14 million for your pension deficit, which is more than 10% of your budget. On the one hand that is good because you’ve found it there, but on the other hand you say you run a tightly run business, so it’s quite surprising to find that within that you can find more than 10% to put to a pension deficit. Do you want to comment on that?

Ed Richards: It’s a very fair point, a very fair question. My only answer to it is that we were so concerned about the pension deficit and the implications of it for financeability and our obligations to the pension, pensioners and future pensioners that we took a very conscious decision to try and save wherever we possibly could in order to fund-

Q59 Chair: So what didn’t you do?

Ed Richards: There were multiple decisions in multiple different parts of the organisation. I don’t think there was a single, particular activity that we didn’t do. It was more about putting pressure on every area and saying, "if you don’t think you need to spend those professional services fees," or, "If you don’t need to fill that job right now," or, "if there’s a maternity cover that we don’t need to cover straight away"-it’s those sorts of calculations that allowed us to squeeze money out, knowing that we had to find some more money to fill the pension deficit. We think we have a very acute understanding of pension deficit because we regulate a number of companies for whom, as you will all know, this is a huge issue, whether it’s BT or ITV, Cable & Wireless and now obviously the Royal Mail. So, we’re very familiar with the problems of pension deficits and how dangerous they are if they get out of control. We felt that it was terribly important to get on top of it and make sure we were not sitting in a situation where we might have to come back to the Government-or to the companies who pay for the other half of us-and say, "I’m really sorry but we’ve got this colossal pension deficit; it’s got out of control; it’s going to get worse; and we have to tackle it in the future". We felt it would be better to try and get to grips with that deficit as soon as possible and that’s how we did it.

I think the other side of the coin on that is that is absolutely what has stood us in reasonably good stead for delivering the 28.2%, because what it tells you-and I think this was the implication behind your question-is that we were pushing people very hard in order to finance that pension deficit. What that’s enabled us to do is understand roughly where we can squeeze things tighter to now meet the 28.2%, which is obviously a lot more money.

Q60 Dr Creasy: Although you’re essentially living within your means as an organisation, I think the challenge that we’re all facing here is understanding whether the way in which you’re planning for what your means are and how you’re spending that money within that is appropriate. I’m very struck by the description you’ve just given because, actually, the Report tells us that half of that money came from unused contingency funds. What contingency planning are you doing as an organisation for the kind of budgets you’re going to need-you also talked about the European regulators-versus the ongoing revenue costs, and there’s obviously some concern about whether you’re driving those down, and what are you expecting to come up in the next couple of years that you will not be able to fund because you’re cutting into your contingency funds to do this?

Ed Richards: You’re absolutely right. One of the sources of the deficit funding was unspent contingency and that is always-

Q61 Dr Creasy: That’s very different though from you having a process by which every single pound is accounted for and is best value. That’s rainy day money, isn’t it?

Ed Richards: It is different, though it’s only a contribution to the £14 million.

Q62 Dr Creasy: It’s 50%. That’s quite a substantial contribution.

Ed Richards: It is different, but any organisation of our scale with the level of risk that we live with should have a sufficient contingency. In some years, you don’t have to spend it. I think you were asking me what’s our contingency plan for the future. One of the things that we will be doing to meet the 28.2% is reducing the amount of contingency we hold, without any question. So we will be running with a higher level of risk in the organisation. The kind of contingency we are worried about-it’s worth a word on this-ranges from the fact that, in the next 12 months, we have to do a huge amount of work to prepare for and make sure the Olympics is a success in relation to the use of spectrum. So, there will be more intense demand-there will be an unprecedented level of demand and use for spectrum around the Olympics. There is no historical precedent for it because people are going to turn up in their hundreds of thousands with laptops, iPhones, iPads, all the rest of it, and they will expect their spectrum and their mobile services to work immediately. Given that you have the security services and you have all the broadcasters there trying to cover the finals and so on and so forth, the risks associated with that for us are very substantial, so we need to keep some contingency in case we need to do operational things to make sure it works. That’s one example.

Another example, frankly, is just straightforward litigation. We could find ourselves with huge legal costs as a result of litigation against decisions we take in relation to a whole host of things. Those are the kinds of reasons we need to hold some substantial contingency, but as part of the way we’re going to meet the 28.2%, that is going to come down and we’ll run at a much lower contingency than we have in the past. .

Q63 Dr Creasy: So, could you see yourself going over budget?

Ed Richards: I would say in future there is a significantly greater risk of that than there has been in the past. I think if you take 28.2% out and your ambition is in a series of areas to ensure that you’re delivering the same level of service and the same quality as you have in the past, I think inevitably that is a greater risk.

Q64 Dr Creasy: So, do you think the cap is fair?

Ed Richards: I believe we can deliver what we are here to do within that cap, but it does involve, I think, a slightly higher level of risk for the organisation from a financial perspective. If we weren’t stopping doing some things, I think that risk would be too great, but we are stopping doing some things and where you’re stopping doing some things, then I think that makes it more manageable. The real challenge, I think, is these areas where we are doing the same and we’re trying to make sure we deliver the same level of quality, but simply for 20% less money. That is sometimes hard.

Q65 Dr Creasy: So, just going back to Figure 4 in terms of how you’re cutting that cake and how you’re using your budgets, obviously as you’re saying you’re going to have less of a contingency, you’re not predicting less in terms of staff costs or the temporary costs. If anything those could go up, couldn’t they? So, how are you going to manage those risks?

Ed Richards: Those will absolutely be going down. We’re going to lose 170 roles, so staff costs are going to go down, and professional fees will go down because you can’t commission professional services properly and effectively unless you have people who are able to commission it. So those will absolutely be going down.

Q66 Dr Creasy: So how then are you going to manage those risks? You’ve just said you’re going to cut your contingency budget, but you’re facing some potentially large challenges where you don’t have any evidence about how they might play out. How are you going to manage that?

Ed Richards: We’ll manage that risk in the way that we-

Q67 Dr Creasy: You can’t guarantee that, can you? There might well be a point where actually you want to come back to this Committee and say, "Look, it turned out with the Olympics it was that much more complicated. We had to bring in people. We had to deal with these things." That’s a fair possibility, isn’t it?

