Examination of Witness (Questions 220-228)|
WEDNESDAY 26 MARCH 2003
220. Sir Christopher, could I ask you to elaborate
a little on your paragraph 3 about, ". . . when a single
regulator is appropriate", et cetera?
(Sir Christopher Foster) This is a matter I considered
in my book. Again, it is a matter of art. I do not think there
is any clear analysis that leads you to a particular conclusion.
I believeand I believe that experience has not disproved
methat one should start with a single regulator. Again
it is an issue of clarity: that one person, in a sense, needs
to form these various judgments consistently. Carsberg was my
mentor as much as anyone and he was able to develop a sufficiently
clear and transparent policy on everything he didand other
regulators followed his leadso that industries knew what
they were up against. They knew, in a sense, what they had to
do to be good and where he would start caning them for being bad.
I do believe that a single person is in a much better position
to do this. As soon as you have a number of people around a table,
what comes out is bound to be some sort of compromise and it is
usually less than totally clear on these matters what the underlying
policy is, particularly where quantitative issues arise, as they
necessarily do. So my view was that you should start off with
a single regulator; that he should indeed have advisers, an advisory
council, people he should bounce ideas off; but the responsibility
should be his, and the safeguard against irresponsibility should
be review, should be appeal. Just as you have a single judge sitting
as a court of first instance with a council, a committee, a number
of judges above them, that was the parallel one should have here.
I imagineand I think this is truethat it might be
harder in all cases to find quite as talented a bunch of regulators
as the first regulators, who were exhilarated by the challenge
of being pioneers in this matter. To some extent the problems
have become more difficult, not so much because of social problemsthought
that is one set of difficultiesbut because, as they drove
prices down and profits down, they ran into the danger where they
were actually making the industries unprofitable. Again, it is
something I discussed in my book several years before it happened,
but the sad effects in water, and to some extent railways, where
over-regulation has led to unprofitability and therefore to sick
industries, is thoroughly regrettable
I believeand I certainly arguedthat at some point
along the way single regulators should be replaced by a board,
but really after, I hoped, the principles and the criteria had
been sufficiently clarified for a slightly more muddled and companionable
approach to get by the work.
221. What you are saying is that a board might
have tempered the enthusiasm of the regulator in circumstances
where it has actually been damaging to the industry.
(Sir Christopher Foster). Yes after a few years,
as soon as one got to the point where all sorts of forces were
demanding price cuts when the industry really could not afford
itit is at that point, I think, that a little tempering
would probably have been helpful.
222. If you were responsible for setting up
the Better Regulation Task Force, what remit and terms of reference
would you give it?
(Sir Christopher Foster) Could you tell me, the Better
Regulation Task Force is not the one we have in the Cabinet Office
at this moment, is it? Are you talking about that one?
223. I am giving you carte blanche.
(Sir Christopher Foster). That is a totally different
subject, is it not? I am more than happy to.
224. We can draw our own conclusions.
(Sir Christopher Foster) I believe that the Better
Regulation Task Force, in both its Conservative and its Labour
forms, is a thoroughly excellent idea. I believe that all regulations,
not only private sector regulation but even regulation of Government,
should be subjected to a cost benefit test. Yes, of course, there
are many regulations which are entirely desirable and necessary,
but they need to be proved to be so. I think that there are some
tendencies at the top to say, "We don't want regulations
at all", but that runs into the opposite danger, of trying
to tell people what to do without having any legal authority for
doing so. I think that is a serious problem in certain parts of
the public sector now. One has to strike a balance between no
regulation and attempts at dictatorship in the public sector,
and over-regulation, leading to all sorts of inefficiencies on
the other hand. I do believe the cost benefit test, employed with
more or less sophistication, depending on circumstances, is the
answer to that. But that is a long way away from any other question
I have had to answer, and I hope that is not an unreasonable answer.
