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Lord Holme of Cheltenham: My Lords, I am delighted that time has finally been found to debate this important report—and prime time, too. At least, I think that is what it is called; on any other day of the week, it would be called "lunchtime".

It is a particular pleasure to follow the noble Lord, Lord Norton, because The Regulatory State—our penultimate report—was produced by the Constitution Committee during his chairmanship. As a member of the committee who has now had the honour to succeed him, perhaps I may say how much we all owe to his intellectual leadership as the first, and therefore the formative, chairman of this relatively new committee. The British constitution is rather like a woodland nymph—much admired but notoriously elusive and difficult to grasp. We have been lucky to have not only a hands-on chairman but a hands-on-keyboard chairman. Our reports have borne every imprint of both his scholarship and his authorial talents. The committee and the whole House are grateful to him, and personally I thank him warmly.

Turning to the report, there were originally some sceptics who wondered what regulation had to do with the constitution. I fear that they have no sense of
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political and social history because, over the past 50 years in this country, we have seen a massive transfer of powers, which would once have been thought to be in the sphere of government or the state, to independent regulators. In part, that is because the idea of the omnipotent state is in retreat everywhere before the forces of the market. Command and control, let alone ownership, by government is not the powerful paradigm for organising society that it once was.

Yet, even as government shrink their sphere of influence and operation—I should say parenthetically that they do not seem to do very much about shrinking the size of their operations and the numbers in the Civil Service, but at least their theoretical sphere of influence shrinks—the demand for an expression of the public interest to lay alongside the force of the market place remains and, indeed, strengthens.

At its economic purest, the public interest is to sustain competition and prevent abuse of market power. But, in a complex world, other political priorities—civil and social, environmental and ethical—inevitably intrude, and they are often fuelled (I think we should accept this in Parliament) by parliamentary demands that "something should be done". It is too easy for governments faced by demands that something should be done to set up yet another regulator.

So I do not think that our description of the sum of these historic developments as the "regulatory state" goes too far. It is clear that important constitutional issues do arise: the rights both of the citizen and of the "regulatee"; the trend to co-regulation and self-regulation; and the relationship between regulators and Ministers and their sponsoring departments.

Perhaps I may say, again in parenthesis, that one reassuring feature that we observed from the extensive evidence we took is how little evidence there is of day-to-day interference in the work of regulators by Ministers and their civil servants. Nevertheless, it is an issue which may arise, and does arise, from time to time.

There is the deeply constitutional issue of due process and the right of appeal from decisions made, as the noble Lord, Lord Norton, has already mentioned. There are issues which are perhaps less constitutional but are nevertheless important, such as whether it is better to have individual super-regulators or collective board-type regulation. As noble Lords will note, on the whole we come down in favour of the second. Above all, there is the issue of the accountability of these powerful regulators. I want to address myself particularly to the issue of accountability.

The Hansard Society Commission on Scrutiny, chaired by the noble Lord, Lord Newton, concluded—I am sure that it is right—that in our parliamentary democracy Parliament itself should be the apex of accountability. How fit for purpose are we in Parliament to ensure public accountability? After all, these regulators are almost invariably our creation and so, like Frankenstein, it might be argued that we have some responsibility for them.
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As we heard in evidence, what is needed is effective parliamentary scrutiny. The front line for that is, and should be, departmental Select Committees. But we should ask ourselves: are they adequately staffed and resourced for this important role? As your Lordships will have read, we recommended that their terms of reference should be expanded to consider and react to regulators' annual reports and published RIAs.

One problem relating to Select Committee scrutiny of regulators is that often there is too much random populism—whatever issue of constituency or local personal significance comes up for a Member—and too little systematic scrutiny of the way that the regulator is doing its job. We recommended that a clear cycle should be observed by all regulators and their departmental Select Committees. We also recommended the publication of an annual report—it is hoped in a fairly common format—and then, shortly thereafter, a thorough and deep examination of performance against clear objectives within the departmental Select Committee.

It is particularly necessary to have careful scrutiny of any additional powers that are added or accreted to a regulation in the course of operation. Without that there is the danger of what is called, rather unattractively, regulatory creep. There is certainly an imminent danger that regulators will find themselves with multiple objectives and without any clear hierarchy to guide them on the priorities in decision making. As well as trying to improve the way in which the departmental Select Committees do their jobs in that respect, we need consistent access by the National Audit Office to all regulatory bodies, including the FSA. It would be good to have confirmation from the Minister that that is the Government's intention.

First, we recommend that our new Joint Committee, as the noble Lord, Lord Norton, said, should ensure that there is no duplication or overlap and that every regulator established has a clear hierarchy of objectives under which to do the job. It is not for us to say whether it will be a Joint Committee, but we believe that a Joint Committee might do the job best. It would need to be properly resourced like the departmental Select Committees.

Secondly, there should be identification and sharing of good practice around Whitehall. Thirdly, there must be a check on whether regulation is indeed in conformance not just with the Better Regulation Task Force—which has produced principles under the chairmanship of the noble Lord, Lord Haskins, which deserve to be followed—but also with the OECD checklist for regulation. We must also ensure that all appointments to regulators are made within the Nolan principles amendment that such a committee can keep an eye on RIAs and ensure that parliamentary attention is given to any add-on powers of the kind I have described.

In summary, there is a big job to be done. There may be various ways of doing it—we do not necessarily need another Select Committee—but I believe that from time to time Parliament needs systematically to take a whole-of-regulation view.
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Speaking of the whole of regulation, like the noble Lord, Lord Norton, I should like to press the Minister on the Government's rather disappointing response to their own organisation—a matter which they can do something about that. They can always say to Parliament, "You decide how you want to organise yourself in terms of parliamentary committees", but I thought that their response was unduly negative. The Government should explicitly accept the overall responsibility and accountability for regulatory policy and the regulatory framework within which individual regulators work. That would be so much easier if there were some organisational expression in Whitehall so that a whole-of-government approach could be taken by the lead department—probably the Cabinet Office—which could assume the role by expanding the remit of its RIA unit. In turn, the Government could have a more holistic response to the work of the Better Regulation Task Force—which, after the noble Lord, Lord Haskins, has been so well chaired by David Arculus.

If the Government were to take the more focused and co-ordinated view of regulation that we are urging on them, they would be able to mirror better the work of the parliamentary accountability regime that we are proposing. In his reply, perhaps the Minister could say more about the Government's reasoning on that.

The object of this is to ensure that the regulatory state does not grow like Topsy; that regulators are removed when their jobs are done; that regulation is appropriate, transparent and proportionate; that Parliament remains where it should be, at the apex of accountability, ensuring that we create only bodies that are fit for the purpose; and that those purposes are necessary and achieved properly.

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