Examination of Witness (Questions 420-439)|
WEDNESDAY 14 MAY 2003
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 usit
appears certainly to mefrom 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 beenand I do call it institutional because it
is institutional, it is not about who is heading the various bodiesthat
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 issuesbecause 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 toesbut still you
have this issue of the same remit.
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
thatbut companies, which have very sensitive issues, have
to publish their accounts.
428. Would you perhaps expect it to be a statutory
(Ms Spottiswoode) Whether statutory or not, I see
no reason why it should not be done.
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 issueswhich has grown quite a lot since
I was thereand 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 meas an individual, unelected,
without a board around me to share this burdento 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 hiddenif
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.
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 thoughbecause both bodies
have the same remitis 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
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 mechanismas
long as it is substantial enough and has some significance about
itfor 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 issueit is just making
a lot of noise.
436. Absolutely, yes. But when there is a genuine
(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
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
- So it could be encompassed within existing processes?
(Ms Spottiswoode) Yes.