Select Committee on Constitution Minutes of Evidence

Examination of Witness (Questions 420-439)



  420. I was very interested because the point made in the paper is that regulatory officers need to maintain some degree of legitimacy in the public eye.
  (Ms Spottiswoode) Yes.

  421. So your proposal would be that one route would be a parliamentary route?
  (Ms Spottiswoode) I think that it is very difficult to see how any other route really works, for proper accountability. For this process I have looked back at some of the things I was saying in the early days of being at Ofgas. I have been saying since 1994 that I think there should be proper appeals mechanisms, and since 1995 there was not proper parliamentary accountability for the regulators. That is because the select committee system at the moment is ad hoc. There is no institutional remit for any particular body to look at the regulators in a consistent way. So I think that there is a real role, and have done for a long time, to have a specialised committee that deals with the economic regulators as a whole.

  422. Indeed, but it would not just be scrutiny and report. You would see a more proactive role in the actual process by which regulators were appointed?
  (Ms Spottiswoode) Yes, I think that it would provide a focus point for the institutional accountability, which is both the constitution of the board itself and the key members, but also of the budgets and the more detailed day-to-day stuff, which is not currently accountable in any serious way. I think that it could solve a whole host of the accountability issues.

Baroness Gould of Potternewton

423. I have two quite separate questions. In the first paragraph of your very interesting paper you refer to regulators having considerable power, but they do not have the full democratic legitimacy of government. Do you think that the power given to regulators is the right balance? Is it the right balance between being independent and at the same time having that responsibility to government, or do you think that the balance is a little askew?
  (Ms Spottiswoode) I think that the job needs to be done by an independent regulator. You want an independent regulatory body that takes the best decisions and, because it is independent, by definition it cannot be accountable to ministers. Therefore you need a better accountability mechanism that does not go through ministers. The reason I suggest it is not just to flatter you here, but a committee of the House of Lords would be a better way of providing that because it is more apolitical. In terms of power, however, if you do not have a regulator with power, they are never going to get change. So things like competition would never have happened if we had not had a strong regulator who was prepared to do something which was pretty entrepreneurial at the time, and certainly to say that we should challenge existing rules and go through what was a very tough process of introducing competition. You do not get that if you have a regulatory body that has no powers and is meek and mild. I think that there are enormous benefits to the UK economy, therefore. Just as in other areas, you need innovation, you need organisations to be challenged and you need an organisation that is strong enough to challenge the structure of the industry that it is in. For that, you need powers. The question then is how those powers are appropriately fettered. They do need to be fettered.

424. My second question is rather different. One of the remits of the study that we are doing is to look at the question of regulators versus consumers. You make the point under item 42 about the consumer watchdogs providing a valuable service, but there is a tension between the two bodies. It appears to us—it appears certainly to me—from the people whom we have so far met that there are two types of consumer bodies. One is the one which is completely divorced from the regulatory body and the other is, in a sense, an adjunct of the regulatory body. From your experience, how do you think that we could get that right, so that the consumer feels that they know exactly where to go and how to handle a problem they might have?
  (Ms Spottiswoode) It is interesting, because every industry has a different model. The new telecoms one is treating the consumer body as an ombudsman, which has a very particular, very specific and very important focus; but it is leaving the policy decisions and the general consumer relationships with the regulator. So you have an arbitrator, who is the ombudsman. It always has been—and I do call it institutional because it is institutional, it is not about who is heading the various bodies—that the regulator has a remit to look after customers. The fact that it also has a financial remit to ensure the health of the company is, to me, about looking after customers, because you need a healthy, long-term industry. You have investment at the right level, therefore, so that customers have that service forever. I do not think, therefore, that there is any conflict within the whole way in which regulators were set up, about the consumer duty versus any others. It is absolutely the duty of regulators to ensure that customers are looked after, and it is a counterbalance to the monopoly elements of the industry. If you have a regulator who has that precise remit, then what is different about the consumer committee? You have to be very careful to make sure that there is a different remit that is very clear. Otherwise, there is bound to be institutional conflict as they both vie for the same ground.

