Examination of Witness (Questions 180-199)
WEDNESDAY 12 MARCH 2003
SIR BRYAN CARSBERG
180. Watchful parliamentarians must always be
concerned for the independence of a regulator and you have already
told us that your position was entrenched satisfactorily by the
terms of your appointment. I was wondering whether there should
be a balancing concern, that you should not be totally insulated
from government and its policies and whether there was a need,
in your view, for any sort of constructive dialogue and whether
it took place?
(Sir Bryan Carsberg) I had regular meetings
with Secretaries of State and other ministers throughout my time.
Sometimes, if there were particular issues, I would be asked to
meet the Secretary of State to discuss the issues. I never felt
any pressure of an undesirable kind as a result of that. The stance
that ministers took in meetings was to ask me what was going on
and how I saw it in the context of the regulatory regime. Perhaps
if they had been unsatisfied with the answers pressure would have
followed but I never felt any pressure. Yes, there were regular
meetings and I thought they were helpful.
181. You rely on your terms of appointment.
I wondered, in the light of what recently happened in the chairmanship
of the Qualifications and Curriculum Authority, if you felt that
some further thought should be given to what those terms should
(Sir Bryan Carsberg) I am not sure I
know enough about the constitutional position there. Obviously
there are circumstances in which, although a minister has no formal
power to fire a regulator, nevertheless he will make it known
to the regulator that it appears to the minister that the time
has come to resign. The regulator may feel persuaded by that even
though there is no formal sanction. In a way, perhaps that is
salutary and as it should be. What would be regrettable would
be if a regulator, feeling after going through the fire that a
good job had been done, was nevertheless put under pressure to
resign. I do not have enough knowledge of any cases where I think
that has happened to say that there is a problem that needs fixing.
182. I cannot resist asking this: you say that
some committees showed too little understanding of the major regulatory
issues to exercise their roles effectively. Could you summarise
very briefly what you regard as the major regulatory issues that
we should be aware of in effectively inquiring after your affairs?
(Sir Bryan Carsberg) The main issues
in telecommunications today are obviously about provision of a
new kind of servicethat is to say, a broadband service,
with a very high capacity that produces fast, data intensive messages.
There are concerns about the speed of roll-out for that. That
is partly an issue of broad, public concern which would be a matter
I would expect to be studied very closely. Then, the speed of
competition. At the moment, there is an enormous amount of excess
capacity in the industry because numerous competitors have entered
the market place. Perhaps it was just an unfortunate accident
of timing but there seemed to have been a general feeling in the
industry that demand would increase much more rapidly than it
has. That was facilitated by regulation. The problem now is that
there is a sort of fear on the industry because that recent experience
has put people off investing and that is very unhealthy for the
industry because it is impairing its ability to pursue new advances.
It will take quite along time for it to clear through natural
economic forces. One wonders whether something can be done to
clear the position.
183. Do I infer from that that there are circumstances
in which a regulator quite surprisingly might, for the benefit
of the consumer, have to try and limit competition rather than
(Sir Bryan Carsberg) I think I believe
that, yes. I say I think I believe it rather than I do believe
it because I am not the regulator now. When I was the regulator
I had a lot of financial models which were developed in my office
to help me understand the industry. I knew from those that there
were very large economies of scale in the industry and I had a
view about the effect of those. I do not have up to date information
because I am not in a position to do so but it seems to me that
the economies of scale must be very great. I am intrigued by the
thought that the best model is to have a significant amount of
competition but perhaps nevertheless limited competition.
Lord Lang of Monkton
184. Perhaps the limiting of competition was
something that was necessary in the early days of privatisation
when a lot of very young, fragile companies were trying to get
established in the new market place. I was going to ask you about
the comparison between those early days and now. You have indicated
the advantages of having a single regulator at that time. There
had to be a nimble, focused approach in a fast moving situation
but you now welcome the establishment of boards. Is it the case
also that perceptions have changed about regulation in that at
the outset it was thought that to some extent it would be a temporary
phenomenon, at any rate in part, and now it has become permanent?