Lord MacGregor of Pulham Market
225. Two final questions from me, to make sure
that we get the benefit of your advice while you are here. At
item 7 you say that you have "some further observations on
the limits to transparency". Have you covered all of that,
or is there anything else you want to tell us?
(Sir Christopher Foster) I think I have. No, I have
not quite. I think it is very much like a legal process in this
regard. All the evidence that comes in from the parties, except
where there are definitely matters that are commercial and in
confidence, should be transparent and should be available to other
parties. In broad terms, everybody needs to know the evidence
that is going in from all parties relevant to a decision. However,
there will be all sorts of papers that the regulator will be working
on, trying to adjudicate between parties, which should be privilegedjust
as there is legal privilege. When it comes to the end of a determination,
there should be transparency in the sense that everybody should
get a copy of the draft determination and have a chance to make
observations on it. Then, of course, the determination itself
is published. I do not believe that this sort of thing is a problem,
and I hope that such procedures are fairly well observed. There
is a difference, however, between making the evidence available
and demanding that absolutely everything that the regulator thinks
is open and available to everybody. I do not know if anybody would
ever recommend it, but it would be a counsel of desperation.
226. The other question is in relation to regulation
in continental Europe and the United States. Are there things
that you would like to point us to, where we might learn from
(Sir Christopher Foster) Yes and no. One of the features
of congestion charging is that we have done something which nobody
else has done first. Similarly with our own form of utility regulation
and, to the best of my knowledgethough again I am not so
directly involved these daysit has worked surprisingly
well and has adapted to all sorts of circumstances. Some regulatory
regimesusually, I think, because they muddle up the social
and economic too farhave not made a success of it. That
is perfectly plain. I also think that the more one gets to a position
where you are scraping the barrel with trying to cut costs, the
more rate of return regulation and RPI minus "X" regulation
become much the same thing. I have again argued that in my book:
that at the limit they become indistinguishable from each other.
It may be arrogance, but I cannot think of any way in which we
have a great deal to learn from European regulation, except possiblyagain,
I am not expertover rights of appeal.
Baroness Gould of Potternewton
227. I hope I have not missed this, but it is
the question of the appointments of regulators. We have a fair
discussion going on now, particularly in today's Financial
Times with the DLA law firm suggesting that, "Appointments
of senior regulators should be vetted by the Commons, and parliamentary
committees should be able to compel them to give oral evidence".
That is a second point. The first point is whether appointments
should be vetted by Parliament. Could we have your views on that?
(Sir Christopher Foster) This is a huge question.
It does not seem to me that in the United States it has done any
real, lasting good to anybody to have appointments first vetted
by Congress. On the other hand, there is plainly a very serious
issue here. How does one ensure that regulators have the minimum
competence for the job? The first generation were admirably qualified.
Most were excellent; a few were perhaps less excellent but, by
and large, with their staff, they did a first-rate job. There
then became a practice of appointing civil servants. One worried
that that was being done because they would be more amenable to
political influence. One hopes that that is not true. I think
that they may be highly intelligent men who are perfectly capable
of doing a good job. I would much rather, if there is to be a
vetting procedure, that it should be of the job descriptions rather
than of the actual candidates. I think that, somehow or other,
there is need in the public domain to get it quite clear that
these people do have the relevant economic or legal or quantitative
accounting, some sorts of expertise, which means that they are
likely to attack these jobs sensibly. It is fraught with difficulty,
however, and the most surprising people do make excellent regulators.
228. Is there any vice versa to that?
(Sir Christopher Foster) I am sure!
Chairman: Sir Christopher, we have covered an
awful lot of ground in the time available. It is possible that
there may be one or two points that we may wish to pursue, perhaps
in writing, if subsequently they occur to us. We are extremely
grateful to you for being with us this afternoon and for providing
us with a great deal of food for thought.
1 Note by Witness: I argued that a board of
regulators would be less likely to take good decisions but more
likely to avoid bad ones. Even so, I argued that the Chairman
or Secretriat should take steps to explain how any new decision
was consistent with old ones. Back