Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (Questions 1060 - 1079)



Lord Jauncey of Tullichettle

  1060. In paragraph 33 you suggest that the regulators should commission their own consumer research and market intelligence. Would you like to expand on that a little, particularly on what you have in mind?
  (Ms Hutton) On the whole, industry is pretty effective at ensuring it gets its views across. They have both the community of interest and the resources to do so. The consumer interest is highly disparate, so we believe that it is sensible for regulators to ensure, first of all, that they have the consumer view. They will probably have to go out and quite deliberately find that. Secondly, they must understand the breadth of that consumer view and the way in which whatever policy they are proposing or regulation they are proposing would impact on it. That is fundamentally the reason.
  (Mr King) I would consider this as part of the process of drawing together a cost benefit analysis or regulatory impact assessment of proposals to potentially bring about significant changes in the market as a consequence of your regulations. Examples would be the FSA's recent changes to the regulation of financial advice and the removal of the polarisation rules. The FSA have conducted quite a bit of consumer research to understand better consumers' relationships with advisers and their understanding of the term "independence" and those kinds of issues. It is highly important. With different groups of consumers, certainly you do need to have an understanding of specific issues faced by more disadvantaged groups, be it access to utilities or different payment methods. That is the kind of thing  you can get, more from qualitative than quantitative research.

  1061. Do you think regulators have the financial resources to have this undertaken on their behalf?
  (Mr King) Regulators have quite considerable resource budgets relative to the National Consumer Council. Some of the regulators have got better at consulting in their forward work plans about the kind of research they plan to do in the year ahead and that is very useful.
  (Ms Hutton) There is a further issue which is one we have discussed at some length with the Competition Commission. They do not have an instinctive understanding of consumer issues. Derek Morris would say that himself. In conversation with him, we felt that quite a good way of cooperation would be for him to come to us with a particular market inquiry and say, "What might be the consumer issues?" He has a lot of staff and resources to go out and do the research but what he felt he could usefully have from us was the expertise which helped him direct that research. He was quite clear that he needed it, but he was not so clear that it was being pointed in precisely the right direction.


  1062. You have a hierarchy of regulators in terms of those who are quite good at consulting and those who are less good. Perhaps it would be a bit invidious to ask for the list.
  (Ms Hutton) We think it is tremendously important that regulators, when they are communicating with the public, do it in a way that is accessible. Some regulators are better at that than others. One of the things, for example, that the FSA has done which we thoroughly approve of is that, in their consultation papers they flag up issues that are of interest to consumers early on. Although it may seem to you that there are a great many consumer bodies out there, most of them are incredibly hard pressed to try to deal with the enormous range of stuff which is thrown at them. That kind of signposting is very helpful.

  1063. There is a dissemination of best practice for regulators in terms of how they go about it?
  (Ms Hutton) Certainly.

Lord Elton

  1064. In paragraph 38, you tell us that the National Consumer Council used the opportunity of an appeal from Oftel's cap decision to the Competition Commission to argue a case strongly. Then you comment that consumer groups do not have an equivalent right of appeal. What was it that gave you the locus in this case which was denied to them?
  (Mr King) Without going into the extended debate surrounding this particular case and the arguments that have gone on for at least two and a half years now, we were campaigning for quite some time for price regulation of calls to mobile phones, be it from fixed line to a mobile network or across different mobile networks, based on economic analysis.

  1065. I am not sure you got my question, which is what was it that gave you the locus to intervene when other consumer bodies could not or vice versa?
  (Ms Hutton) The issue is that we do not have a formal right to appeal decisions. We think that if industry is going to have a formal right to appeal decisions, it would probably be a good idea if consumers did as well. The way in which we participated in this debate was fundamentally through rather ordinary campaigning, press releases through the papers, talking to the regulators. We did not have that formal channel but we used the normal lobbying channels.

