Select Committee on Constitution Minutes of Evidence

Memorandum submitted by Sir Bryan Carsberg

  This note addresses the questions put in the call for evidence by the Committee and is based on my experience as Director in General of Telecommunications (at Oftel, 1984 to 1992) and of Fair Trading (1992 to 1995) and my knowledge of other utility regulators.

  1 and 2.  The Offices of the regulators, their functions, duties, mode of appointment and tenure are established by Act of Parliament. To a limited extent their functions could be varied by secondary legislation but major changes would require new legislation and this seems appropriate. The budget of the regulators of which I had experience was established by Parliamentary vote, through Treasury procedures. This process could be used to limit regulators' practical ability to take action, if Parliament were to reduce the budget, but this would be a blunt instrument. I do not think that there have been problems with the budgetary arrangements of a kind that would suggest the need for changes.

  3.  Appointment is by the Secretary of State for a maximum term of five years. Dismissal within the term is limited to cases where there is misbehaviour or incapacity and is therefore very unlikely to occur. The arrangements appear to be designed to limit the likelihood that regulatory decisions will be influenced by political pressure. In my view this is to be welcomed and should be preserved. One criticism of the arrangements before privatisation (admittedly not the most serious) was that short-term political issues (including constituency cases) might receive disproportionate weight compared to the long-term and strategic goals of an industry. Political pressure can still occur because reappointment of a regulator is in the hands of the Secretary of State and alternative arrangements might be sought to reduce this danger still further. When I held regulatory office, the utility regulators were like "one-person commissions". This was thought to be justified by the desirability of fast decision making and of providing clear indications of regulatory policy, perhaps particularly in the early times after privatisation. More recent moves to put regulatory decisions in the hands of Boards or Commissions limit the dangers of political pressures and also enable a greater degree of representativeness. I believe that establishment of decision-making boards is to be welcomed.

  4.  Although a reading of the duties of regulators in the statutes could give an impression of complexity and of the possibility of conflict, in practice I think the main duty of regulators is clear: it is to improve value for money obtained by customers in the United Kingdom. Difficulties can arise where duties feature the interests of particular groups. For example, I used to have a particular duty to promote the interests of elderly and disabled customers and this might have been understood to mean that there should be some cross-subsidisation of such customers by other customers. Decisions on cross-subsidisation are like decisions to tax and should really be taken by people who have the legitimacy that comes from having been elected; they therefore seem to be matters for the Government rather than regulators. Assessment of effectiveness is a complicated question and a reasoned answer would require a major study. It is healthy for regulators to be exposed to various pressures to encourage them to question their actions and improve performance and I comment more on this below. There is a "natural danger" for regulators to over-regulate and try to solve all apparent problems without giving sufficient weight to the direct and indirect costs. The efforts to promote "regulation with a light touch" in the draft Communications Bill are to be welcomed and could well be further strengthened.

  5.  I believe that modern arrangements incorporate satisfactory rights of appeal, eg: the draft arrangements relating to OFCOM. This was an area that was not fully satisfactory in the early days of Oftel. Legal action such as judicial review was often the only formal path available to a regulatee that felt aggrieved and may still be so. This was not necessarily a satisfactory mechanism because a regulatee might feel reluctant to take legal action for fear of souring the long-term relationship with the regulator and Courts have been reluctant to intervene unless a very strong test of unreasonableness was met.

  6, 7 and 8.  There are various forces that act on a regulator to encourage good performance. Hearings held by Parliamentary Committees and the reports of those Committees are important. A regulator will have a natural wish to appear to Members of Parliament to be doing a good job, at least where the views of Members are well reasoned and consonant with the regulator's statutory duties. A regulator can be expected to review the reports of Parliamentary Committees and adapt his or her behaviour for criticisms that appear valid. Of course, this kind of behaviour cannot be guaranteed—it can vary according to the individual personality of a regulator. However, I do not believe that giving Parliamentary Committees stronger powers would be desirable because that would create political control that would undermine the independence of the regulator. My experience of giving evidence to Parliamentary Committees showed that there was sometimes room for improvement in the effectiveness of those Committees. Sometimes the Committees showed too little understanding of the major regulatory issues to exercise their roles effectively. This was presumably partly attributable to lack of resources and may, anyway, have improved more recently. Parliamentary Committees are most important vehicles for accountability and it is worthwhile devoting effort to making as sure as possible that they are effective. Other forces that act on a regulator include reports by consumer groups and industry associations, statutory advisory committees and the media. The ideal is a balanced set of forces such that a wide variety of different interests is represented. In practice, this probably works quite effectively.

  9.  I believe that regulators now routinely publish consultative documents for comment by any interested party. I assume that they receive comments from interested parties, businesses in the industry concerned, trade associations, consumer groups and so on. They could go further, for example by holding public hearings, but, on balance, I guest that such hearings would not add greatly to the quality of the analysis achieved through written consultation.

  10.  I believe that the main focus for regulators should be and is the promotion of the interests of customers (not necessarily quite the same think as "the public").

  11.  I think that, in practice, regulators do behave independently of Government. Dependence on Government for reappointment is the main threat to independence.

Sir Bryan Carsberg

March 2003.

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