Ed Richards: We will manage the risk in the way that I would expect any organisation of our scale to do. We have a very clear and strong risk register; we discuss the risks that the organisation faces carefully every single month. That’s done at the appropriate levels in the organisation and we make sure there is mitigation in place to manage those risks, and that is across the whole range of risks that the organisation faces. That is the case today and will be the case after the budget cuts. If I thought we couldn’t manage the risk, and if I thought we were going to go over budget because of the kinds of things that we might have to do, I would say that today, but I don’t believe that. We’ve done a huge amount of very careful preparation to hit these budget targets. We’ve been planning for some months in anticipation of it, and I think we have a credible and deliverable plan that will hit those targets.

Q68 Dr Creasy: I think the challenge we’re facing as a Committee is, if you were able to do this before, why haven’t you done it before? If you were able to manage risks and you have all your planning, something in it doesn’t quite make sense because we can’t link up what you’re saying you need to spend to deliver the things you’re being asked to do with the fact that you’re then saying, "But actually when things change, we’ll still be able to do it within these caps."

Ed Richards: Because we are stopping doing some things. The first point is we are simply not going to do some things that we used to do and as a consequence there is no risk associated with it because we’re not going to do it. So, let me go back to media literacy, which is one example: we are simply not going to spend any money on media literacy any more apart from a small research programme.

Q69 Dr Creasy: So one in five of your staff are on media literacy?

Ed Richards: There’s no risk associated with that because we’re not doing it any more.

Q70 Chair: That’s the money you got from DCMS.

Ed Richards: No, because the content board of the organisation felt that it was an important priority for citizens and consumers of the country, we spent substantially over, of our own additional money, on media literacy over the period and that money is going to go to zero. So there’s no risk associated with that, other than if somebody came to us and said, "You’re no longer meeting your duty to promote media literacy". Now, my answer to that will be-

Q71 Dr Creasy: But, sorry, on that model, one in five of your staff was working on media literacy. Is that what you’re telling us?

Ed Richards: It’s an example. So, there are three ways we’re reducing the budget. One is we are going to spend less or stop doing things. So, spending less and stopping doing things could be, "We’re not going to spend anything on media literacy," or it could be the pay freeze for two years, or it could be the fact that we stopped accruals on defined benefit pensions. All of that saves a huge amount of money, but we’re still going to have the people doing the jobs.

I accept that this is going to be a change and I accept that we have been forced to think harder about this because of budget constraints. I assume that everybody in the entire public sector is in the same position, because when you’re confronted with those sorts of constraints-and this is a good thing in some ways-you have to say, "Well, if we want to deliver x, we’re going to have to do it for less money." So, you have to go right back to square one and ask yourself how you can do it.

Q72 Dr Creasy: But you can understand why we as the Public Accounts Committee are concerned by that approach, can’t you? You’re saying, basically, "Because our budget has been cut, we’re looking for different ways to achieve value for money, rather than having as an organisation a value-for-money led approach to what we’re doing. "

Ed Richards: No, because there are trade-offs. The presumption there is that we didn’t have a value for money framework before and I utterly, utterly reject that. I can tell you that the process we go through every single year and every quarter as we do our reforecasting absolutely has a focus on value for money, and people in the organisation know that and they understand it. It’s different.

Q73 Chair: The point is that we can’t see it.

Ed Richards: I understand that and I’ve been trying to explain how we do it to give you reassurance that we do do it. I don’t think it’s realistic to pretend that there isn’t a difference between an operating environment in which you have a budget set and every single year, the organisation in question, which is us, has reduced its real-terms budget and has delivered numbers below that budget-those are the facts of the recent history. We can’t pretend that it isn’t a different set of questions when somebody turns up and says, "Because of the position of public finances the number has to now be 28% lower." You are presented with a different set of circumstances. We have to go back and ask different questions.

Q74 Dr Creasy: With respect, you’re telling me that you’re able to manage the future risks that you might face as an organisation within decreasing budgets because you’re going to change the way you do things. This does rather suggest to us that you could’ve changed the ways that you were doing things prior to those constraints coming in, because you don’t see any risk to some quite major challenges that are going to come up, such as the Olympics-and I’m sure the Postcomm stuff will be challenging as well.

Ed Richards: I am not saying to you, "There are no risks". If you’re saying to me, "Are there risks?" I’m saying to you, categorically, "There are". What I thought you were asking me was, "Do you understand how you’re going to manage those risks?" to which the answer is yes.

Q75 Dr Creasy: Yes, but that does rather suggest that there were ways in which you think you can get more resource out of your organisation internally within a situation where you are getting less money, to be able to manage those risks.

Ed Richards: That is always the case.

Q76 Dr Creasy: Or you’re telling us actually you think there are going to be substantial risks in the future to your ability to deliver.

Ed Richards: But you’re putting me, if I might say so, in an impossible position. Let’s look at the record. The record is that we have lived consistently within the budget cap, which was declining, set by Treasury. We have reduced our real-terms budget every single year in our existence. I wonder how many other public sector organisations exist that have done that.

Q77 Chair: Everybody’s had the 3% cut, Ed. Everybody’s had that-more or less since the time you started, maybe a year or two later.

Ed Richards: That’s a real-terms headline budget cut, whereas generally speaking public spending has, I understand, be rising over the last couple of years.

Q78 Chair: Yes but everybody’s had to find value-for-money savings.

Ed Richards: Of course. But that is the position. We can debate whether we should have gone further, faster and so on. We can debate that and I accept that in some areas of course you always-

Q79 Dr Creasy: That’s our role here, isn’t it? It’s to say to you, "It’s wonderful that you live within your means, but are you cutting the cake in the most effective way for the public sector especially given that you’re now telling us that even with a reduced cake you can still feed everyone? That’s a terrible metaphor.

Amyas Morse : I just want to say two things. One of them is, really, I don’t disagree with a lot of the positive things that Ed is saying about Ofcom, but the point you’re making is pretty much the point that we were making in our Report, which is a question of what it should be costing. We’re not denying the cost is going down, but is that what it should cost? Can you demonstrate that for us, please?

Anyway, what I wanted to ask was this, really just to be clear: you made some references to reducing contingencies. I hope I’m right in thinking that most of what you have is specific provisions against expected costs. Isn’t that right?

Ed Richards: Generally speaking.

Amyas Morse: Because I’m not expecting to hear that you have general contingencies lurking around somewhere in the undergrowth. I’d be a bit surprised by that.

Ed Richards: There is a very modest general contingency in the centre, but otherwise it’s things like litigation costs, Olympics contingency and so on and so forth. That is what is generally being squeezed as part of the 28.2% and I think that is what you do with that.

