Select Committee on Constitution Minutes of Evidence

Examination of Witness (Questions 162-179)




  162. Sir Bryan, welcome to the meeting of the Committee this afternoon. We are most grateful to you for coming. We are also most grateful to you for the paper that you put in to us. I note in your paper you say, "My experience of giving evidence to Parliamentary Committees showed that there was sometimes room for improvement in the effectiveness of those Committees." I hope we will not disappoint you this afternoon. Before we put questions to you, is there anything you wish to say in opening to add to your paper?

  (Sir Bryan Carsberg) No, thank you very much, my Lord Chairman. I am content to go straight to questions.

  163. In the paper, you drew out the point that in practice the main duty of regulators is clear and that duty is acting on behalf of customers. I wonder in terms of answerability who regulators are answerable to?
  (Sir Bryan Carsberg) I recognise that it is a difficult question and one that naturally causes concern. You are focusing on accountability and accountability can mean many different things to many different people. The reason for some degree of satisfaction with the way things are is that in practice a regulator is exposed to many pressures which encourage him or her to perform effectively if he or she is a conscientious sort of person. Among those pressures accountability to Parliament and parliamentary committees is very important. Indeed, if you force me to specify one line that is the main line of accountability, I would say a regulator is accountable to Parliament and you might be interested in talking a little more later about the vehicles for parliamentary accountability. In practice, it is important though that there is quite a lot of public interest in regulation and a regulator in practice has to answer questions from various kinds of organisations, from consumerist organisations, from industry organisations. There is a lot of media interest and a regulator will be exposed often to tough questioning by the media. All of those things help a regulator who really wants to do a good job to keep in touch with opinion. There could be some concern that a regulator who really is not interested in doing a very effective job might perform rather poorly but not outrageously. The Act under which I was appointed says a regulator could be removed for misconduct or misbehaviour or something like that. It is very difficult in practice to exercise a right like that. You might get a poor performance but not an outrageously bad performance and not be able to do anything about it. If Parliament or ministers were to have the right to do something about it—that is to say, to fire the regulator—that would open the system up to the danger of political pressure and I think Parliament very wisely set up a system that immunised the regulator somewhat from political pressures, because the interests that are given effect through political pressures are very often different from those of the economic needs of the industry. If one were to take a very dramatic view of this and look for drastic change, I suppose one could see the establishment of some independent commission to make regulatory appointments and remove them. Moving to the establishment of regulatory boards helps a lot in this because it is pretty unlikely that the whole board will be tarnished with this problem. My view, from what I have seen of the workings up to now, is that I would not feel there was a case for dramatic change.

  164. In terms of who you are answerable to in order to justify decisions, you are justifying decisions presumably on the grounds that they fulfil the duty that you refer to in the paper. In terms of the quality of decision making that may be influenced by the input side, in terms of consultation with those stakeholders or however you want to define those who have a relationship to the regulator. Could you tell us a bit about the process of consultation? Is that very much in the hands of the regulator to decide who they will consult with and therefore it is your discretion in how you structure that?
  (Sir Bryan Carsberg) In my time, although I ought to put on the table that I do not claim to be fully up to date with all the most recent developments in this area, I elected to undertake a consultation process. I used to publish a consultative document when I was facing major decisions and invite anyone who was interested to give their views. I had a number of meetings with people representing various constituencies as part of that and I think that is very healthy for regulation. I would wish to see all regulators behave in that way. Some kind of duty to consult, if it does not effectively exist at the moment, would be desirable. I even in my time considered whether I would hold public hearings. I had a little earlier in my career worked for an American organisation, an accounting standard setter, which was required under its constitution to have public hearings, so I had some experience of them and thought they were very effective. On the whole, I was persuaded after discussing it with a number of people that probably one would not learn a great deal more from public hearings over and above what one learned from written consultation and the extra costs and scope for delays and so on might argue against it. I think I would still take that view on balance but consultation in general is very important.

