Select Committee on Constitution Minutes of Evidence

Examination of Witness (Questions 109 - 119)




  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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