Select Committee on Constitution Sixth Report


CHAPTER 3: Accountability to whom?

44.  Before turning our attention to the processes for achieving effective accountability, we examine accountability to whom. This is because the three elements of accountability we set out in the next chapter are generic categories about the process, procedures and stages of accountability, but in their application they may vary in their incidence, and the balance between them, depending on who (or which group) the regulator is being accountable to. We start with the general view that regulators carrying out public functions wield considerable powers and must accept that these powers carry responsibilities, including the duty to explain to all interested parties, whether they are parliamentary select committees, Ministers, regulated companies, consumers or citizens. We recognise that this duty is likely to be exercised in different ways, and to different extents, for the different interested parties. It will depend on statutory and formal requirements, good practice, and an understanding of the information needs of each party. As Sir Derek Morris has said (see paragraph 74) the duty to explain is summed up for our purposes by the word "transparency".

45.  Equally, the rights of the various interested parties to expose the regulator to scrutiny will vary. Parliamentary select committees have a right to summon regulators to appear before them; this is a right not normally available to the individual citizen. Differences in such rights are clearly appropriate, whilst ensuring at the minimum level that all citizens (or their representatives) have sufficient access to information to enable them to question the regulator where there is a legitimate interest. Regulatory openness, whether through replying to citizens' letters, or by holding the occasional public meeting (perhaps related to the publication of the annual report), ensures that exposure to scrutiny is available, in one way or another, to all.

46.  Access to the possibility of judicial review may also be reserved to particular interested parties, although the ambit of that access is changing, and becoming wider. The range of issues which may be covered is also developing so that formal review might be extended to a challenge, not just on points of law, but on the substance of regulatory decisions.

47.  In this regard, accountability of regulators to the courts should be seen not so much as a direct line of accountability, but as a means by which the direct end of accountability to affected, or aggrieved, parties is achieved. This view is qualified, of course, where the courts have the direct role of a primary regulator, rather than being the guardian for others against arbitrary regulatory decisions and activities.

The 360o view of accountability

48.  Our view, therefore, is that accountability is a generic term, the precise definition of which depends on the circumstances, including the relationship between the interested party to the regulator. In practice, there are multiple accountabilities. For example, while regulated utility companies should be accountable to regulators for the proper performance of tasks assigned to them in their licence, in turn - and equally - the regulator should be accountable to them for the proper performance of the regulatory task. It should thus be possible for the companies to challenge the regulator, and for the regulator to challenge the companies, where one of the parties is not properly carrying out its duties. This 360o view of the multiple accountabilities of regulators is illustrated in Figure 1.

FIGURE 1 360o view of accountability


49.  This broad view of accountability is borne out by the evidence we have received. Baroness Young of Old Scone, Chief Executive of the Environment Agency, noted the Agency's vision of comprehensive accountability, qualified perhaps by a recognition of the practical problems that this can bring: "In fact we regard ourselves almost as accountable to everybody, sometimes too many people".[25] Lord Currie, Chairman of Ofcom, noted that its broad accountability reflected its statutory responsibilities: "…Ofcom is statutorily responsible both to individual members of the public, both in their capacity as homo economicus and as homo civicus, as well as to the public at large".[26] The Association of Independent Financial Advisers told us "but the regulator also needs to feel in some way accountable to those affected by its decisions. These will include consumers as well as the businesses which it regulates."[27]

50.  Tom Winsor, the Rail Regulator, drew our attention to the fact that the broad scope of accountability which attends independent regulation has also had the effect of intensifying that accountability: "Although Parliament has created independent regulators in privatised industries and in other fields of activity and enterprise to protect the public interest and in some respects to take the place of Ministers' general powers of direction over the boards of nationalised corporations, it has also created a matrix of accountability which is probably more specific and more intense than ever applied to a Minister. Perhaps that intensity was seen as necessary to take the place of the Minister's direct accountability to Parliament and the rest of the political process. However that may be, I believe it works well. That accountability, the accountability of the regulators, is to the executive, to Parliament, in some respects to a higher tribunal and, perhaps most importantly, to the people and organisations who use, finance or depend on the activities which we regulate … I think that is a formidable array of accountabilities; I do not say that list could not be improved but I do say that the commentators who say we are unaccountable and that something must be done about us are wrong in law, are wrong in fact, and are wrong in policy terms".[28]

51.  The 360o view of accountability therefore provides a context and reasons for improving the accountability of regulators.