Lord Acton

  165. In paragraph 11 you say, "I think that, in practice, regulators do behave independently of Government. Dependence on Government for reappointment is the main threat to independence." I see you were the director general of telecommunications from 1984 to 1992. Did that involve reappointment?

   (Sir Bryan Carsberg) Yes, it did.

  166. Did you feel the heavy breath of dependence on government prior to your reappointment?

   (Sir Bryan Carsberg) No.

  167. You say it is a potential threat. I am sure you behaved perfectly in every way, obviously, but do you think people are sitting there thinking, "I want to be reappointed so I had better . . ."?

   (Sir Bryan Carsberg) No. I could not give you any examples where I thought that had been a material problem and I believe that I did what I thought was right all along. Ministers behaved excellently in their relationship with me and I never felt any wish on their part to put pressure on me. I think they respected the desirability of having independent regulation and indeed in many ways it is congenial to ministers to have independent regulation. That was perhaps a factor in it too. It was a theoretical thought. If you ask what the pressures are, you can see that if the regulator was at loggerheads with ministers on an issue of policy that might affect a reappointment decision.

  168. In that case, were there term limits, could you have gone on being reappointed for ever and ever?

   (Sir Bryan Carsberg) I could have.

  169. In your case it would be an excellent plan but in principle is it a good plan? I say that as a life peer who trusts he is going to be here for life.

   (Sir Bryan Carsberg) One thinks also of the position of judges and so on. It is interesting. I know one or two regulators and I believe I am right in saying that the present director general of fair trading indicated on appointment that he would take only one term. Perhaps he had in mind that that was a demonstration of his independence. That seems quite a healthy thing, does it not? Perhaps on the whole it would be regrettable if people went on and on and on, though it is perhaps a bit tight to say that five years should be an absolute limit in all cases.

  170. Perhaps a two term system?

   (Sir Bryan Carsberg) Yes, I would have thought two terms ought to be sufficient.

Lord MacGregor of Pulham Market

  171. John Swift, the former rail regulator, said to us in a memorandum last week, "Regulators with much power and little accountability can do grievous harm to the body politic and to the industries they are regulating. The motive of consumer protection is excellent in any organisation but its pursuit as a single minded goal can, unless handled with considerable care, upset the apple cart and deprive the regulated bodies of the kind of protection which they themselves need when they shoulder the burden of securing investment in necessary goods and services." I imagine that is a dilemma that you recognise and I wonder how, in your experience, regulators set about avoiding that problem?

   (Sir Bryan Carsberg) Wide consultation is certainly important and one listens with great care to the views put forward by the regulatees, by the industry. It is true also that the establishment of boards is helpful. There was a difficult trade-off there, as you will remember. I was a single regulator. I had personally the responsibilities that might have been exercised by a commission. I was a kind of one man commission, as I think I said in my note to the Committee. That had the advantage that you could be clearer about policy, about the concepts and so on. Often committees have to fudge those things because of differences of opinion. Also, one could act rather quickly and that was particularly desirable in the early stages of regulation. Subsequently, as it becomes a more mature system, the advantages of having boards are very strong. In my time too it was the case that there were a lot of decisions which were effectively made by the regulator in implementing the licence and there was no effective appeal to them except that there was the judicial review system. Judicial review is a very blunt instrument because it is much more about process than it is about reasons. The reasoning has to be outrageously bad for the courts to interfere on those grounds. One might feel that judicial review is an insufficient safeguard in that situation. I would tend to the view that now we have boards rather than single regulators the balance has been changed. The trouble with establishing a routine appeal system for everything is that it tends to be used all the time and regulatory decisions take a long time. If one looks at American experience, decisions can be in play for a very long time. That can be very damaging for the industry too because they never quite know where they are and industry sometimes needs decisions and the ability to get on and act within them. Maybe with the establishment of boards the balance is about right.

  172. In the early days too, I imagine, when it was very largely concerned with moving out of state monopolies into privatised industries, I assume—we have certainly had evidence to this effect—that moving to consumer choice, to competition among providers, was a major motivation and therefore a lot of the regulation was designed to deal with that. Some of the regulatory issues now are a bit more complex.