Amyas Morse: I’m only saying it for clarity because if it turns out that these provisions were cast in slightly more generous terms than they are now being cast in but they’re still perfectly adequate, then they should have been cast in those terms in the first place. I’m not saying that’s the case, but you wouldn’t disagree with that, I’m sure.

Ed Richards: Not at a general level, no. I personally think, in my experience, there are sometimes things that happen that you can’t know about and you can’t foresee exactly.

Amyas Morse: Of course.

Ed Richards: And, therefore, I think the aspiration to identify a particular risk against every single pound of contingency is an ambition that is what one might call a stretching one.

Q80 Mr Bacon: How much is your contingency-your general contingency that you just referred to?

Ed Richards: I’d have to come back to you on that. I can’t remember.

Q81 Mr Bacon: You said it was modest.

Ed Richards: Well, it is going to be more modest. It’s going to be reduced.

Mr Bacon: Sorry, can you say that again?

Ed Richards: I’ll have to come back to you on the detail of the contingency.

Stephen Barclay: How do you know it’s modest?

Q82 Mr Bacon: Mr Barclay took the words out of my mouth. If you don’t know what it is, how do you know it’s modest?

Ed Richards: I said it’s going to be more modest because it is declining. We’ve looked at everything across the organisation in terms of delivering the 28.2% and one of the things that we have done is reduce the elements of contingency. That is absolutely one of the things we’ve done, so relatively speaking there will be a more modest contingency than there was in the past. That’s what I’m saying.

Q83 Mr Bacon: I’m just looking at Figure 4. I wanted to ask you about this and it may require you to send us a note, but if so, so be it. Of the £121.5 million there, listed in Figure 4-

Ed Richards: Which?

Chair: Figure 4, page 12.

Mr Bacon: This is figure 4, page 12-your £121 million of your total. How much of that £121 million is your general contingency? You just used the phrase, "General contingency".

Ed Richards: I’d have to come back to you on that because there’s a process we go through.

Q84 Mr Bacon: Where does it sit? Everything has a line out in there and it all adds up to £121 million. Where does the general contingency sit? Is it under administrative and office costs?

Ed Richards: Or other costs.

Q85 Mr Bacon: Or other costs. Well, can I just take you through these items? You have £62.2 million of staff, which is £9 million higher than five years previously. Underneath that, you have £10.8 million of professional services, £8.8 million of outsourced services, then you have £8.2 million of administrative and office costs, £3.3 million of temporary staff and contractors and then £7.9 million of other costs. That adds up to £30 million exactly. You could cover quite a lot of ground with £30 million. What I would like to know is, for example, what did the £10.8 million for professional services go on?

Ed Richards: I’m very happy to send you a more detailed note, but in essence it would be things like technical advice on preparation of the auctions-so, for example, propagation modelling for interference management purposes. When we hopefully do the auction in the first part of next year, we have to assume that it will be used by certain services-for example, mobile broadband. What we then have to understand is the likelihood or the potential for that to interfere with existing services-for example, television-and that needs very highly specialised technical-

Q86 Mr Bacon: So it’s technical consultants.

Ed Richards: That is one example. Another example would be legal fees in connection to the Court of Appeal and things of that kind. Another example would be specialist economic or financial and accounting support for things like assessing cost of capital for setting price controls for BT. For example, we hire an expert econometrician; we hire an expert financial economist to do both cost of capital work and econometrics, for example, on the advertising market. Where we cannot find or it’s not economic for us to employ those sorts of skills internally-so it’s an array of those sorts of professional services.

Q87 Mr Bacon: Okay. I will ask you at the end to send us a detailed note, but outsourced services-£8.8 million-you mentioned that IT was being insourced.

Ed Richards: Partially, yes.

Q88 Mr Bacon: Partially insourced. Yet outsourced services have gone up from £5.2 million to £8.8 million.

Ed Richards: Yes.

Q89 Mr Bacon: So what does outsourced services consist in, primarily?

Ed Richards: That would be partly IT. We insourced the desktop support, so we didn’t insource servers and things of that kind. Those are still outsourced.

Q90 Mr Bacon: And who are they with now? They’re not with CMG anymore?

Ed Richards: No, we are just in the middle of a transition at the moment that is part of the 28.2% savings and the reason we can do the same for less. And we have saved, I think, £3.5 million.

Q91 Mr Bacon: Who are you going to move to?

Ed Richards: We’ve moved from Capgemini to Logica and we’re in the middle of that transition at the moment.

Q92 Mr Bacon: Let me go through it. You moved from CMG to Capgemini and then you moved, or are moving now, from Capgemini to Logica.

Ed Richards: Yes, but with different specifications. So, we do more. The desktop support we do. We insourced ourselves, we employ people ourselves and the service is significantly better. But it doesn’t make any sense to insource things like servers.

Q93 Mr Bacon: Right. Administrative and office costs is £8.2 million.

Ed Richards: Just on the outsourced services, that would include also facilities management and things of that nature.

Chair: I hope not Christmas trees.

Ed Richards: Sorry?

Chair: Not Christmas trees.

Mr Bacon: No, you can get a good one from B&Q and Sir Nicholas Macpherson has got an extra moonlighting job as a star turn, if one can put it that way.

Ed Richards: I’ll have to go and check our Christmas tree arrangements.

Q94 Mr Bacon: Admin and office costs were £8.2 million. What was that principally on?

Ed Richards: Well, I assume that’s got all the-it’s not premises. Administration and office costs, it will be-

Q95 Mr Bacon: It’s a lot of money.

Ed Richards: Yes, it is a substantial amount of money.

Q96 Mr Bacon: Admin can’t be staff because staff is already covered off. You don’t spend £8 million on yellow stickies, do you?

Ed Richards: The source of my hesitation is that I don’t want to say something’s in it that is actually in outsourced services or something of that kind. What would be most sensible is to give you a note on exactly what’s in it. You see, some of these things that are under office costs I think might well be under outsourced services.

Q97 Mr Bacon: Yes, and then you have temporary staff and contractors as £3.3 million. That’s on top of your £10.8 million for professional services. Now, what is the difference? Are you just separating out interims from management consultants? If I’m a contractor, if I’m providing technical specialist services on spectrum advice on auctions or whatever, why am I a contractor and not a professional service, for example?

Ed Richards: Where we’ve run a procurement process for the delivery of a professional service that would be in professional services. A temporary or contractor might be a six-month maternity cover for filling a specific role.

