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Here, the report highlights the real issue, which is how the media deal with risk. The media are habitually alarmist, because that sells papers, but they are also virtually untouchable. The report suggests that more recourse be handed to the Press Complaints Commission (PCC), but the commission's code of conduct is regularly breached with, it seems to me, almost total impunity.
Let us take, for example, the reference to GM crops as “Frankenstein foods”. Whatever one’s view of GM crops, this was a ridiculously disproportionate description of the risks. It breached all the sections of the code set out in the report and yet, unless I am very much mistaken, there were no complaints to the PCC.
Lord Wakeham: As I spent seven and a half years as the chairman of the Press Complaints Commission, I should say to the noble Lord that the commission is simply not allowed under its constitution to act unless
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Lord Newby:Going back a step, why do people not make complaints? I regularly read things in the papers that incense me. Why have I never even contemplated going to the Press Complaints Commission? The answer is, frankly, I believe—I may be completely wrong—that my chances of securing any effective redress on a complaint about a news story which gives a disproportionately alarmist headline, on a matter of science or anything else, are small. Perhaps the Government and the Press Complaints Commission between them can play a role in persuading people like me that that is not the case. Even if the PCC does have that power in theory, it cannot be exercised because of people’s perceptions of it at the moment. In many cases people will not go to the PCC.
The report states that it was unable to find any significant evidence to suggest that we have become a more risk-averse society. The noble Lord, Lord Giddens, said it might be virtually impossible to decide. I think on a small scale, in some areas, there is some evidence that we are becoming more risk averse. The example that people always give, and which I shall give today, is health and safety legislation. The report refers to anecdotal evidence. There is no systematic evidence but everyone you speak to can give you anecdotal evidence. My anecdotes over the past year in that narrow area are as follows.
First, I have recently been decanted from my office so that a space of two feet can be sliced off it to marginally widen a corridor which has existed for many years. Suddenly it had been determined that this corridor was a health risk in the unlikely event of the building in which I reside catching fire. Secondly, I am involved vicariously with the local fair in Vauxhall park, where two relatively new health and safety requirements reflect a disproportionate view of risk. The first is the well known example that if you are selling cakes at a fair these days you cannot place them on a table and sell them with a cup of tea to someone. Each piece of cake must be wrapped in cling film because of the risk of having the whole cake open to the elements. An example that I would particularly like if it were not so pathetic is the requirement for an annual written risk assessment of the likelihood of a child drowning in one of the games we have at Vauxhall fair, which involves hooking a little rubber duck from a pool of water no more than four inches deep. This risk assessment must be written and formally reviewed every year, and the organisers of the fair must demonstrate to the very efficient Lambeth health and safety person who comes round every year that that procedure has been carried out. Such procedures do not necessarily translate throughout society but they are examples where we have become more risk averse and of a complete lack of proportionality.
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The committee’s report refers to the smoking ban and the disproportionate cost of dealing with passive smoking. This issue reveals a number of real problems with reaching a dispassionate decision on virtually any area of public policy. I voted enthusiastically for the ban. This had nothing to do with passive smoking but with the fact that both my sons learnt to smoke in a pub. On a rather unfortunate occasion I found one of them smoking in a pub when he had been at great pains to disguise his habit from me. But my thinking about that issue was absolutely coloured by my own personal experience, and no amount of evidence about passive smoking, one way or the other, was going to take away my absolute determination to vote in the way I did. That demonstrates some of the problems involved in these issues. The costs and risks involved in the hunting ban were debated but discussed very dispassionately by the noble Lord, Lord Burns, in his report. Large swathes of evidence were, in effect, washed away by people’s own views, born out of their own conflicting experiences.
Having read the material and thought about it for the first time, the single conclusion I have reached reflects the comment of the noble Lord, Lord Giddens. Given that society faces vulnerabilities, large and small, the only way of resolving them is by having a more intensive discussion on them based on firm evidence. Given that the Stern report deals with, arguably, the most important long-term risk that humanity faces, it would be a good idea for your Lordships’ committee, from time to time over the coming years, to review its progress using some of the tools and disciplines that we have discussed in this debate.