   (Sir Bryan Carsberg) Yes, although some of the most difficult decisions in telecoms are still about promoting competition and the question of access to the systems of other operators and the pricing system for that creates great difficulty. In my day, we had a duopoly as you will remember and a lot of my major decisions were concerned with enabling competition to take place effectively in those terms; but competition did not bite for some time and a lot of what I had to address in the incentive regulation approach, giving the main provider the incentive to perform effectively for customers, was a part of a lot of decisions. Quality of service and some element of compensation for customers for bad service was a very important regulatory development that I introduced in telecoms. One had to think of those weapons as being very important in the early years particularly.

  173. Now one of the issues for some regulators is the fear of being criticised for not acting strongly enough to protect consumers or whatever in some cases. You said in your paper to us, "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." I think that is a real danger and I wonder how you feel the public or the industries can be protected from that danger of over-regulation. Is it a matter for the judgment of the regulators themselves?

   (Sir Bryan Carsberg) There are certain safeguards. In my time, ministers used to talk of regulation with a light rein, which was the expression in those days, and yet there was nothing in the Act about that. It was understandable enough. One has to learn as one goes along with these things, but I was given certain duties and it was said that if representations were made to me I had to investigate them unless they were frivolous, for example. People were making representations all the time and generally they were not frivolous and one wanted to do things to help. There were all sorts of things like junk faxes and selling telephone calls, where you wondered perhaps how far regulation should go and yet, as a regulator, you feel you want to solve problems and do things. The new Communications Bill has in it certain duties relating to what is now called regulation with a light touch and that is helpful. It certainly strengthens a regulator's position if he or she can point to something in the Act that says, "I am required to take account of the regulatory costs", and so on. When I said one might go further, I had in mind that regulators might be required to give some assessment of the costs imposed by particular regulations and reasons why they think the benefits of the regulation outweigh those costs. I am not suggesting it can be a very precise accounting kind of thing, but at least qualitatively. I suggested in my note that perhaps parliamentary committees could play a stronger role and this is an area where some tough questioning by parliamentary committees might help. It is a matter of altering the focus a little.

  174. As a regulator, if one of those was in as a duty in the Act setting up the regulator, or a revising Act or whatever, that is something that the regulator really does pay attention to.

   (Sir Bryan Carsberg) It is something I paid very close attention to. I could more or less recite the duties in the Act. The duties were not completely clear. I said in my note, as a practical matter, if you think about it you realise this must be about making things better for consumers. That is the common sense of what it is about and you try to achieve that. My duties, for example, referred to the need to make telecommunications services available to meet all reasonable demands. What is a reasonable demand, one wonders? Presumably, the idea was people ready to pay an economic price but that also contains certain difficulties. I had a duty to promote the interests of consumers as regards price, quality and variety of service. Then it said something about I had a duty to do that for elderly and disabled people. It was very difficult to know what that meant. The implication was that elderly and disabled people should have some special treatment because why else mention them separately but how much special treatment and what kind of special treatment was very hard to know. It seems that perhaps the thought was that there might be some degree of cross-subsidisation of those consumers by others. If that was the idea, one feels that that is perhaps an area which is more for ministers than for regulators because ministers have the legitimacy of having got there through elections, whereas regulators are appointed officials.

Baroness Gould of Potternewton

  175. Perhaps because you were the regulator for Oftel I should declare an interest because I am a member of ICSTIS (the Independent Committee for the Supervision of Standards of Telephone Information Services), the independent regulatory body which obviously has a relationship with Oftel. How do you feel about having independent regulators who are responsible at least economically to you in some ways? A number of regulators have parallel consumer bodies allied to them. Do you think that is a good thing or a bad thing, as opposed to quite distinct, outside consumer bodies working with them?