Q98 Mr Bacon: And then you have this other cost of £7.9 million, which again is very large with no real description. What do you think that is?

Ed Richards: Let me come back to you on what’s in that, but the elements of contingency will be, I think, in there.

Q99 Mr Bacon: Could you give us a very detailed breakdown and include it down to the nearest £100,000?

Ed Richards: Sure.

Q100 James Wharton: Mr Richards, I think, believe it or not, the Public Accounts Committee is here to help you, and I’m pleased that already, in their usual robustly helpful way, Mr Bacon and Mr Barclay have been highlighting some areas where you may want to look at further cost savings. We’ve had some discussion about costs and what you want to deliver, and identifying the difference between saving cost and actually delivering value for money. I think one of the stumbling blocks that we’re already identifying is that, in trying to understand the processes that you as an organisation are going through, there isn’t necessarily all of the information that we would want to have to hand.

I’m looking at the Report, page 18, paragraphs 2.7 and 2.8. Paragraph 2.7 says: "Although the Annual Plan sets out what activities Ofcom expects will contribute to its desired outcomes, it does not describe how Ofcom will measure whether it has achieved these outcomes: it does not state what success will look like." And then 2.8 says: "Without a clear idea of when success is achieved it is difficult for stakeholders … to assess the organisation’s success in meeting its objectives."

I think one of the missing links in understanding whether value for money is really being found in the organisation is actually getting a clear understanding of what the outcomes you want to achieve are. I wonder whether you are likely to be taking any steps to produce some of this information for us.

Ed Richards: I can assure you there’s no absence of information, but let me address the broader points. I think the point being highlighted in the Report is one that we would accept, which is: can we do better to provide a simpler set of relationships between what we do and what the outcomes in the market are? I think the answer to the question whether we can present that in a clearer form is yes, and we should try and do better at that.

However, there are one or two cautionary notes that need to be applied to that, I think, and this is in a sense where we’ve come at it from historically. I think the first point to make is that I have never worked in an organisation that cares as much about the actual outcomes for the consumer and for the citizen as Ofcom. You don’t see it in the annual plan and the reason you don’t see it in the annual plan is because we publish separately something called, The Consumer Experience, which we publish every single year, which we’ve done for about five or six years, the purpose of which, as it states explicitly at the front, is to identify how well consumers are doing in the UK. It includes time series data on a whole range of different calculations to help us understand whether or not good outcomes have been delivered.

In addition to that-and we are under no obligation to do this-we publish something called the international communications market review, where we take the UK outcome and we benchmark it against a range of other countries across the globe. This is very unusual in my experience and it’s a very considerable exercise doing it. So, we can then say to ourselves, "Is what we’re doing effective, not only on a time series base for the UK, but also when we compare the UK with other countries?" In some cases we’re doing very well, in other cases quite well and in other cases we have more work to do. We publish those every single year and they are a comprehensive review of all the key outcomes that you would expect to see in our sector. So, we have a very close concentration on what the outcomes are.

I know every sector is complicated and everyone always has difficulties and I accept that we need to work harder to try and provide those simple relationships. But there is a second note of caution. Let’s just take a simple example: broadband. What I sense people would like to have is, "What’s the one measure that tells us with broadband that we have done well on broadband?" and, "What Ofcom has done on broadband has delivered a good broadband outcome." But then I have to say to you, "Well, do you mean price or do you mean availability? Or do you mean speed? Or do you mean quality of service? Or do you mean current generation broadband? Do you mean superfast broadband? Do you mean mobile broadband? Do you mean in cities or do you mean in rural areas?" All of those are relevant and, for the consumer, you can’t pick one of them and say, "That’s a good outcome." It’s highly complicated, so we have to try and find a way of connecting activities we take, but not in a way that simplifies it so much that it creates perverse outcomes. I would be quite concerned about that approach.

Q101 James Wharton: Okay, I think I understand that point and there are two observations I would make. One is a concern you may be able to assist with, and the other is more a statement of fact as to what other agencies seem to have been able to do. In respect of the way that you publish outcomes in The Consumer Experience, what I would really like to see would be something setting out at the beginning of the year where you want to get to in terms of outcomes and something at the end of the year setting out whether you got there. It seems that detaching the two may give a little bit more flexibility in how it’s presented. It may purely be a presentational issue but it then gives some flexibility for yourselves to present it so that things look perhaps a little rosier than they are. What I would like to see is a clear statement of, "This is what we want to do," and then you can look back and say, "Well, have you done it?" I don’t in any way dismiss the value of the information in The Consumer Experience, but I think there’s also a place for that in your annual report. In respect of the complexity of outcomes, that’s quite true, and, as you acknowledge, it’s the case in many other organisations, and there are a few examples in the Report of organisations-the Environment Agency, the Australian Communications and Media Authority’s annual report-which seem to have overcome these challenges and these hurdles and are able to publish these outcomes in a useable and useful way.

Of course, we are all human beings on this Committee. If you were to come in front of us in however many years’ time and you say, "Well, actually we didn’t reach that outcome, and this is why" and explain that it wasn’t an accurate measure, I think that would be understood, but we need a basis on which to work, especially when assessing value for money. I would strongly impress upon you, certainly on my behalf and I suspect on behalf of other members of this Committee, that actually some more measureable outcomes in a more clearly defined way, so we can look at where you want to go and what you want to do, assess whether you’ve got there and assess value for money in that context, would be helpful. Is that something that you’re willing to look at bringing in in future?

Ed Richards: I absolutely accept that we can and should do a better job of presenting that in that kind of way. I do accept that.

Q102 Stephen Barclay: A quick point to clarify. You’re a director of Thames Water utility.

Ed Richards: Right.

Q103 Stephen Barclay: Is it paid?

Ed Richards: Yes.

Q104 Stephen Barclay: How much is it paid?

Ed Richards: About £42,000.

Stephen Barclay: £42,000.

Ed Richards: Something of that kind.

Q105 Stephen Barclay: And do they meet during the day?

Ed Richards: Pardon?

Stephen Barclay: They meet in office time, I guess, do they?

Ed Richards: They do.

Q106 Stephen Barclay: Okay. Can I just come on to restructuring?

Ed Richards: Could I just clarify the position on it? Because you’re clearly leading somewhere and you probably would like to know the full picture.