52.  However, we draw a distinction between regulators exercising a duty to explain - extending to all the bodies identified in Figure 1 - and being required to respond to demands made by those who gave them their powers or control the legal application of their powers. Citizens, consumer bodies and regulated bodies lack the power to summon regulators to justify their actions. We have reflected this distinction in Figure 1. The shaded boxes comprise the bodies that exercise power directly in relation to the regulators. These are the bodies that, as we shall see, are responsible for scrutiny and formal review. Ministers determine public policy and appoint the regulators. The courts interpret and apply the law passed by Parliament. Parliament is at the apex in that it passes the law creating the regulatory bodies and is the body responsible for calling Government to account. Parliament is thus fundamental to achieving an efficient and accountable regulatory regime. A traditional view of this line of accountability is set out in Appendix 4.

Accountability as a control mechanism

53.  The processes of accountability, given effect through the three elements of accountability (duty to explain, exposure to scrutiny and the possibility of independent review) are an integral part of the macro design of the regulatory system as a whole. In effect, accountability is a control mechanism through which effective regulation is maintained (and endorsed), and failing or ineffective regulation is identified and exposed, and thereby subject to remedy and improvement.

54.  The purpose of accountability is to provide a system of control which helps Government achieve efficient and effective regulation. This is both positive (facilitating) and negative (constraining), and in time, both pre- and post-event. This is illustrated in Table 1.

55.  The ends of regulation can therefore be combined with discussion of the means of achieving it, one element of which is the systems control element of accountability. Accountability of regulators is therefore a means to an end - effective regulation - and not an end in itself.

56.  The relationships of good regulatory design, accountability as a control mechanism through the three procedural elements, and accountability for what, to whom, is set out in summary in the Table 2.

The circle of accountability

57.  Who does what and why has therefore to take account of both a regulatory system and a regulatory process over time, starting with Parliament setting the statutory framework and ending with Parliament reviewing regulation in practice. This is illustrated in Figure 2.

Independent consumer bodies

58.  Independent consumer bodies have been established in recent years as part of the Government's policy of strengthening the consumer's voice in regulation and to challenge the regulators.[29] They include Postwatch, Energywatch and WaterVoice. They arose from a concern that regulators, in balancing the interests of the regulated companies (and their investors) with the consumers, might hear more of the company voice and have too great a regard for their interests (albeit that there were statutory consumer committees within each utility regulator's office).

59.  The policy concerns the design of the regulatory framework, and should be judged by whether or not it improves the effectiveness of regulation, and is cost-effective. Proper accountability will enable that debate to take place, and judgements to be drawn. Our primary interest, however, is with two aspects of this accountability. First, that the independent consumer bodies should be equally held accountable, as are the regulators, for their activities, given they are part of the overall design of the regulatory framework. Secondly, with the apparent policy contradiction of both the regulators and the independent consumer bodies presenting themselves as consumer champions, particularly since it is the policy of the Government to place a primary duty of consumer protection on the independent economic regulators. But we are also concerned that cost-effectiveness, clarity of roles and public understanding might be undermined, thereby damaging effective accountability. While some tension is inevitable - even desirable - there is however also a risk of damaging public confidence in regulation if relationships become adversarial, especially since both parties have been appointed by Government to carry out consumer representative functions.