   (Sir Bryan Carsberg) ICSTIS I found very helpful. The formation of ICSTIS arose out of the problem of recorded messages, chat lines and things like that, where some unfortunate customers found very large bills were run up on their telephones by a person who was not responsible for paying the bill. A lot of complaints were made to me about it because of the pornographic element in the messages. I certainly did not feel that I was appointed to be a judge of pornography. My concern was to give the customer control. One of the cases that particularly caught my attention was where a rather hard up couple had a bill of £6,000 for a quarter's telephone because they were both out at work and their teenage son was at home, unemployed, using the telephone to telephone these services. There was no mechanism available to them at that time for stopping it. I would have liked a regulation which said that those services are not permitted until the telephone company provides customers with a way of blocking access to them, which of course is feasible under modern technology but in those days it would have meant the services would have had to stop because the technology was not capable of providing the blocking. In the end, the formation of ICSTIS was helpful in that regard. You ask generally how one feels about the establishment of regulatory bodies with subsidiary roles like that. In particular circumstances they can be very helpful but you have to take each case on its merits. What was the other point you were asking about?

  176. Some of the regulatory bodies have parallel roles, like electricity consumer bodies. Are those a good or a bad thing?

   (Sir Bryan Carsberg) Consumer bodies are most useful if they are independent. In my time, I had close communications with both general consumer bodies, the Consumers' Association, the National Consumer Council and bodies like that, and with industry specialists, but still independent bodies. I learned a lot from them. Some of them were very professional in their approach and gave one very stimulating and challenging ideas. I did also have some committees established under the statute to advise me from an inside perspective. I did not appoint them; they were appointed by ministers. They were very helpful and I certainly had no difficulty with them. There is independent and independent. In a sense, they are independent because their continuing in office does not depend on the regulator and yet the independent bodies that are formed themselves and have the resources to do independent research and challenge ideas have a particularly useful role.

  177. You mentioned in reply to Lord MacGregor the question of over-regulation. I wonder if you could give some examples of what you would identify as possible over-regulation?

   (Sir Bryan Carsberg) I think there could be cases linked with certain aspects of consumer service. I think technology is helping. I wondered, looking back, whether I was right to worry as much as I did about junk faxes. Do not misunderstand me. It was not something I slept on every night but nevertheless I did do one or two things about it and I feel, looking back, that maybe that is the sort of thing one should leave life to sort out. There is also a danger currently in terms of promoting competition. There is a lot of regulation, much of it now coming out of Brussels, with very good intention to enable new competitors to operate in the market place by having rights to connect to the systems of particularly BT but it could be other operators so that they just have to provide a small bit of network and have the thing carried the rest of the way by somebody else. There are quite significant costs involved in that and it is possible to carry that kind of requirement to the point where the costs outweigh the benefits. One has to have a view of how much competition is sustainable. I am a great believer in having some competition. I think that has transformed the industry, but if you look at the situation today you do have to ask the question whether there has been too much competition and perhaps whether it has grown to the point where it has been uneconomic and whether regulation has played a role in that.


  178. On the question about consumer bodies that a regulator may draw on, especially those that are specific to the industry, presumably there are two essential criteria they need. One is independence, which you stress, and the other is being representative of the consumer. I wonder how you ensure that the bodies that advise the regulator are representative. Did you feel that you could be sure in your own mind that these bodies spoke for consumers as a whole rather than a particular group of consumers?

   (Sir Bryan Carsberg) No. It is difficult to put your hand on your heart and say you are sure of that. What a regulator tries to do in practice is to make sure that a good variety of sources of evidence are available. I used to hear about consumers' problems from all sorts of sources. I used to see a large number of complaints from individuals, often that came through the officers and Members of Parliament and so on. If you combine that and your meetings with people, you get statistical evidence about the quality of service and that way you get a good balance of the picture and can use that to test the views of particular bodies. It would be very difficult to establish a consumerist body that you could be sure was really strictly representative.

  179. You were drawing on several sources of intelligence for your purposes?

   (Sir Bryan Carsberg) Yes.

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