425. Perhaps I may ask a supplementary to that, and a slightly broader question. I was reading the speech that Callum McCarthy made last November, where he was making a similar but broader point about inherent tensions. There are going to be some tensions between the regulator and not just consumer bodies but government, because you have different priorities. He was making the point that those tensions will occur. The important point is how you manage them. To some extent I took that from what you were saying as well, in respect of the consumer bodies. Is it going to be the case that what we should be looking at the structures through which those tensions are managed?
  (Ms Spottiswoode) As long as you have a clear definition of what people's roles are and the organisation's roles, it is easy to manage those. I certainly felt it in my day, and I was asking Ann Robinson (Chair of energywatch) while we were outside whether it had got any better over the years. She says that, yes, it is calmer and probably the relationship is more mature, which is a very good thing. However, there will always be that tension, because the regulator has all the legal ability to make the changes, as it should be; has to have a close relationship with consumers; has to be on top of the billing issues; has to be on top of the selling issues—because they are all licence conditions. Given the consumer body has exactly the same set of remits, how do you ensure that they are split in a way that makes sense? I think that tension will always be there. It is good for the regulator to have an outside organisation that is continuously challenging. The industry does that on one side. I therefore think that there is a real remit for the consumer body challenging on the consumer side and keeping the regulator on its toes—but still you have this issue of the same remit.

Lord Elton

  426. On a point of more detail, perhaps, in your passage about rights of appeal you suggest in paragraph 28 that a way of avoiding frivolous appeals would be if the courts "regularly went beyond the bounds set by the original position of the regulator or the company". Could you explain to me what that means?
  (Ms Spottiswoode) I will take a very specific example, which is where this comes from. When we did the price control on gas, we inherited a price control that had been set in a different way from the way the other regulators had set their price controls. Ours was wrong. We had to change the rules under which it was done, and we know that in doing so the likelihood was that the company would take it to the MMC (Monopolies and Mergers Commission). We could have completely aligned the way we did our price control, but that would have been quite extreme. It was already considered a relatively extreme price control; but to align it with the other regulators would have required another step change, and we thought that was a step too far. If the company really believed that the MMC might have come back and gone to full realignment, they would have taken a very deep breath before taking that to the MMC. However, we assumed, as did British Gas, that the MMC would take a position between the boundaries of the position we had set and the position they had set. Neither of us realistically thought that the MMC would take a step outside it. If people genuinely thought they might, and that they would take a fresh view and might go outside it, then people would be more reluctant to take it to appeal because they could clearly get a worse situation; whereas taking it to appeal, if you know that it is within the bounds, can only be as bad as or better. It cannot be worse than. So I think that it is important that there can be a worse-than position.

  427. On transparency, which you then tackle, you say that there are not enough checks on the costs of the regulatory body itself. We have heard it suggested on other occasions that some regulators do not actually publish the whole or indeed much of their accounts. Does that strike you as being unfortunate, or is there some reason for it, that you could suggest?
  (Ms Spottiswoode) I am slightly surprised at that. There is no reason why accounts should not be published. It is not a competitive body with commercially sensitive information. If anyone can suggest a reason why there are sensitive parts of that—but companies, which have very sensitive issues, have to publish their accounts.

  428. Would you perhaps expect it to be a statutory requirement?
  (Ms Spottiswoode) Whether statutory or not, I see no reason why it should not be done.

Lord Fellowes

  429. Could I refer to paragraph 20 of your paper? I was quite surprised by how explicit you were in saying that "regulators do appear to be expected to be an arm of government policy". Do you think that government would agree with that statement? If so, how broadly are you using the term "government policy"? I wonder if you could expand on that?
  (Ms Spottiswoode) There is no doubt at all but that the pressure since the very early days has been to expand the role of the regulator in the social and environmental area, in order to deliver certain government policies. I found, and I believe it is still there, a marked reluctance to make those explicit and to have those above board. At a lunch today, for example, I was told that there is a £7 cost in the accounts for every customer for social issues—which has grown quite a lot since I was there—and I think that the customers know that. Therefore, regulators are, by their nature, becoming a deliverer of some parts of government policy. I was very sensitised, because my predecessor had done a small amount of energy efficiency support. That was under laws, and fine. The first week that I arrived, I had on my desk a request for me—as an individual, unelected, without a board around me to share this burden—to sign off £1 billion worth of subsidies over my term. That seemed to me to be out of order. I just could not see how I, as an individual, could possibly have the legitimacy to sign away that. It meant that I was very sensitised. I have to say that I did not handle it very well at the time. So I have always been very wary of trying to drag regulators into doing things which are kind of hidden—if it is a hidden mechanism. You allow these levies to be put forward. They are not explicit, so they are effectively increasing prices without there being a proper accountability mechanism, like there would be in Parliament to these kinds of additions. I felt quite strongly that regulators should remain as the economic regulators; that, where the Government has policies that it wants the regulators to deliver, that should be explicit; and then, through that process of agreeing with government how to intervene and change the policies, it is clear what is going on and what is being imposed. There is then parliamentary accountability to ministers.

