Examination of Witness (Questions 109
- 119)
WEDNESDAY 26 FEBRUARY 2003
MR JOHN
SWIFT QC
Chairman
109. Mr Swift, good afternoon and welcome
to the Constitution Committee. We are very grateful to you for
being a witness this afternoon and we also thank you for your
paper, which is full, lucid and extremely useful for our purposes.
Are there any comments you would like to make before we put the
questions?
(Mr Swift) No. I am very happy to answer
your questions. Thank you for sending me a list of further examination
questions for both witnesses and one for me. At least I have not
got to answer Professor Prosser's questions.
110. Could I pick up one of the questions
related to the submission itself because clearly our central concern
is that of accountability and, in answering one of the questions,
you explained how you see the relationship between the regulators
and Parliament. Can I clarify whether I have understood your paper
correctly, that your view would be that the role of Parliament
is not so much to examine the regulators in terms of the criteria
that a parliamentary committee may accept but that the central
role of parliamentary committees would be to evaluate the regulators
in terms of the objectives that are set by the regulators? Would
that be a fair summary? Would you like to expand on how you see
that developing?
(Mr Swift) There is one modification.
I think the starting point is the statutory objectives which are
set for each regulator under the appropriate section, usually
of the privatisation legislation; in my case it was section 4
of the Railways Act. There will then be, as it were, rules within
rules. The regulator will set out his own decisions by reference
to certain criteria. It does appear to me that if Parliament wants
an extra nexus between itself and the functions and performance
of the regulator, that would provide a useful starting point:
that is, to test the regulator in advance of decision-making as
to the criteria which he is applying in his efforts to use his
powers to achieve those statutory objectives, and indeed to explain
to Parliament the trade-offs and the priorities which are set
out in your list of questions.
111. You refer in your submission to this
link between parliamentary committees and regulators that would
fill a gap in the present system. You perceive a gap in terms
of the extent of contact that presently takes place.
(Mr Swift) I would not necessary fill
a gap just because the gap is there. There are ways of dealing
with the democratic deficit, but let us assume for the moment
the democratic deficit. I would say one of the main burdens of
the evidence I have been putting into writing is that the system
has evolved since 1984 and has developed and acquired a degree
of strength and credibility that it did not have when it started
out. Therefore, one was not starting with a blank sheet of paper
and saying: constitutionally here we have a democratic deficit;
how do we fill it? But: let us see how things have moved over
the past 20 years and can we find ways in which we can increase
accountability without necessary hazarding the independence of
the regulator, or imposing an extra bureaucracy on the decision-making
process? It does seem to me, from my experience, that that would
be a fruitful line of inquiry, and one where the experience of
this House and the other House would provide experience and judgement
to test the regulator. It need not be a particularly formidable
experience but I think it would be valuable, whether the regulator
is constituted as an individual who takes all the flak and all
the blame, and occasionally some of the credit, or whether that
is spread more evenly in line with the current political consensus
in which I am simply a member of an authority. No doubt we will
come on to that later.
Lord Holme of Cheltenham
112. I have two related questions on this
point. In your very helpful submission, you define accountability
as answerability, which I think is a useful idea for this Committee
to hang on to. I really want to press you, having said what you
should be answerable for, on the issue of answerable to whom.
We have, in a sense, two models. We have the model of accountability
to Parliament, and we have the multi-stakeholder model in which
regulators are accountable to all sorts of groups who are affected
by their decisions. The Earl of Mar and Kellie is referring me
to a piece of paper where accountability is defined by the new
rail regulator as accountable to all those affected by your decisions.
If I can draw the analogy of a public company, this is a debate
that is very current in corporate governance. Is a company simply
accountable to its shareholders, which is the legal status of
accountability, you might argue analogous to accountability to
Parliament directly and indirectly through the Government, or
is it accountable to all those affected by its decisions: rail
users, customers, suppliers, the whole panoply of rail companies,
all those who are affected? If the answer is the second, that
it is a multi-stakeholder model of accountability; is there a
prior primary accountability to Parliament? Perhaps I can ask
the second question as part of this. Is consultation, which seems
somehow to be mistaken for accountability quite often, the same
as accountability? Are they all connected to each other?