60.  The case for independent consumer bodies was recognised by some regulators ahead of statutory provision for their appointment. Though appointed to take into account the interests of consumers, regulators were not necessarily able to know clearly and consistently what those interests were. It was thus useful to have some input from a body representing consumers. To ensure a greater degree of independence, these bodies now exist outside rather than within the offices of the regulators.

TABLE 1 Elements of the accountability 'control system'
Prospective Retrospective
Positive (carrots) harnessing the means of accountability to facilitate good regulatory decision-making, and to avoid the pitfalls of regulation confidence building from either good regulatory outcomes, or learning from past failures and problems, allowing the beneficial evolution of the regulatory system
Negative (sticks) the discipline on regulators of the threat of exposure by accountability mechanisms (avoided by good regulatory decision-making) attributing fair blame for poor regulatory decisions (with penalties or redress as appropriate), with the incentive to avoid such blame in the future.


TABLE 2 Effective regulation depends on
Good regulatory design Control through the processes of accountability Accountability for outcomes: regulatory performance
Macro (policy)

The whole of government view:

- encompassed in the regulatory (legal) framework of functions, powers and duties: the division of roles and responsibilities

- whether by regulatory sector, theme or hierarchy e.g. arms-length independence versus direct ministerial regulation

micro (implementation)

'Competent' authorities

Duty to explain

(provision of information and reasons for decisions)

exposure to scrutiny

(use of information - answerability and challenge)

the possibility of independent review

(complaints, appeals and judicial review - particularly in respect of conformance rather than performance)

Accountability to whom:

Citizens

Parliament

Government

Ministers

Departments of State

Regulators

Customers

Consumers

Regulated companies

Other interested parties.


FIGURE 2 The circle of accountability through the regulatory cycle

Regulatory Objectives


61.  However, to what extent can the consumer bodies claim to be representative of consumers? They are not chosen directly by consumers but instead are appointed by the regulator or a minister. In their evidence to us, the officers of the different bodies explained the extent to which they relied on open meetings and surveys of consumers. Ms Deirdre Hutton, Chair of the National Consumer Council, told us that the NCC "did not represent consumers, we are not a democratic body and representation of consumers in that sense is for those who are democratically elected". She then told us that "what we endeavour to do through qualitative and quantitative research and through policy analysis is to understand what the interests of consumers are", finally observing that "since everything we say is public, people soon let us know if they disagree". The NCC, which does not exist to cover a particular regulator, stands in a distinct position. Ms Hutton told us that the NCC does not represent consumers. Even so, when asked how she knew whether the Council was accountable, replied: "We do a lot of consultation".[30]

62.  The Consumers' Association told us that it is "an independent, not-for-profit consumer organisation that is entirely independent of government and industry", and that it has "worked on behalf of consumers to achieve improvements in the quality and standards of goods and services for more than 40 years".[31]

63.  Maurice Terry, the Chairman of WaterVoice, told us that openness was their way of being accessible, so that "all our committee meetings are held in public, and some of our regional committees have listening sessions, where they invite members of the public to contribute".[32]

64.  The work of the independent consumer bodies in seeking to ensure that they can claim to speak authoritatively for the consumer is commendable. However, we are struck by the fact that each body is left to decide for itself what is the most appropriate mechanism for discerning the interests of consumers. There appears to be no common framework. In its response to the Better Regulation Task Force's report on independent regulators, the Government said that it "wholeheartedly agrees that there is scope for improving the performance of 'the rest' to bring them closer to 'the best'".[33] The same point we believe is appropriate in the context of the consumer bodies.