If that is your view, do you think it can be reconciled with the
need to fulfil the regulatory process in a way that is not too
burdensome on the industries being regulated?
(Sir Bryan Carsberg) I remember well
when I was appointed that I attended the debate in both Houses
for bringing the Act into effect. Many Members who spoke said
that the best thing Carsberg can do is to work himself out of
a job. Perhaps I was not entirely sure that it was a good idea
but it always seemed to me to be rather optimistic because I did
not really think that the industry could ever become sufficiently
competitive that one did not need quite a lot of regulation. It
really comes back to this economy of scale point which is a natural
limiter of competition. I thought that perhaps there was an insufficient
understanding of the cost structure of the industry there. There
are a number of other issues. It is not just about promoting competition
in regulation. We probably have to accept that something more
than the general competition law is required for the utilities
that have these large economies of scale. It is very important
to have arrangements that limit the regulatory burdens. The Ofcom
kind of development is to be welcomed, with the establishment
of the board and also I am in favour of bringing the different
functions together under one regulator. The right kind of direction
is being shown through the references in the Bill towards regulation
with a light touch and maybe that could do with a bit of tightening
and perhaps a bit of parliamentary pressure to make sure it is
given effect subsequently.
185. Do you think that there is a case for reviewing
the scope of the regulator's role regularly in order to ensure
that he does not accumulate any great residue of bureaucracy and
that he does remain focused on the essential issues and those
which cannot be handled by somebody else?
(Sir Bryan Carsberg) Yes, and I think
that is something a parliamentary committee might well do.
Lord Jauncey of Tullichettle
186. Sir Bryan, there are two matters I would
like to ask you about. First of all, the regulatory boards and,
secondly, appeals. Taking the first one, you favour regulatory
boards, as I understand it. Do you favour them as being decision
makers or as being there to advise and possibly restrain the chairman
of the board who presumably remains a regulator? We have had evidence
from a former regulator to whom the decision making by committee
was clearly anathema. What do you say about that? Do you think
there is any danger that a board is going to stultify decision
making or result in decisions being taken which perhaps are rather
over-bland simply in order to obtain consent; or do you envisage
that the regulator will still have the power to take broad and
perhaps novel decisions if need be without any fettering by the
(Sir Bryan Carsberg) I think there is
some danger, yes. It is one of these cases where there is no perfect
system. I favour having boards to make decisions, not just in
an advisory role or whatever. A criticism of boards that is validly
made is that they do sometimes lack the ability to make tough
decisions when tough decisions are needed. Sometimes there is
a lack of conceptual clarity. Sometimes they appear to change
directions in terms of the fundamental concepts because of the
balance of opinion within the board and it just tips one way or
another. That is obviously unhelpful for the regulatees because
it leaves them in a position of not being able to plan with confidence
for the future. On the other hand, I think there are strong advantages
in having a board. I would not favour a strictly representational
model in the sense that you have one person representing a defined
constituency and somebody else representing another but one would
expect a board to have its members drawn from a variety of backgrounds
and to bring different experiences to the table. My feeling is
that the debate that then takes place about particular decisions,
bringing different point of view to bear, is helpful on balance
but it is not without its disadvantages.
187. In the case of appeals, you say in your
paper, "I believe that modern arrangements incorporate satisfaction
rights of appeal . . .". To what are you precisely referring
(Sir Bryan Carsberg) There is the mechanism
now for appeals through the Competition Commission. That was what
I was thinking of. The regulatory regime at least in telecoms
and I suppose in other areas too is changing quite a lot because
of the role of European law making. I guess the new position is
going to be that a number of rights are defined in the law. There
are certainly areas where the regulator perhaps had rights through
licensing to intervene in the past but they will not exist any
more. The number of decisions will be appealed. For example, the
setting of price control rules where they are required through
the Competition Commission's mechanisms so that there will be
a line of appeal there. I am not quite sure now whether there
is a balance of issues where the regulator has judgment and judicial
review is the only avenue for challenging it. Even if that is
the case, the fact that we have a board rather than an individual
regulator and some opportunity for judicial review might be a
satisfactory balance overall.