Stephen Barclay: What I’m clarifying is your remuneration has been £1.5 million since your appointment. The reaction to the NAO Report was "a furious reaction" according to the Guardian and the FT.

Ed Richards: No, that wasn’t-

Q107 Stephen Barclay: Well, perhaps you’re able to clarify who in the organisation gave the quote. And so, one of the things that in this Committee we’re trying to clarify is how tight the grip on costs cited is. I think relevant to that are issues such as first class travel, remuneration and how that applies across the board. So I think it’s a relevant issue.

Ed Richards: Let me just complete the picture for you. I assume you’re asking me about how much I’m paid by Thames Water as a non-executive director, presumably on the presumption that I have that money. That money is paid to Ofcom.

Stephen Barclay: Okay, fine. It was purely a question.

Ed Richards: For absolute clarity.

Stephen Barclay: Mr Richards, it’s the role of the Committee to ask questions. I’m sorry if that upsets you.

Ed Richards: Every benefit is paid to Ofcom and will be netted off what I’m paid.

Q108 Stephen Barclay: Could I come on to restructuring costs please? Taking you back to Figure 4, you mentioned that you’re cutting 170 jobs. I was just trying to understand, within Figure 4, where the cost of restructuring will be captured and how much in the budget you’ve set aside for that.

Ed Richards: We’re still doing those calculations because they’re within this financial year and we are aiming to do as much of the restructuring charges within the existing budget by implementing the changes now rather than at the start of next year. So in other words, you start saving the 28.2% in this financial year, thereby making in-year savings and that thereby liberates money that can be used for redundancy charges.

Q109 Stephen Barclay: Do you have an average in terms of just the ballpark, for the Committee, as to per person, what sort of cost you expect that to be?

Ed Richards: The redundancy charges?

Stephen Barclay: The restructuring costs.

Ed Richards: I don’t. It’s a calculable number, obviously, so I’m very happy to come back to you.

Q110 Stephen Barclay: Could I just give you a steer on past performance? In 2007, 16 staff left, at an average cost of £73,937; 32 staff left in 2008 at an average cost £66,781; four members of staff left in 2009 at an average cost of £77,000; and four members of staff in 2010 left at an average cost of £154,000. So, the four members of staff that were exited in 2010 cost £617,000. When I asked you about the fact that staff costs have gone up, one of the reasons you gave was the fact that, "Well, we brought in expertise; we brought in more skilled people," which seemed odd given that at the same time professional skills budgets have gone up, outsourcing budgets have gone up, and temporary staff budgets have gone up.

I would have thought if you bring in skilled members of staff, your need for skilled advisers would have gone down, but let’s put that on one side. If we take the 2008 figure, which is the lowest of the last four, the average is £66,000; times that by 170 jobs and that would give a huge figure of over £11 million. So, what I’m just trying to get a sense of is: if you have brought in more highly paid, more skilled members of staff, I assume getting rid of them is going to cost more and, to flow on from Stella’s questions, in terms of your budget for next year and how that links into value for money, what sort of ballpark figure are you working to in terms of the cost of restructuring?

Ed Richards: It won’t be the average that you implied there. I’d have to go back and look at which individuals were involved in those previous numbers and check what they were. But, as I said in the earlier answer, the people who will go voluntarily or as compulsory redundancy are a range across the entire organisation, so they are both at the higher end of the pay scales and at the bottom end.

Q111 Stephen Barclay: To the nearest couple of million, do you have a ballpark figure? Obviously there’s work going on; there’s 170 jobs going. You must be budgeting on something, surely?

Ed Richards : Well, we are budgeting, but we are also in the middle of a consultation on those redundancies and those decisions have not been made, and the consultation is a serious one and needs to be taken seriously. So, I am rather nervous about quoting numbers. There is a modelling assumption that I am very happy to share with you in due course if that would be helpful, but I am nervous about bandying around numbers when we are in the middle of a consultation process on the number and level of redundancies.

Q112 Austin Mitchell: Good morning. I thought I was going to have to say "good afternoon" before my call came through. You should have had Colette Bowe come round and say, "Your call is very important to us, Mr Mitchell, but we’ve only got one operator on today owing to staff cuts".

Mr Bacon: "If you’re from Grimsby, press six."

Austin Mitchell: I want to raise the issue of consumer satisfaction-we have been dealing with value for money-which is very difficult to prove in a field where you are bound to soft-touch regulation, which was the rubric that we started with. Let me just take consumer complaints about fixed-line and mobile phones. So far as I can see there are four areas of complaint, and not enough has been done to satisfy the consumer in these areas. First of all, there is the problem of silent calls. I used to get a lot of them when I was a famous television personality but you could usually detect the breathing on the other end. Now I still get a lot, and it’s your fault because you haven’t taken action quick enough to stop these silent calls, which are a bloody nuisance. They drag you to the phone out of the shower and then there is nobody there. So what are you doing about that?

Secondly, there is switching, which appears to me, as somebody who has tried to switch, extraordinarily difficult, partly because the companies drag their feet about SIM cards and switching everything over and, more importantly, because you are left with a confused mass of information which makes it very difficult to interpret what you gain and what you lose by switching. You usually get something saying, "Our charge is the same as everybody else’s, but bear in mind that you get three free phone calls a month to relatives in Bratislava as part of our package," and it’s very difficult to interpret. I think you haven’t been helpful there in simplifying the system, and the figures at Figure 14 indicate this quite clearly. Switching is much easier with electricity, gas and car insurance, yet there is only a very small proportion-10%-switching their mobiles, and less than that for the internet. Why isn’t switching made easier if the consumer is going to be strengthened against these big organisations?

Thirdly, there is the issue of stolen calls. If I reached over and took Ian’s mobile, I could not only do a News of the World on the secret affairs of the Liberal party, but I could take it to any market in the north-and I assume the same is true in London-and have it unblocked for a very small figure so I could use it. Why haven’t you developed some kind of simple device with the companies that will blow the thief’s head off after the first call?

Stephen Barclay: Austin, can I just point out they don’t have any secret affairs in the Liberal party-it is all out in the open.

Austin Mitchell: Well, I don’t know about that. Not enough is being done about stealing. You could have done more there, in co-operation, I would have thought, with the companies, to render stolen phones useless at the first call once they are reported stolen.

Finally, there is the issue of roaming, where something is being done, but it is being done by the European authorities and not by us. Yet the companies charge in this country. You are responsible for the charging for roaming and you have done nothing about it, leaving it to Europe. Why have consumers faced such long delays in getting any action for them on these important issues?