  1066. You do not have formal access? You cannot be a third party?
  (Mr King) No. Maybe an analogy here might be with the new right of National Consumer Council and other consumer bodies to submit a super complaint to the OFT if we think there is a market problem. To get super complaint status, we had to comply and prove that we were a body fit to represent consumers and capable of doing that. Therefore, at a later stage, we could submit a super complaint if we wished. In that sense, we have established a locus as a consumer representative body. In this case we are able to input and represent the consumer perspective to Oftel. Whereas the relevant companies could appeal if they were unhappy with the decision made by Oftel, despite the fact that we made an input, we would not be able to appeal against that particular decision and take it to the Competition Commission.

  1067. Do you think that the regulatory systems ought to have a third leg so that you have the regulated enterprises and the regulator and a formal representation within the appeals process for consumers? If so, would that be best done centrally by you acting on behalf of the bicyclists or the radio operators or whatever, or would bicyclists and radio operators represent themselves?
  (Ms Hutton) First, we would be very happy to have an equivalent status to industry in appealing decisions. Where there are sector specific consumer bodies, it is clear that they should do it. There is absolutely no point in duplicating. Where there were issues and there was no sector specific body and it appeared to us that there was a significant detriment to consumers that we ought to be interested in and worried about, we should do it, but we would not necessarily assume that the bicyclists could not do it themselves. I suppose our watch word is that we never do something that somebody else can do better than we can.

  1068. But you will do something you can do better than they can?
  (Ms Hutton) Absolutely.

  1069. In the preceding paragraph, your last sentence suggests regular interchange of staff between regulators and consumer bodies could have a positive effect. Have you tested this view on any consumer body or any regulator?
  (Ms Hutton) Yes. We do have, for example, two secondees at the moment, one from the Food Standards Agency and one from the Financial Services Authority, which works extremely well and they rather enjoy themselves. We see that as a wholly positive thing.

  1070. When they returned to their native heath, did they conduct themselves differently from how they acted before?
  (Ms Hutton) Or did they sink without trace? We had a secondee from the DTI. She has gone back to the DTI and I think would say that in the work she is now doing the experience she gained has been extraordinarily helpful because she deals with sponsorships of consumer bodies. The secondee from the Food Standards Agency who went back had a much better understanding of what worried consumers and the way it might best be handled, which they have taken back to the FSA. We have not yet had a secondee go back to the financial FSA so I cannot answer your question but it seems to me that if you believe that there is benefit in an interchange of secondees between industry and regulators then an interchange between regulators and consumers is a similar thing.

  1071. Which can be done without legislation.
  (Ms Hutton) And it can be done without legislation, yes, as we have just proved.

Earl of Mar and Kellie

  1072. I am interested by the concept of the consumer interest. We were given evidence by those who regulate electricity that they had been instructed by government to view the consumer interest as being a low price for electricity. This has had the effect of creating considerable difficulty, if not bankruptcies, for the greener electricity generators. Therefore, today's cheaper electricity would appear to be being created by the less green, more primitive forms of generation. I am therefore suggesting that the government got the consumer interest wrong. Is that the sort of thing that your Council could do anything about?
  (Ms Hutton) Yes. It is interesting. It goes back to my initial statement. You have to be clear about who is responsible for social or environmental objectives which are usually subsidiary objectives to competition. We are generally pleased to see that the regulators largely now have a responsibility for low income consumers. I understand the point you are making and the difficulties that that can lead to. One straightforward, economic response is that this is nothing to do with regulators. If you are a low income consumer who has a problem affording these essential goods and services, it should be given to you through the benefit system. One of the difficulties we have with that is that we do see quite a lot of reverse subsidy going from the poor to the wealthy. The straightforward, economic system of saying, "This is nothing to do with the regulators" we find slightly worrying because if you unwind some of those reverse subsidies there may well be ways of bringing low income consumers into the market which would be a better way of doing it than doing it through benefit. Although I am not answering your question directly, which I appreciate, we do think there are some difficulties which are not yet properly thought through about where the responsibility for environmental and social obligations lies. With environmental obligations it is particularly difficult because you are not just balancing the interests of various groups of consumers; you are balancing the interests between current and future consumers which is an even more difficult equation to get right than the one we currently have to deal with.
  (Mr King) I am sure the regulator in energy would probably say this as well, but it is important to state that just because a high price company has gone bankrupt it does not indicate in some way that competition has gone wrong or that the consumer interest has not been reflected. That could be seen as an indication that competition is working rather well. If there is a view that the price does not fully reflect the environmental costs, that is a wider decision that has to be made at the government level in setting a framework rather than at the regulatory level, although the regulator may need to implement within that kind of framework. I am sure that will be a debate coming out from the Energy White Paper. Sustainable consumption is something that we do think about. One of the pieces of research we have done quite recently testing the attitudes of consumers on quite low incomes showed a not very simplistic analysis. People were not interested just in low prices. Certainly price can be a big factor but there are other issues in terms of simply finding it difficult to get access to what you might call green choices. While there might be quite a desire to engage people in sustainable consumption, sometimes it is quite difficult for people to implement that well in the choices they make.