188. We have been told there is a distinction
between the Competition Commission and the Competition Commission
(Sir Bryan Carsberg) Yes.
189. Are you referring to the whole Commission
or to the Appeal Tribunal, which I gather is a rather simpler
and a good deal cheaper mechanism?
(Sir Bryan Carsberg) If I remember correctlythough
you must forgive me for not being quite sure about the most recent
developments in thisI believe that the plan in the Communications
Bill would lead to the result that price control regulations would
have been appealed to the Tribunal rather than to the Commission
as a whole. I believe it is also right that there are some other
areas where the Commission would be the price setting authority.
I was an adviser to Lord Puttnam's committee on the prelegislative
vetting of the Communications Bill and I remember this was discussed
in that committee. There was a question arising as to whether
the Competition Commission might be a better appeal body for pricing
decisions as a whole simply because it would have the expertise
of handling a number of pricing cases. I think I would have favoured
that if I have my facts correct. In other cases, the Tribunal
would presumably be perfectly satisfactory. Certainly the simplicity
and speed of the process is appealing.
190. Would you favour a single appellate body
which would hear appeals of all kinds or do you think there are
advantages in splitting the matter as at present?
(Sir Bryan Carsberg) I would have thought
there were some advantages in having one body so that consistency
of practice could be developed across different industries, but
it is not an area that I have thought deeply about.
191. Referring back to the main duty sentence
in your paragraph four, it seems to me at the moment that if the
average customer were asked who is responsible for improving value
for money they probably would not say the regulator. I think the
regulator is widely viewed as a disciplinary body for an industry,
in particular the financial regulator, rather than the consumers'
friend. It seems to me there is quite a job to be done on educating
the consumers that the regulator is their friend. Would you agree
with that or not?
(Sir Bryan Carsberg) Yes. The consumer
organisations, both the general ones and the industry ones, understood
the position very well. I mentioned earlier that I was responsible
for introducing the customer compensation plan. If BT did not
repair faults on telephones within two working days, it had to
pay compensation to customers. The consumer organisations were
very well aware of that and welcomed the development very much,
which appeared to be associated with a very rapid improvement
in customer satisfaction at the time in terms of the speed of
repairs that were carried out. It is correct that individual customers
are not very well informed about the position. I believe telephone
and other utility bills now have a message on them about the regulator
but even so I suppose individual customers do not know. They will
often write to a Member of Parliament and the Member of Parliament
will get in touch with the regulator. I am not sure that it is
very easy to do much about that short of very expensive advertising
campaigns where you might feel the costs outweighed the benefit.
These things tend to get sorted out one way or another anyway
and the regulator gets to know if there are widespread consumer
192. I was interested that in your answers six,
seven and eight in your Written Memorandum you talk about the
variety of forces that might impinge upon a regulator making a
particular decision. I suppose it might be a personal view as
to what weight one attached to each of them. Like our Chairman,
I am an academic and in my discipline, modern history, historians
could reach quite different conclusions because one rates, let
us say, the press or some other source as more important than
another. Could that lead to some variation and even inconsistency
in the way the legislators see the evidence coming forward?
(Sir Bryan Carsberg) I am sure it could.
It is probably true of any decision making process. I do not think
there is anything you can do to eliminate that danger. I always
thought one did the best possible job by being exposed to arguments
of various kinds. For one thing, it helps you to understand the
situation much better and you do not just take what you hear at
face value. In one meeting you say, "At the last meeting
I heard somebody say such and such a thing. What do you think
about that?" You test it around and finish up with a good
distillation of the different views. I was not suggesting that
one would just take the word of the consumerist body or whatever.
You would try to distil and learn from the various sources of
193. Were there any instances where you felt
it was desirable to take the initiative in the sense that some
particular aspect of the problem was not necessarily covered by
the sources available and you felt there was a call for something
quite different? For example, the labour force in the industry
or some quite different organisation.
(Sir Bryan Carsberg) In terms of with
whom one had contact to learn things?
(Sir Bryan Carsberg) No. I did not really
find that. I did have meetings with the trade unions, among others.