5.07 pm
Baroness Noakes: The Economic Affairs Committee has yet again produced an excellent report. I add my thanks to my noble friend Lord Wakeham and the committee.
We cannot accuse the committee of avoiding difficult subjects. It is a testimony to my noble friend and his committee that they have volunteered to tackle such a complex issue as risk management. They have not shied away from controversial aspects—for example, passive smoking, on which a number of noble Lords have commented. I shall not add to that debate; nor shall I comment on the bigger issues that were raised in the interesting speech of the noble Lord, Lord Giddens, because I simply do not have his level of expertise.
Coming from the private sector, I thought I knew quite a lot about risk management. Nowadays on boards we have processes which look at risk, evaluate it, see how it can be mitigated, what the costs of mitigation are and decide which risks should be borne and managed. The important point is that in the private sector it is a matter of bearing and managing risk rather than avoiding or eliminating risk. I was struck by the CBI’s evidence to the committee that there are different cultural approaches to risk, with the public sector being “constitutionally risk averse” and the private sector having risk as its raison d’être.I do not believe that either of those statements is 100 per cent accurate but there is a fundamental
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Lord Giddens: I feel I must comment on that because some of the biggest risks are taken in public sector projects. Massive projects are set up without proper risk assessment—for example, building bridges and all kinds of major projects. Someone wrote a really good book on this which showed that nearly all such projects go wrong and overrun their budget by a tremendous amount; they are essentially status projects rather than anything else. But these kinds of projects are particularly associated with the state sector rather than the private sector. That is why one should be careful about making any wild generalisations.
Baroness Noakes: That is an extremely important point. The noble Lord describes situations in which risk is consciously not managed in the public sector because of some overriding political desire to carry out a particular project. There is probably another category of activity in the public sector where conventional approaches to risk management are simply not addressed, or are addressed in a way that gives the appearance of complying with the various guidelines on risk management when, underneath, the risk is not managed at all.
Lord Giddens: Forgive me, but I am not sure about that either. The failure of Enron was based on the miscalculation of risk, so one would be hard put to say that the public sector manages risk less effectively than the private sector. It would be hard to generalise about it too easily. I shall not disturb the noble Baroness any further.
Baroness Noakes: I am not saying that the public sector manages risk better or worse than the private sector. My point was that the private sector goes out of its way to identify the risks that it will manage, because that is at the heart of wealth creation, whereas, in the public sector, the Government's approach is often to try to eliminate or avoid risk, or reduce it to a very low level by using things such as the ALARP measurement. They may not always succeed but, often, government policy is designed to eliminate rather than face and manage risk. Perhaps the noble Lord and I will not agree on that and we can debate it another time.
The committee rightly drew attention to the predisposition to risk aversion—I think that that is uncontroversial—in the public sector. In paragraph 8 of its report, it states that there is,
- “a possible need for greater awareness of the consequences of the assessment and incentive systems that operate in the public sector”.
I have puzzled about that recommendation. Why is there just a possible need to consider those matters? Surely it is self-evident that, as a minimum, there should be greater awareness of the consequences of the assessment and incentive systems.
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Furthermore, is simple “awareness”—the word used by the committee—sufficient? In their slightly smug response, the Government say in paragraph 3 that they are,
The Government believe that the Better Regulation Executive, plus a new compliance code for regulators, will solve any existing problems. That is the substance of their official response.
The better regulation efforts of the Government, although entirely worthy in their aims, have had relatively little impact to date in changing the mindset of regulators. I am cynical about the effect that yet another pronouncement or code will have on cultural attitudes to risk.