The Committee suspended from 5.30pm to 5.38pm for a division in the House

Lord MacGregor of Pulham Market

  1073. I wanted to ask about your paragraphs in relation to the relationship between the government and regulators, particularly paragraphs 25 and 26, where you say that it is not clear if the division of responsibilities works as well as it might. How do you think it might work better? Secondly, on the examples you give of stakeholder pensions and, in paragraph 26, protecting disadvantaged consumers, I imagine that could be in relation to water charges or whatever you might wish to raise. Is there not a danger here, if the regulators move so much into those areas, that they are straying into policy issues and issues that are really for governments rather than for regulators? It is perfectly reasonable for all sorts of people to make representations but if the government does come to the conclusion that they may have stakeholder pensions moving better than they are and that one way of doing it is being slightly criticised here. Is that not for government to decide? The government is ultimately responsible to the electorate for those sorts of decisions. I do not mean just at election times. Should policy decisions of that nature by the responsibility of the regulator and if they are where is the right of appeal against a policy decision that is taken, unless of course the government decides by legislation to overrule the regulator?
  (Ms Hutton) I think you put your finger on an enormously difficult area. Looking over the piece at regulation generally, it seems to me that there has been a move towards giving regulators sets of objectives which almost inevitably result in them doing something which could in other words be called policy. That is partly a consequence of giving very broad, over-arching objectives. Here is the tension because on the one hand we would approve of the clarity of a broad, over-arching objective; on the other hand that almost inevitably means that if you have subsidiary objectives those trade offs are going to be made within the regulator. Hence, is that policy? There are a variety of ways to deal with that. One is absolutely to take that back into government, being very clear that government does all policy and all a regulator does is execute it. That is tremendously difficult in practice. The other way of handling that is for the regulator to be tremendously transparent in the way it sets about that handling of conflicting issues so that nothing is done behind closed doors and it can be seen whether they are doing that in a sensible, useful and friendly way, always bearing in mind that government has the right to haul them in and say, "You have failed to fulfil your duties under the law." The particular difficulty for the FSA is that the government for perfectly valid reasons wishes to extend pensions and stakeholder pensions. The FSA has a set of rules which says that people must only be sold to on a responsible basis. The regulator finds itself in a position of tension, where being asked to do something would infringe its own rules of operation. The FSA can answer this much better for themselves, but it is notable that in this particular area most of the consumer bodies and the industry bodies, on the whole, feel that the FSA has a pretty difficult role to play.
  (Mr King) I think it is important to be very clear all the time about the sort of markets that we are talking about here, in the case of utilities they are essential products or services. In the case of pensions, they are becoming increasingly essential in terms of the products that the FSA regulate. Therefore it is not good enough for those from an economic perspective to purely see it in terms of pursuit of economic efficiency as what regulators need to think about while social policy is something for government and if they want to do something they can increase income support or something like that. It is just not in the real world. The trend under this government which in general we would support is for regulators to take account of some of these access type issues. The difficulty arises if it is not absolutely explicit what the regulator has to do in these terms. They might be encouraged informally to do this rather than with clear guidance or clear objectives. In relation to the stakeholder product question, this is a very interesting area because the FSA is not an economic regulator but economic regulation is arriving in the financial services context. We have some concerns about the manner in which this is occurring because unusually the Treasury is setting price caps whereas with utilities there are very well developed, independent, arm's length mechanisms for setting price caps which are very good. There are some particular issues that are slightly beyond the remit of the inquiry but it might be worth flagging up that they are quite interesting in relation to stakeholder pensions. You also have something of a tension between the consumer protection perspective of the FSA and some wider public policy objectives of the government in relation to the savings gap. It is quite an interesting example. There is not quite clarity about which bodies are responsible for what.

