Select Committee on Constitution Minutes of Evidence

Examination of Witness(Questions 60-69)



  60. I wish I did not know anything about it either.

   (Mr Vass) Clearly the Environment Agency—and this falls within the general issue of waste but it seems to me that in the longer term the general intent of such a directive is very sensible. The question is how one funds that recycling and whether or not it would be better to have a tax at the point of production so that the companies which are producing fridges in a sense pay a tax at that point in time in order to fund the costs of what will actually be a disposal problem at the end of that so that consumers who bought those products do not have a disincentive to dispose of that properly but just dump it in the hedgerow because it would be collected free, funded out of this prior level tax. Of course that prior level tax would in a sense be saying that the consumer would buy a fridge based on the full cost of the production cycle, both the production to produce the fridge and the disposal of the fridge at the end of the process. So from the economic perspective I think these are problems which are addressable and if the directive is going wrong at this stage it is probably because this has not been said in a broad enough context or been given enough time to be able to think about it.

Lord Acton

  61. A very short question. In paragraph 3 you say: "The members of the regulatory bodies are appointed by the Government. In general the appointments are determined on the basis of merit and the expertise necessary to carry out the specific functions." You mentioned one woman regulator. Are there a lot of women regulators? Are there a lot who are found to have the expertise necessary and merit?

   (Mr Vass) There is not a majority of women regulators but where we have had women regulators they have certainly pulled their weight. I think Baroness Young at the Environment Agency and Clare Spottiswood are obviously notable examples. I do not think it is a gender issue actually.

  62. Okay. The second question, reading straight on—and this is not referring to the previous question—"Utility regulators have typically been appointed for five years and cannot be removed except for exceptional circumstances (e.g. incapacity)." What happens if they are found to be pretty useless from the beginning but not amounting to incapacity? I do not mean the Earl of Mar and Kellie's glorious fridges but if somebody is useless they are useless but it is not incapacity. So you live with them for five years? Is that the system?

   (Mr Vass) I think this is a hypothetical question—

  63. Of course it is because I would not dream of naming someone.

   (Mr Vass) —in the sense that we could have had some evidence but we have not, in the sense that I think in general the regulators have carried out their activities within a framework. If a regulator was really so useless that the constraints of having an advisory board, all the due process that goes with that, did not rein in his uselessness then I would be very disturbed, given also that we would have the backdrop of appealing to the Commission, etcetera So I think even if they were useless that uselessness would be constrained in some way because they are within a machine that is moving forward, whatever we do.

  64. I love the thought of constrained uselessness!

   (Mr Vass) To be a tolerable outcome, I think, but we have not got that evidence.

Lord Acton: Thank you.


  65. If I could slip in a supplementary question, which I know you indicated earlier you would be quite happy to be asked but I think it is relevant in that context. It relates to the point that Lord Acton's question was based on a regulator as a single individual who might be useless and of course the point we put to Sir Ian, which you indicated earlier you touched upon, was the possibility of having a board rather than a single regulator, not necessarily for that particular reason but there might be other reasons why a board might be appropriate. Do you have a view on that?

   (Mr Vass) Yes, and in fact having listened to Sir Ian, I would go further and say that I do regret the passing of the individual regulator. I think the individual regulator has brought great advantages to communication to the public at large, to answer the question there. People are at least aware of Sir Ian Byatt or Sir Brian Carsberg or Callum McCarthy. I think there is a directness of communication to be able to say "I have made this decision", to be able to be on television arguing between the economic regulator, as Sir Ian Byatt did with Lord Crickhowell, over environmental expenditure on television. But an individual regulator has all the accountability and other constraints which a board would have. So we lose transparency, we create obfuscation and I think the situation is getting worse. If we look at a situation like OFGEM, we had OFFER and OFGAS coming together as the office of gas and electricity markets headed by Callum McCarthy. The Utilities Act says, "We want to get rid of the DG and have a board, so we have GEMA, the Gas and Electricity Markets Authority, but you will not find the acronym GEMA used anywhere because OFGEM policy is not to use GEMA but to use OFGEM as, in a sense, the public face of regulation. Callum McCarthy, I think appropriately, is chairman and chief executive vested in one body. We then have a debate, "Should we have a separate chairman and chief executive?", chief executive of OFGEM, chairman of GEMA, creating obviously the potential for conflict there. But the real issue here—and we saw this with John Vickers, who commentated that he was surprised that there was going to be a separate chairman and chief executive and he argued that it was not appropriate—is that I think it is going to become worse. What seems to be happening is the adoption of the corporate governance model of the combined code, the Stock Exchange combined code, which has the separation of the chairman and chief executive. We have just recently had the Higgs report published, I think, last Tuesday, saying we should have independent non-executive directors, and that is an inappropriate model. That model was developed for commercial companies and the avoidance of the abuse of power by directors against their owners, the shareholders. Clearly you need a separation of duties within a board where that abuse can take place privately but of course a regulator, as we have heard today, carries out his functions in a publicly accountable process. So those divisions of power are not necessary as a form of protection. So in a sense we may be not only losing the benefits of the individual director-general but undermining the clarity and accountability of that process by the separation of powers. Once again, we may not notice it; it will just be something which I think gradually leads to a loss of innovation and potentially a full capture by the regulated companies, which has not been secured under the individual regulator arrangements, I would suggest, but this is an arguable point.

Chairman: Lord MacGregor, just one very quick question.

Lord MacGregor of Pulham Market

  66. Actually you have just asked the question. I think we have got to make up our minds about that and I am not quite sure where I go on this at the moment but could I argue the contrary point to see how you respond. I do not think the regulator as, say, chief executive is undermined in his public role or as the recognition of a public figure by having a chairman because an awful lot of companies have chief executives who are very well known, who do all the answering in public and very often people do not know who the chairman is. So I do not think that is a particularly strong argument. You could argue that there is too much power in the hands of the individual regulator and that a chairman and a board can be some sort of constraining influence when necessary and you could argue, to take the useless point which Lord Acton raised, that one way of removing a useless director after a year is for the board to say, "This is going badly wrong and we have got to do something about it." I just put the point to you that there is an argument the other way.

   (Mr Vass) Yes. I think I can only say I see that argument but I do just respond back with the thought that it is in the legislation through the powers and duties, and the clarity of those powers and duties, which then focus on an individual, which I think just assist that wider communication and articulation of regulation on behalf of Government which has been so beneficial. When we just look at the names—Sir Brian Carsberg, Professor Littlechild, Jim McKinnon—they all played a tremendous individual role in the promotion of the methodologies and the public confidence in regulation; not necessarily down to the individual member of the public but generally for those who know.


  67. When Lord MacGregor referred there to Lord Acton's useless point he meant Lord Acton's point about the useless regulator!

Lord MacGregor of Pulham Market: I was trying to go quickly.


  68. Mr Vass, we have taken up a lot of your time and we have overrun but the reason for that is because you have provided us with a tremendous amount of information which is invaluable for our purposes.

   (Mr Vass) Thank you.

  69. It will prompt further thought on our part in a way that I think will be wholly productive and we will, if we may, get back to you on a number of points if we think you can be of further help to us, and I am sure you can. It has been an extremely helpful session from our point of view and we are most grateful indeed. Thank you very much.

   (Mr Vass) Thank you very much.

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