Ed Richards: I think the easiest one of the four is theft. Theft isn’t really something for us. Theft is a matter for the police and then the companies.

Q113 Austin Mitchell: It is also a matter for the operators.

Ed Richards: The operators, yes.

Q114 Austin Mitchell: And you regulate the operators.

Ed Richards: But we don’t intervene in the switching on or off of individual phones. As I understand it, what should happen is that as soon as it’s stolen, the police should be contacted, then the police can contact the operator or you can contact the operator, and the operator is able to turn it off. We don’t really get involved in that.

Q115 Austin Mitchell: Shouldn’t you?

Ed Richards: I don’t think so. I think it is just one too many cooks, to be honest. I think if something’s been stolen it’s a matter for the police and then it's a matter for the individual, with their operator, to deal with the issue of closing down the service. I think us getting involved there is just getting in the way to be honest.

Q116 Austin Mitchell: You could encourage and push the operators to cut off service.

Ed Richards: We can certainly encourage and push them, and I am very happy to raise it with them. I am less enthusiastic about trying to intervene when I think that the principal relationship should be with the police and with the individual.

The other three are different. Let’s start with switching. The chart you referred to is interesting but I do think it is slightly simplistic. There is one very good reason why switching is higher in electricity and gas, and that is that all you are doing is switching your retail provider. The network is exactly the same. In telecoms you are actually changing the network either through an unbundling, a local-loop unbundler, or if you actually change to cable, so the technological challenge and both the risk to the consumer and the hassle for the consumer is inherently greater. The contrast, I think, is with bank accounts, where the proportion is very low, and we understand why that is: it is not that it is actually very difficult to switch; it is to do with the risk the consumer feels because it’s their financial affairs. I think telecoms, in particular, sits somewhere between those two. It’s actually technologically more difficult because it involves changing networks. It is quite risky. I think it didn’t used to be, but people are now so dependent on their broadband in particular that I think they feel that the risk of losing the service by switching network is quite high.

Would we like to see more convenient, easier switching processes? Yes we would, which is why we published during the course of this year a major document on our approach to switching, arguing that we believe the system should overall move from "losing provider led" to "gaining provider led", which makes it easier and more convenient for people to switch. We spent a huge amount of time trying to ensure those processes are good and more convenient and the evidence is that that has improved things.

Q117 Austin Mitchell: You also need a common basis of information. I can’t judge all the various offers from the companies-whether it’s on internet provision or mobile phone provision-because they are very confusing. Why not have a simple basis of comparison?

Ed Richards: Let me take two examples. With broadband we have exactly the problem you describe-how do I know who the best provider is? Really there are three criteria. What’s the price? Is it available to me? And what's the speed? What we found was that you can find the price and availability out very easily; it is just on everybody’s website and it is advertised. What people didn’t know was the true speed, and that is why we did some very original research-which we’ve published and which has been the most downloaded piece of work we have ever done-which revealed the true speeds people were getting and compared one operator with another. So we have done some very substantial work in that area.

We do want to improve the switching environment; there is no doubt about that. I think we are more concerned about it in the future because of people buying bundles of services. It is something that we are spending quite a lot of time on and I would like to see the environment improve; there is no doubt about that. It is a risky issue for consumers because of the importance they attach to these services.

Austin Mitchell: Dependence.

Ed Richards: Dependence, particularly on the broadband access nowadays. And it is occasionally technologically quite complicated because you are changing from one network to another. Sometimes that actually involves engineers visiting and re-wiring the house so it’s sometimes not as simple as other forms of switching. We definitely would like to improve it and make it a better experience for consumers. There is no doubt about that.

Q118 Austin Mitchell: What about roaming?

Ed Richards: On roaming, it is absolutely true to say that the lead came from Europe, but that is right.

Q119 Austin Mitchell: Not in my book it’s not.

Ed Richards: It is right because it is a cross-border activity. So it is inherently-

Q120 Austin Mitchell: But the charging is here.

Ed Richards: But the source of the charging is that when you roam into France, for example, your operator is charged by the French company, who they then have to pay. It is the nature of the-

Chair: I did it when I was a Minister actually. It was a European negotiation and it was very, very difficult.

Ed Richards: It is inherently cross-border and therefore European. So we are very much in support of the action but it has to be taken at a European level.

Q121 Austin Mitchell: I was appalled by the fact that Sky TV provided the intrusion on Gordon Brown’s privacy that arose after the Mrs Duffy affair. I wanted to complain about it. I wrote to Ofcom and indicated my willingness. I got back a lot of paper, which as I read it, said that the person affected had to complain. Here was a general principle; I was affected because I went to a bingo hall in Grimsby that same night and people were scrawling "bigot" over the leaflets I was handing out. Fortunately I didn’t realise at first because they couldn’t spell bigot, but it affected me and undoubtedly affected the vote for the Labour party. I talked to Colette and she indicated that the complaint could come from me. Unfortunately, I went on holiday and forgot about it. I got back and there was a letter saying it was out of time. I see from paragraph 2.35, on page 31, that in respect of the last of the three consultations, which began in June 2009, with a closing date of 15 September 2009, you were still taking consultation responses after the end of February 2010. Now, will you take a complaint from me about the intrusion on Gordon Brown-which was monstrous, frankly, and which no television professional would have condoned-belatedly?

Ed Richards: I will have to take that away and have a look at it. To be honest Austin, I don’t know and there are all sorts of precedent implications that I would have to think about. Let me go back and I’ll write to you.

Q122 Chair: I wanted to say something about complaints. Looking at Figure 11, I think it is quite depressing to see that the number of complaints to Consumer Direct on communications are as high as the number on second-hand car dealers, car repair and servicing in garages. I think it’s a depressing table and I don’t think you can feel comfortable with it. I just wondered what your comments were on it. I was surprised to see so many of the areas for which you have responsibility so high up.

Ed Richards: I agree it is disappointing. I think the industry should be more disappointed than it is about it, to be honest. It’s pretty common across other countries and there are a variety of explanations for it. Partly it is a highly competitive market and sometimes in those highly competitive markets you have sales practices that generate complaints. But I agree, it is very disappointing and we definitely would like to see it lower. One example which I think is pertinent is the action we’ve recently taken against TalkTalk, Carphone Warehouse Group, where they were generating a huge number of complaints because they were billing people-charging people-for services they had never actually received. We have investigated that and found them in breach of our requirements and we are now considering what action to take in light of their representations. That is one very good example.