65.  We were also concerned by the fact that engaging in surveys can be a significant drain on resources. The bodies are not generously resourced - they are small units, especially relative to the offices of the regulators - and are constrained in undertaking the type of consultation that they think is necessary. We believe that both problems must be addressed. There needs to be greater consistency in approach. There is little point in creating a consumer body that can match the resources of the regulator, but we recognise that consumer bodies need adequate funding.[34]

66.  On our second area of concern - the clarity of the relationship between consumer bodies and the regulators - we found that the potential for conflict between bodies claiming to promote the interests of consumers was variously fulfilled. The evidence presented to us suggests that relationships can be troublesome. We were struck by the poor relationship that exists between Postcomm and Postwatch. Postwatch was critical of the lack of co-operation on the part of Postcomm, believing that it failed to be as transparent as it should be in its dealings with Postwatch.[35] Postcomm considered that Postwatch was ill informed in its approach.[36] The extent of the poor relationship was noted by the chief executive of Royal Mail: "I think Postwatch's position is quite clear. They believe that there should only be one regulator and it should be Postwatch. The fact that we have two bodies which have some overlapping duties towards consumers has resulted in, from our perception, the two bodies almost trying to outdo each other in their degree of toughness in standing up to each other and ourselves, which I think has damaged our relationship with both of them. I have always thought it far more likely that one of our regulators would judicially review the other before we would ever judicially review either of them. I think it has been a recipe for disaster".[37]

67.  The Electricity Association was equally concerned with respect to Energywatch.[38] Clare Spottiswoode also noted the inherent tensions;[39] Professor Littlechild drew attention to how difficult it was to reconcile the giving of a primary duty of consumer protection to the regulators "with the simultaneous creation of an independent consumer body whose duty is also to promote the interests of consumers".[40]

68.  Poor relationships are not constant features. Ofcom, which has been established with a consumer panel, as with the FSA, appeared to have no concern about the independence of its operations.[41] Relations thus differ from sector to sector. This may reflect the personnel involved or it may reflect the different methods of appointment and structures created for each sector. The existence of poor relationships, at times verging on the adversarial, is clearly undesirable and needs addressing. A robust relationship need not necessarily equate to a poor relationship. Ms Hutton of the NCC told us that the Council had achieved change through criticising Government where necessary: "In general terms, governments of all colours have appreciated that the value of the National Consumer Council to them lies in its independence and its robustness of thought".[42] A similar relationship between independent consumer bodies and the regulators is desirable.

69.  In order to address the problems we have identified, we recommend that independent consumer bodies be obliged by statute to engage in open meetings and conduct regular surveys of consumers. This has resource implications which should be met out of public funds. Following a review of the budgetary arrangements for each regulator an appropriate formula should be agreed for calculating this provision and applied to each of these bodies. We believe that these changes will enhance both the accountability and the independence of the consumer bodies.

70.  We are aware that the Government is undertaking a review of consumer bodies, supported by the National Audit Office (NAO), and recommend that the review includes an examination of the relationship between regulators and the related consumer bodies in order to introduce greater clarity in the relationship, if necessary through a statutory provision common to the regulatory regime.


25   Q970, Vol.II p343 Back

26   Vol.II pp420-1, para 10.1. Back

27   Vol.II p266 Back

28   Q 597, Vol.II p219  Back

29   See in particular government's review of utility regulation: A Fair Deal for Consumers - Modernising the Framework of Utility Regulation (London: Department of Trade & Industry, March 1998); and Consumer Councils: The Response to the Consultation (London: Department of Trade & Industry, April 1999). Back

30  Q1053, Vol.II pp364-5 Back

31   Vol.III p41 Back

32   Q344, Vol.II p121 Back

33   Ministerial Written Statement, Cabinet Office, Government's Response to Better Regulation Task Force Report: "Independent Regulators", 9 Feb. 2004. Back

34   It should be noted however that according to The Daily Telegraph of 16 March 2004, quoting a report by the European Policy forum, consumer bodies in some cases employ more staff than the regulators. Back

35   Q394, Vol.II p193 Back

36   Vol.II p238, para 10 Back

37   Q648, Vol.II p235 Back

38   QQ521 & 523, Vol.II p 175 Back

39   Vol.II p140, para 45 Back

40   Vol.II p23 Back

41   Vol.II p420, para 8.2 Back

42   Q1081, Vol.II p370 Back


 
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