Lord Acton

  430. I want to follow up where Baroness Gould and my Lord Chairman were, with paragraph 45. "If the consumer watchdog wants to get noticed, it is tempting for it to go head-to-head with the regulator in a public spat, although thankfully this approach is rarely taken." If the consumer watchdog does not get satisfaction from the regulator, I pine for it to go public. Far from being thankful, I would be dismayed if it did not go public. It would prove to me, apart from anything else, that it was doing its job.
  (Ms Spottiswoode) This is about appeals.

  431. Is it? I thought it was general.
  (Ms Spottiswoode) It is. Can I explain? The issue is, is the regulator doing the appropriate thing and taking a particular complaint, doing a proper licence amendment, or enforcing licence conditions that it is not enforcing and, therefore, the consumer body is doing a legitimate challenging of the regulator saying, "You are not doing it"? If the regulator still says, "I am not doing it", that is the end of the matter right now. So the consumer body can make a lot of noise, which I believe is good in those circumstances, but can do nothing about it. Just as with the industry there should always be an appeal mechanism, there is also a legitimate case for saying that there should be an appeal mechanism back to another body for those kinds of issues. What I do object to though—because both bodies have the same remit—is if one of them makes a great deal of noise in order to say, "I'm legitimately here—

  432. In order to be famous, I agree. You are saying you would put in a structure which would make it unnecessary.
  (Ms Spottiswoode) Yes, but I also think that there is a legitimate reason for an appeal mechanism, to ensure that the regulator is taking something seriously. So that if the consumer body, or whoever it is who is complaining, really feels that this is not getting the right amount of attention, there is a mechanism to go and say, "I want to challenge that body in a more formal way".

  433. At the moment, in general, that position is thoroughly unsatisfactory? Unsatisfactory? Less than satisfactory?

  A. When I got back to the MMC in 1994, the MMC had some recommendations. I could completely ignore those recommendations and do what I wanted. I felt incredibly uncomfortable about that. So it is another reason why I am sensitised to appeals. I think that it is very difficult to feel that you are legitimate if someone cannot take an appeal against you. I always take the view that, whatever the regulator is doing, there ought to be some mechanism—as long as it is substantial enough and has some significance about it—for people to take the organisation to an appeal.

  434. I think I have got it but, pending legislation, would you be pro a head-to-head?
  (Ms Spottiswoode) What I am against is a fame issue.

  435. Is a what?
  (Ms Spottiswoode) A fame issue—it is just making a lot of noise.

  436. Absolutely, yes. But when there is a genuine issue?
  (Ms Spottiswoode) If there is a genuine issue, clearly. That is all there is.

  437. You are saying when they are showing off?
  (Ms Spottiswoode) Yes, but if there is a legitimate issue, then you should not just be able to make a lot of noise. You should be able to do something about it. I would go one step further and say that the system is not strong enough institutionally right now.


  438. In terms of the circumstances that Lord Acton has outlined, from what you are saying, presumably it would be a new appeals mechanism. Presumably, you would not want the consumer watchdog to go to judicial review?
  (Ms Spottiswoode) There is the Competition Commission. There is an appeal mechanism already. It is the economic courts. It is not a legal remedy and it is not a political remedy. It should be something like the Competition Commission remedy. That economic court could be used for all the kinds of appeals for which we currently do not have—

  1. So it could be encompassed within existing processes?
      (Ms Spottiswoode) Yes.

previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2003