  1074. I am not sure that it does come within our terms. I suppose you could say it deals with accountability but focusing on pensions for one moment, if the government were to decide to relax the FSA rules applying to pensions, some of the arguments might be that unless you do this accountable people to whom the stakeholder pension is directed will certainly not be interested. If the government did that and subsequently the FSA had a complaint about mis-selling and wanted to look at it, it is quite an interesting issue as to where you come out at the end of all that.
  (Ms Hutton) Yes. One of the difficulties with financial services is that you do not necessarily understand what the difficulty is for 10, 15 or 20 years, which makes it a tremendous problem. It goes to the heart of what this particular balance is, because if government told the FSA what to do there would be an interesting question as to whether the FSA was or was not an independent regulator.

  1075. Absolutely and if the government had perfectly legitimate objectives which they were by and large succeeding in but there was this complaint from some small quarters about mis-selling, has the FSA the right to step in? Who do they bring in front of them? Do they bring in front of them the providers or is it the government? There are some quite interesting tensions there and accountability is not entirely clear to me.
  (Ms Hutton) It is not, although I suppose one answer is to say that the theory behind these sorts of products is that they are so simple and clear and non-toxic that the companies selling them can be given some kind of regulatory safe haven in selling them. I only put that forward as the argument that is presented, rather than an argument I necessarily agree with.
  (Mr King) The view of the National Consumer Council is that the FSA should not remove those regulations in relation to the sale of their products precisely because they are not as simple as they might be for people on low incomes, because of the interaction between state pensions and private pensions.

Lord Elton

  1076. You said at the beginning that you were a creature of statute. You did not use those words, but you were put in the position by government.
  (Ms Hutton) If I can interrupt for a moment, we are not founded in statute. We arose as a result of a White Paper in 1975. That is partly a benefit because we have to prove that we are good enough constantly to be maintained.

  1077. You exist to promote the interests of consumers. If it seems that the government is pursuing a policy towards its regulators which is anti-consumer, would you promote the consumers' cause to the government and, if so, by what means and to whom?
  (Ms Hutton) Can I take that as a rather general question which is, as a body funded by government department, do we find it easy to disagree with the government when they are doing something we do not like? We have a track record in doing that. To give you a specific example, when the Enterprise Bill was going through Parliament last year, while we supported the Enterprise Bill, we also wanted to see in there what was then called a general duty not to trade unfairly. The DTI was very opposed to this.

  1078. How did you approach that?
  (Ms Hutton) We ran a campaign called Stop Shark Practices which identified where the gaps in the legislation were. We talked to civil servants. We talked to ministers. We ran a campaign in newspapers. We lobbied back benchers on the standing committee. We worked quite hard at it. In the long run, we won because the Minister agreed during the course of the Bill that this would be something that would need to be looked at in the future and indeed it has been, because the DTI is now adopting a rather different stance. The European Commission has produced a draft directive and its language uses the language of the clauses that we suggested. Of course, we have to be skilful, sensitive and sensible in the way that we lobby but we have a very good track record on standing up for what we think is important. Often the way you do it is the thing that allows you to be robust.

  1. Your relationship with government does not inhibit you?
      (Ms Hutton) No.

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