(Mr Swift) I preface this by saying
that I do not recognise the statement from the current rail regulator,
but I do not think he borrowed it from me. When I disassociate
myself from it, I hope I am not being inconsistent with what I
may have said six years ago. I think it is undeliverable. I do
not think you can stand there as an individual regulator or as
an authority and say, "I am accountable, in the sense of
answerable, to every person who is affected directly or indirectly
by a process of consultation or decision-making that I take".
I do not know how on earth you manage an organisation like that.
This is why I have drawn the distinction between the duty to explain
and answerability. Plainly, if there are people within a broad
constituency of consumers, freight users, train operators, network
rail contractors, whoever, then you need to explain to those people
what the objectives of the regulator are because they will, either
directly or indirectly, be affected by what you do and what you
say, and they need to know, but in terms of calling a regulator
to account, no. The law provides a sufficient sanction for anybody
with a sufficient locus, if I can use that Latin expression, and
apparently it is out of fashion anyway, sufficient standing, to
call the regulator to account if the regulator is in error. Parliament
has now extended those rights to third parties who can say, "But
we are adversely affected by a decision of the regulator; we now
insist on a right of appeal to the Competition Appeal Tribunal".
I am fully in favour of that. I would not mix up the two. If I
can just go on, there is a legal principle. I am very hesitant
about saying, with my Lord, Lord Jauncey looking on, that there
is a German tradition of jurisprudence in which answerability
means that there must be a sanction. The law has to stipulate
a sanction, otherwise you do not have proper accountability. We
are just moving a little way from that. There must be a means
by which the person to whom you answer has an ability to call
you to account. It is not just a question of appearing before
a committee and explaining; it is question of appearing before
some committee of Parliament and then going back some time later
and accounting for those promises which you made or you said you
would deliver. That seems to me to fit perfectly well within a
constitutional convention, without Parliament having to exercise
some particular penal or unpleasant sanction against the regulator.
Consultation I think we will come on to again later but consultation
is of course a necessary part of the decision-making process and
that is also a means by which those affected by a decision can
influence the decisions, hopefully to the benefit of the regulator,
and of the decision-making process. On that, although I was well
beyond the quill pen and typewriter between 1993 and 1998, the
development in the internet, systems of communication and real
time exchange of information have been so enormous since that
date that consultation should now be carried out in a much more
effective manner.
113. I have a quick supplementary. To be
sure that I understand what you have said, the stakeholders in
the larger constituencies with whom any prudent regulator is going
to keep in touch would be the subject of varying degrees of transparency
of information and consultation, but the accountability is to
Parliament, both directly and indirectly through the Government
and the Government in terms of Parliament. That is where the line
of accountability lies?
(Mr Swift) Yes. It is an accountability
which looks at the two critically important institutions of the
state: one is Parliament and the other is the courts. What we
are trying to find here, if we are talking about a democratic
deficit, is something which achieves that degree of answerability
without going back to the old tradition, which of course was abandoned
in 1984, and that was accountability to the person who appointed
you. We have gone way beyond that.
Lord Lang of Monkton
114. Part of what I was going to ask has
just been dealt with by Lord Holme's supplementary question there.
I was going to refer to the reference in your paper, Mr Swift,
on page 2, where you talk about the need to create a more direct
relationship between Parliament, to whom the regulator owes his
existence and his statutory powers, and the regulator. Part of
it has been covered. It sounds as though you have specific ideas
about how that could be achieved. Are you talking about an automatic,
annual, oral encounter with a select committee or a paper submitted
on which you would be questioned?
(Mr Swift) Yes, my Lord. What I had
in mind in particular as a nexus was the vote. The vote is the
obvious link between the regulator's office and Parliament because
it is from Parliament's approval that that the regulator obtains
the funds through which he runs his office. Those funds are being
used to pursue the statutory objectives through the exercise of
the powers that are conferred on the regulator under the statute.
Without wanting to go into the accountability, and I mean that
in the sense of answerability, of the current regulator—I
am not just talking about the Rail Regulator but the Strategic
Rail Authority and OFCOM and OFGEM—these regulators appear
to be acquiring almost imperial status in terms of the resources
they are employing. Whereas Mr Roger Freeman in 1994 said, "I
think you can manage with £5 million", I said, "Minister,
how do you arrive at that?" "Well, it is half of what
I have given the franchising director". It was very much
a back-of-the-envelope calculation and, "Would you mind running
your office on that?" We are not talking about teens or twenties
of millions of pounds. There does come a point in which one Parliament
says, "Hold on, we are now reaching the point of what is
the financial accountability?" It is plain the regulator
is not accountable to the Minister. When Parliament is voting
very substantial sums of money, it does seem to me that some kind
of a regular audit, not based on ad hoc investigations
by the NAO but more directed to the statutory objectives, is needed,
and if there were some continuity in that, then the members of
the committee would have a greater degree of knowledge and experience
than maybe the NAO bringing in an ad hoc consultant to
carry out that exercise. That is what I had in mind.