Q123 Chair: I don’t think you can argue competition. Competition ought to have the opposite effect, because if there is more competition you can switch provider, despite what you’ve said about switching. Competition ought to lead to a better service and fewer complaints.

Ed Richards: In some respects you would hope that was the case. I think in some ways that is true. But I think the experience of most liberalising markets whether it be financial services, gas, or energy, has been that, as competition opens up, some parts of the market do adopt very aggressive selling tactics and so on and so forth. I am not condoning it because I would like to see it come down, that is for certain. But you do see those kinds of practices. Mobile phones-hardware-is really retail selling. We don’t really have anything to do with that of course, because it’s not a service but a piece of equipment rather like a television or a laptop. So only some of these categories are actually within our purview. Hardware items of that kind-your TVs, phones, laptops and so on-are not part of what we do. They would come under Trading Standards, for example. The relevant bits here for us are service agreements for mobile, and telephone services and internet service providers, which are the bottom two. I am not saying that to excuse them, because as I have said, I would like to see these numbers go down and we are taking some action, but we only have powers in respect of probably half the ones that you are looking at.

Q124 Ian Swales: Can I build on the comments of both Austin and the Chair? Thinking about Figure 8, which shows the progression of costs in landline and mobile services, one is struck by the very healthy reductions in mobile costs, which more than halved over this period, whereas landline costs seem to have fairly stubbornly stayed at a similar level. If you then look at Figure 14, which talks about market shares, to what extent do you think the previous graph is affected by the fact that in the mobile areas we well know there is pretty fierce competition between a number of suppliers, whereas in the landline area, BT still have the lion’s share of the business and I suspect that some of these other entrants are in effect buying services from BT, although billing separately. Do you believe that the fixed-line market is as competitive as it should be?

Ed Richards: There is a relationship of that kind and of course it’s historic in the sense that with fixed-line we are coming from the position of a state-funded monopoly, with the introduction of competition over time, whereas with mobile we started with two companies, made it four and then made it five. So there was always inherently more competition and I would certainly expect that to make a difference. There has also been more technological change in mobile, though. Remember with fixed you are talking about wires in the ground and the costs of that are difficult to drive down, whereas there have been significant advances in technology in mobile in terms of signal propagation and things of that kind which has allowed the cost structure to come down. I think that is also part of the explanation for the contrast in the two pieces of data on Figure 8. Having said that, would we like to see more competition in the fixed market? Yes, we are here to promote competition and I think we are doing well at that. The incumbent in the UK has a lower market share, I think, than anywhere else in Europe and one of the lowest in the world. So we are in a very good position on a comparative basis. But you want to see competition work as effectively as possible.

Q125 Ian Swales: May I ask a supplementary to that, on the deals that BT do with other providers? Clearly in other industries such as electricity and gas we have seen the markets open up despite their historical means of distribution. To what extent do you get involved in those deals, and are you happy with the way they operate?

Ed Richards: We absolutely get involved in two ways. One is through price controls where we judge BT to have market power in a form that requires price control. On some other occasions, we get involved because companies bring us disputes because they can't agree commercially, and where BT is regulated we sometimes need to resolve those, so we do. They are extremely important and we have to make quite sophisticated judgments in relation to each particular case. That will not change in the short term.

Q126 Ian Swales: I take your point about the fact that the technology is more fixed but you could reverse that and say that mobile operators have been investing vast amounts of capital over this period, whereas with BT, some of its capital will be well depreciated by now and obviously new technology is open to them in terms of use of internet, satellites and all the rest of it. It just seems to me that the fixed-line consumers may be getting a poorer deal and it needs to get better.

Ed Richards: When we look at the outcomes here and we look at the UK against other countries, which I think is probably the best benchmark-I mentioned the work that we’ve done in that area and this is something we look at incredibly closely-what you will find on fixed line is that the UK position against the comparators that we were able to draw on is the best.

Q127 Ian Swales: In cost terms to the consumer?

Ed Richards: In cost terms to the consumer, we in this country are better than anywhere else. The reason for that is that these are big fixed-cost businesses that need to be paid for. It is true that the original network was sunk and depreciated many years ago but it also true that they’ve had to invest a lot of money since then, for example, to enable it for broadband and also to ensure it is still working effectively. Obviously, there’s a new wave of investment for fibre optic broadband. So I think it is a more complicated story on investment, but on the actual outcomes for British consumers, we are among the best in the world. Our numbers have stopped falling and they actually slightly rose last year, so the difference between us and some of the other countries is not as great as it was and we have got a very beady eye on that and we are asking why that’s the case. It just slightly tipped up a little bit. It is an issue we have a careful eye on. The basic price of fixed telephony is a crucial part of what a good outcome is for the consumer. The aggregate position, as our international market review showed, is that we are in a good place, but there is a little change in the last year in relation to which we need to be very vigilant.

Q128 Stephen Barclay: I just wanted to come on to silent calls, because the overall level of complaints on silent calls seems to have gone up during your watch. I just wanted to get your thoughts, first on that and, secondly, on how you assess the ratio between the level of complaints and the actual number of unreported silent calls, because I am sure you will accept that the complaints are just the tip of the iceberg in terms of the underlying problem.

Ed Richards: I think the relationship is even more complicated than that. The complaints have gone up this year compared to last year. When you look at the data on complaints over the years, unfortunately what you actually find is that what appears to cause them to go up is publicity. For example, the biggest increase in complaints that we ever had was when we fined Barclaycard for silent calls. The next upward trend was I think heavily influenced by the fact that we had sought from the Government and been given an increase in the level of fine, and had issued new guidance through which we were going to tighten the obligations around silent calls. The number of complaints we received went up again at that point, and we think that that was essentially directly linked to the amount of publicity.

We cross-check that in The Consumer Experience, which I must send you. Rather than just taking complaints, which are obviously voluntary individual acts-you may not have time to make them, I may not-we research people on a statistically reliable basis to ask them whether they have been subject to and have been caused anxiety by silent calls. What that data tells you, which is much more reliable, is that the number of people who have been subject to silent calls has fallen over the last two years, by about 25%. So the actual true experience appears to be getting better not worse, even though the complaints data tells you the exact opposite.