I think that the report pulled its punches in that area and allowed the Government to get away with a slightly bland response. I ask the Minister today whether more doses of better regulation, wrapped up in a new compliance code, will change culture and practice. How do the Government propose to monitor the effectiveness of those policy responses; that is, better regulation and a code? Will he also say categorically whether the Government believe that any cultural change is desirable, as paragraphs 1 to 3 of their response are ambiguous? If some change is desirable, how will the Government measure the outcome of their policies?
Much of the new regulation passed each year emanates from Europe—at least half, I believe. European attitudes to risk may be different from ours, and there is also the danger that Europe-wide policy may require this country to regulate for risks that are non-existent or minimal in this country or are already perfectly well managed by non-regulatory approaches. Financial services and accounting, with which I am familiar, certainly contain examples of that, but I am sure that there are other areas. I am slightly disappointed that the committee did not include any of this in its report, and I hope that it was not because of some boundary dispute between my noble friend’s Economic Affairs Committee and the European Union Committee.
Staying with the international dimension, another area which the committee seems not to have addressed is whether how regulators approach risk management in practice results in a competitive disadvantage for the UK. In the volume setting out the evidence, I saw that the noble Lord, Lord Powell of Bayswater, put this question to the chairman of the Health and Safety Commission, but the chairman’s response was predicated on the executive having the right approach. He thus failed to address the question: he could not see beyond how the HSC actually operates.
I certainly do not advocate a race to the bottom in public protection in the name of competitive advantage, but there are legitimate questions to be asked about the degree to which regulation impacts on the UK’s competitive position, especially as we have been dropping down the competitiveness league tables for several years. Furthermore, since one of the drivers of regulatory responses is the attitude to risk management, it is an appropriate area for investigation. My noble friend
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I want to touch on the trade-off between regulation and liberty, addressed by the report in Chapter 3. Paragraph 29 recommends:
“A more formal procedure through which the potential impact of legislation on personal freedoms is considered”.
Earlier the paragraph states that,
- “greater account should be taken of the specific and cumulative impact of legislation on personal freedoms”.
Those are very important recommendations, and I was disappointed with the Government’s response at paragraph 8, saying that consideration of the cumulative impact is,
That statement shows that the Government do not even try to make joined-up government work. That is a pretty dreadful admission.
The Government say that the new Commission for Equality and Human Rights will somehow fill the void, but with the best will in the world, a body which is taking over the various equality agendas will struggle to have an impact on something as broad as the cumulative impact of legislation on civil liberties. It is not right in principle that the Government should be able to wash their hands of responsibility in this way.
Over the past couple of weeks, the spotlight has been on areas where civil liberties are under attack. Last week, the Information Commissioner warned about the dangers of the surveillance society and the fact that the police national DNA database is rapidly accumulating DNA samples without any proper debate. During the summer, there were reports that a secret committee of Ministers was recommending that all information held about individuals throughout government should be capable of being shared without the protection of individual information gateways. The Big Brother national identity database, which hid behind the identity card proposals, is another example of the encroachment of the state on the freedoms of the individual.
The Government’s response rejects the idea that regulatory impact assessments should cover the impact on personal freedoms. Ministers sign the Human Rights Act declarations on Bills, but in doing so deal only with the impact of a particular Bill and not more widely. I cannot accept that the Government should be allowed to approach civil liberties in this narrow way and I hope that they are prepared to look again at this.
The report covers many more aspects of risk and government policy. It is both thoughtful and thought-provoking, and I could spend much of the afternoon talking about it. However, I must resist the temptation to delve into the calculations which have been touched on this afternoon. I hope that the Government will take more of the report’s substance to heart than their official response would have us believe.
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5.20 pm
Lord McKenzie of Luton: I add my thanks to the noble Lord, Lord Wakeham, for introducing the report and to all those who have participated in today’s excellent debate. The Government welcome the report of the Economic Affairs Committee on government policy on the management of risk, which has helped inform the current debate about the management of risk in government and in our society. We welcome the committee’s conclusion that the evidence presented to it suggests that the Government take risk policy seriously, which was confirmed by the noble Lord, Lord Wakeham; and indeed we do.