I found that interested organisations tended to make their way
to one's door. I did not have to work at making contact, as long
as you made yourself available when the approach was made.
Lord MacGregor of Pulham Market
195. On appeals, earlier witnesses have suggested
that judicial review was always a threat in the back of their
minds and therefore a constraint in one sense, but also a source
of appeal. You seem to suggest you do not think it was a particularly
satisfactory mechanism because a lot of people did not want to
use it for fear of falling foul of the regulator or whatever but
also presumably for other reasons. How much did the thought of
judicial review weigh in your mind when you were looking at issues
where you had to make decisions?
(Sir Bryan Carsberg) No regulator wants
to have decisions overturned through judicial review. It seemed
a matter of good management and prudent behaviour to consider
the danger and to take steps to avoid it. I guess to some extent
the process I used in making decisions was shaped by advice I
had from my legal experts regarding judicial review, to make sure
that people have plenty of opportunity to put their views to you.
I generally had to make my decisions in the form of making determinations.
On legal advice, I would send a draft determination to the people
affected by it and give them a reasonable amount of time to comment
on it before I finalised it. It was not that I was particularly
anxious about judicial review. It seemed to be good management
to do things in a way that minimised the danger of judicial review.
There was a reluctance on the part of regulatees to take that
course for the reasons you indicate.
196. I am sure this did not happen but in terms
of our inquiry we worry that a regulator is totally unregulated
and could more or less do what he likes. That constraint of judicial
review is always there in the background to make sure you take
reasonable decisions in a reasonable way.
(Sir Bryan Carsberg) Yes, and what is
I believe called the Wednesbury unreasonableness test, a decision
that is so unreasonable that no reasonable person could have made
it. There are limits even in the judicial review process.
197. If I can come back to the discussion on
the role of Parliament, looking at accountability you have stressed
the importance of Parliament in the process, on the whole it works.
You make the point, "A regulator can be expected to review
the reports of Parliamentary Committees and adapt his or her behaviour
. . ." You write, "This kind of behaviour cannot be
guaranteedit can vary according to the individual personality
of a regulator". It may vary according to the Parliamentary
Committee! I wonder if you have given any thought to what might
happen on the Parliamentary side, that you enhance Parliamentary
scrutiny of regulators?
(Sir Bryan Carsberg) I did feel that
there was something to be said about that, really, because I had
several meetings with Parliamentary Committees both in my Oftel
capacity and subsequently when I was at the Office of Fair Trading
on other matters, transport, for example. I often felt, not always,
a sense of disappointment at the end of a meeting with that Committee.
It was never an unpleasant experience for me but one sometimes
felt they focused on rather day-to-day minor issues and did not
really get to grips with the important issues in the industry,
like how much competition is sustainable, what are the terms on
which you should do it, like the excessive burden of regulation,
that kind of thing. I am sure it was very difficult for members
of the Committee who were under pressure and did not, perhaps,
have a lot of resource available to help them. It seems to me
if something could be done to improve the performance of those
committees so that they were well advised and had enough resources
to develop a really good understanding of the industry and perhaps
of the strategic issues effecting it that would really make them
much more effective.
198. It really is a question of resources available
to the extant committee rather than have some distinct committee
focusing on regulation?
(Sir Bryan Carsberg) It might be a good
idea to have a separate committee, but the most important point
is the resources.
199. Finally one point, we have been focusing
on vertical relationships with the minister, the regulator and
the consumer. Coming back to a point you were touching on, horizontal
contact between the regulator, the sharing of information and
best practice. Is there anything further that should be done in
respect of improving coordination between regulators?
(Sir Bryan Carsberg) In my time the
regulators used to meet regularly, at least as soon as there were
other regulators to meet with, first it was gas, then others as
time went by. That was very helpful. We engaged in a certain fairly
modest amount of sharing of resources. I remember internal audit
was an area where we had a sharing arrangement and there was the
idea of exchange of staff so that we could gain from each other's
experience. I think regulators probably have the ability to do
as much as is sensible. It is difficult to see that any additional
formal arrangements are needed. I think it is very desirable that
there should be that kind of contact.