The figure is still too high. As I recall, the number is about 22%-24% of people who have actually experienced it and have been caused anxiety by it. That is why we have tightened up the regime that comes into force on 1 February next year. It is why we have written to all the companies that we’ve had problems with in this area in order to make clear to them that the regime is now tougher and the fine is very substantially higher. We’re now in informal discussions with a range of those to make sure they understand that is the case and they understand that if we continue to get complaints after 1 February, the consequences are much more significant. I can say to you in all honesty that I think the deterrent effect of a £50,000 fine which we have lived with in the past is almost zero. The fact that we now have a potential deterrent effect of £2 million is much more valuable. I think the numbers are going down but we would like to see them go down further, and we have a regime in place that we will enact from 1 February next year which should do that.

Q129 Stephen Barclay: Following that logic you would expect the numbers of complaints to continue coming down.

Ed Richards: I think if it turns out that we need to take public activity in the first/second quarter of next year, I would expect there to be an increased volume of complaints to us directly, yes, because historically that is what has happened. I would.

Q130 Mr Bacon: I’d like to ask you about Radio Caroline. You may be aware that they are trying to get a medium-wave licence or a medium-wave piece of the spectrum.

Ed Richards: Yes I am.

Mr Bacon: Ofcom announced in December 2006 that it wouldn’t be issuing any more commercial licences for medium-wave broadcasting in the UK, and from that date onwards-I am reading from a note from Radio Caroline-"both the BBC and commercial radio operators have regularly announced to their respective listeners that they regard medium wave as inferior and have been encouraging their listeners to switch." Those local commercial radio stations that use medium wave record such tiny audiences that they have deemed medium wave to be uneconomical to run stand-alone and they have been grouping together to share programme output and reduce costs and indeed have indicated a reluctance to do anything other than the bare minimum with medium wave.

Radio Caroline go on to say, "The best commercial minds in the country have been unable to make medium wave pay in terms of advertising revenue, and so we are confident that our presence on medium wave and our unique programme format would not take away any advertising from already licensed operators. Allowing us a place on the band which no one else wants to utilise whilst covering our traditional heartland of the south east would be a fitting tribute to Britain’s first commercial radio station"-which indeed of course it is. "But in order to achieve this we would need to be treated as a special case. What’s more, in order to be broadcasting by Easter 2014, which would be a magnificent 50th birthday celebration not only for Radio Caroline but for the people of Great Britain". What's not to like about all of this? "In short, if no one else wants it, can we have a small part of it, please?"

My parliamentary colleague Caroline Lucas wrote to Ofcom and received a reply saying that, according to the registered data that the International Telecommunications Union have, one of the frequencies-107.1kHz-that Radio Caroline has highlighted is in use 24 hours a day, by the French; it’s registered to the French. In fact, it turns out that Radio Caroline has checked with CSA the French equivalent of Ofcom, and been told that 107.1 is no longer used in France. Now, instead of doing "computer says no" answers, why don’t you just help this national institution get a toehold on a piece of frequency that is not otherwise required, by phoning up the French and saying, "You’re not using it, can we have it please?"

Ed Richards: I’m very familiar with the Radio Caroline case and I am very happy to phone up the French and see what the situation is. I wish it were exactly as it sounds, but it very rarely is. This is all about trying to find a frequency. There are not any spare frequencies just kicking around London or the south-east because they have all been used up. I push our engineers on this every year to say, "Can't we find some more frequencies? Can't we squeeze some more in?" It is one of things we discuss and I challenge them on every single year and I always have Radio Caroline in the back of my mind when I am doing so.

Q131 Mr Bacon: I thought you were going to say you have it in the back of your car, except that you can't at the moment because it is only available on the internet.

Ed Richards: Indeed.

Q132 Mr Bacon: On the other hand you probably have such an expensive car that you can probably get the internet in your car so you can listen to internet radio.

Ed Richards: I can absolutely assure you I don’t. So there is a question of UK frequencies and at the moment we don’t think there are any. There are existing users of medium wave and in our judgment at the moment we would have to move somebody else off. So there is a broader question.

Q133 Mr Bacon: They are specifically saying not. 107.1 is used in the north-east by a Newcastle station; they want it in the south-east where it is not used and it is allocated anyway to the French and the French are not using it.

Ed Richards: That brings us to the French.

Q134 Mr Bacon: Which is why you need to phone the French.

Ed Richards: One conversation I could imagine with the French would be, "Are you using 107 kHz?" To which the answer might be, "Non, non," but that does not necessarily mean that when I say, "Well, can we use it?" the answer will be yes.

Q135 Mr Bacon: But you won't know unless you ask.

Ed Richards: I agree and I am very happy to ask. I wasn’t aware it wasn’t being used. But I don’t want to leave you with the impression that if they say it is not being used, it will also follow that therefore the Brits can have it. I am not sure it will.

Q136 Mr Bacon: Well, we’re letting them have our aircraft carrier. A bit of détente or entente cordiale would go a long way here.

Ed Richards: I will make that point to them.

Q137 Mr Bacon: Especially since it started on a ship.

Ed Richards: I will make that point to them.

Q138 Mr Bacon: While you are busy with the French, can I invite you also to co-operate with the NAO on producing a more detailed breakdown of the £121,594,000 on page 12, at Figure 4? I have asked the NAO and they have agreed to help you do this, I am sure you will be glad to know. What we’re looking for is a forensic breakdown of that £121 million, by the headings that we already have here but going into immense detail. If it should turn out-as is always the case-that something might easily have been categorised in one but got categorised in another, that is a separate issue. What I want to see is these existing headings and how they were categorised, down to a great level of detail. If you work with the NAO to do that they can help you produce a spreadsheet that has the level of detail we need.

Ed Richards: Very happy to do that.

Q139 Mr Bacon: The second thing, within the staff travel component of £1.4 million, could you produce a ranking of that per employee of Ofcom, so that the employee with the most travel costs is at the top of the ranking going downward until you get to nought, because presumably, quite a lot of people don’t incur any travel costs and a smaller number incur much more?

Ed Richards: Absolutely.

Q140 Mr Bacon: The thirds thing is expenses for staff. I don’t know which heading it would come under-it might be mixed between "travel and subsistence" and "other costs" or "administrative and office costs", I don’t know-but could you itemise and rank by employee all your expenses, including entertainment?

Ed Richards: As I recall, for all the team of the management group, they are already published online monthly, so I’m happy to produce them.

Chair: Right, that’s it. Thank you very much indeed for your time.