Risk is defined as an uncertainty of outcome, whether positive opportunity or negative threat, of actions and events. Risk management includes identifying and assessing risks and then responding to them.
As a nation, we face significant challenges in the short and longer term. We have to develop the right systems and culture that will enable Government to respond effectively to the risks that those challenges present. There are several types of risk in the business of government: policy or strategic risk; financial risk; risk to the public or groups of stakeholders; project/delivery failure; and reputational risk. Increasingly, Government recognise the need for an understanding of risk to be at the heart of policy and decision-making and not something to consider once policy is developed.
For the past four years, a risk programme has been run by the Government, initiated after a review by the Prime Minister’s Strategy Unit and assisted by National Audit Office work on the Government’s management of risk. As part of that programme, the Treasury has monitored progress on departments’ capacity to manage risk, and significant progress has been made.
Risk and its management is therefore a topic very much at the centre of the Government’s modernisation agenda. The Government, of course, face risk management challenges that are much wider than those faced by other sectors of the economy. We have to manage risk not only within the operations and machinery of government but to society and the nation as a whole. That brings wide-ranging issues about the balance between the rights of individuals to take risks in their own lives, how the risk-taking decisions of one party might affect others, whether and how Government should constrain the risk-taking decisions of others, and the role of Government in managing risks to the public which the public themselves are not in a position fully to evaluate and manage.
Inevitably, risk is a function of our need to find the best solutions to the toughest challenges we face. Some in public service may be a little more risk-averse than others, as was highlighted in the very interesting exchange between two members of the Committee this afternoon. In some instances that will be for very good reasons. As a Government, we take seriously our responsibility for the public and for making good
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We need to recognise and acknowledge that well-managed risk taking is as much about identifying and supporting opportunity and innovation as it is about managing down-side risk. In doing so, we need a culture in government that supports risk taking.
In July, the Prime Minister said that Ministers should back up the Civil Service where it takes tough, difficult decisions, and particularly when it becomes a risk-taker. When we take risks, even after careful assessment and deliberation, there is always a chance that we might fail. It is simply not practicable to eliminate all risk. As Lord Stockton once said:
Innovation requires a willingness to challenge and a perseverance towards achieving a goal. We recognise the need for this behaviour to be encouraged within the public sector because in the public sector, innovation is the bedrock of our ability as a Government and as a country to go further and to do more. The noble Baroness, Lady Noakes, highlighted what she thought was a different attitude in the private sector. Perhaps there are different starting points, but we need to encourage the public sector and ensure that it is engaged in identifying risks, taking risks and proper risk management.
I have already referred to the Government’s risk programme, which reported that progress has been made, and departments’ self-assessments and reports by the National Audit Office and the Public Accounts Committee confirm that. Departments are now in a much better position to manage the really big risks that they face, to support innovation and change, and to avoid shocks and crises. They are increasingly able to demonstrate how risk management is contributing to the improved delivery of results. Risk-based resource allocation is becoming more and more common, and it allows targeting of effort where it can most improve outcomes.
Last March, the Treasury published Risk: Good Practice in Government—a good practice guide that helps departments to learn from each other’s successes in embedding risk management. A second volume will follow later this year—just in time for Christmas. But there is still much to do. We need to continue to work towards a government culture where everyone regards themselves as a risk manager and where well judged risk-taking is widely encouraged and rewarded.
Departmental capability reviews are now under way and we are confident that they are already revealing valuable lessons about ways in which government can improve their capability to deliver their objectives with effectiveness, efficiency and economy. The capability reviews specifically identify the management of risk under both delivery and strategy capabilities, with an effective corporate culture being identified under the third capability, which is leadership. The reviews highlight the need to consider both policy and delivery if government are to manage risk successfully. The first four reports were published in July. They indicate that risk
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