Lord Fellowes
115. I was very struck by the phrase "not
directly accountable to Parliament" in your paper and then
by your use of the term "sanction" to point the finger
at precisely where accountability lies, the ability to use a sanction.
To ask a very crude question, in the unlikely event of a regulator
being dismissed, who then would or should dismiss the regulator
and how would it be done?
(Mr Swift) Under the statutes that have
been in existence since 1984, the person appointing the regulator
can dismiss him or her on two grounds: one is incapacity and the
other is misbehaviour. Indeed those are very likely the considerations
that led many people to equate a regulator with a kind of judge.
One does not dismiss judges just because one does not like their
decisions; there has to be a good ground. Therefore, to my knowledge,
since 1984, however much the Government may have regarded him
or her as lacking in capability or being seriously deranged or
both, no Minister has taken the decision to fire a regulator.
Were the Minister to fire a regulator in breach of those criteria,
that Minister would himself or herself be in breach of his statutory
duty, which would then be enforceable by anybody with an appropriate
locus, including the regulator. That is the way you take it up.
A disaffected regulator could go for judicial review if he does
not like it; he could also sue for unlawful dismissal. The next
question is: what happens if a regulator has lost the confidence
of the Minister in those areas where it is very important for
the security of an industry and the future benefits for consumers,
so that they simply cannot operate together? What happens in those
circumstances? That has not really been tested. It got very close
to that in 1998 when the incoming Government had, as part of its
manifesto commitment, a commitment to improve the accountability
and effectiveness of regulation in the railways. The then franchising
director had, I think, two years of his contract left to go and
he left well before that. That was a decision when he resigned
that was undoubtedly a result of the incoming Secretary of State
being dissatisfied with the manner in which he thought the railway
industry was being regulated. There has always been a difficulty
in the mind of the public, and not just of the public, in knowing
the precise difference between the Strategic Rail Authority or
the franchising director, as it then was, and the Rail Regulator.
Indeed, if I can just go into anecdote, and I know you are pressed
for time, but I was on a train going down from Waterloo to Axminster
the other day and a passenger was asking why he could not obtain
an appropriate senior citizen's discount or whatever it was. He
was told very firmly by the guard, "It is not me, sir, it
is the Rail Regulator". He was standing a foot away from
me and I thought, "Do I intervene or not?" He almost
certainly meant the Strategic Rail Authority, but that would have
taken between Waterloo and Axminster to sort out!
Lord Fellowes
116. That is very interesting. It does seem
to me to point to the fact that the true accountability line lies
to an individual and not to Parliament in the round.
(Mr Swift) I would not accept that.
I think it is the exact opposite. Once the regulator is appointed,
he is independent and there is no way in which the Minister or
the Minister's civil servants could seek to influence decision-making
by the regulator because accountability is not simply a question
of status; accountability results from the existence of rules,
discussions, agreements, contracts. You are accountable by reference
to how you perform under a set of rules. The Minister does not
set those rules; Parliament does.
117. He has the use of the sanction?
(Mr Swift) But a very limited sanction.
The sanction is only dealing with the regulator.
Lord Jauncey of Tullichettle
118. What is the purpose, in your view,
of accountability at all?
(Mr Swift) The accountability is to
ensure that the person responsible for taking the decisions within
the public sector confines himself to objectives set out for him
by others. It is a direct connection between rules by reference
to which he must carry out his duties and the manner in which
he carries those out. There must be some means of assessment whether
those are being carried out effectively.
119. In short, it is to see that he performs
his statutory duties in the manner intended. Is that correct?
(Mr Swift) That is correct, my Lord,
yes, bearing in mind, if I can add a rider, that because we are
in the area of economic decision-making, there is a very substantial
area of discretion allowed to the regulator as to the manner in
which he believes those statutory objectives can best be advanced
through the use of his statutory powers. Subject to that, I entirely
agree with my Lord, Lord Jauncey.
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