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Lord MacGregor of Pulham Market: My Lords, this is an important topic of increasing relevance. It was a great pleasure to participate in what my noble friend Lord Norton rightly referred to as the first major study of the subject. Like the noble Lord, Lord Holme, I pay tribute to my noble friend for his chairmanship of the Constitution Committee during the time that I have been a member. He has marshalled, and enabled us to marshal, the arguments that have led to conclusions which I believe, in every case, were unanimous despite the many vantage points from which we all come.

With great skill, my noble friend has played a huge part in writing the report. In rereading the report over the past few days I have been struck by how well it is written. I did not write it. Both this and the previous reports were written by my noble friend, who has played such a significant part in our work. I am very happy to pay that tribute to him.

The study was massive and intensive. Therefore, perhaps it is not surprising that I shall stress some of the same points made by the two previous speakers. The need for regulation, independent from government, has been with us for a long time. Some time ago, I read a book by one of my former special advisers, Sir Christopher Foster, who also gave evidence to us—he has undertaken much academic
 
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work in this area—called Privatisation, Public Ownership and the Control of Public Monopoly. He spent a great deal of the earlier part of the book talking about how regulation, often difficult and controversial, was developed during the 19th century; for example, in response to the monopolies in rail and so on.

The subject has been with us for a very long time. It was particularly important in the 1980s and 1990s, in the Conservative governments in which I played a part, when there was great emphasis on privatisation. The spotlight was put on the importance of regulators in the formation of monopolies which were then moved into the private sector. It is not just in the economics sphere, with particular reference to former monopolies, that independent regulation and independent regulators now play a big part in our lives.

From the consumer point of view, we have the Financial Services Authority, much of whose work is carried out on behalf of consumers. On health and safety, we have not only the Health and Safety Executive, but also a huge range of regulators. The same goes for the environmental area.

The huge number of independent regulators that we have now and the importance attached to them was brought home to us by the huge amount of evidence that we received and the great deal of interest taken in the subject. All that means that regulators are undertaking tasks laid down by Parliament, but at arm's length from government. As the noble Lord, Lord Holme, indicated, in the past many of them would have been performed by government, with Ministers answerable to Parliament, often on a daily basis. That direct involvement of Parliament and Ministers has been removed in so many areas.

Therefore, this review is timely and, inevitably, had to be limited in scope. We focused mainly on regulators of an economic nature and considered them from the point of view of government and Parliament, the producers and providers of the goods and services and the consumers of them. I believe that the importance attached to our inquiry was shown by the massive response that we received. The evidence is a goldmine of information for those interested in the issue of regulation. My one disappointment is that there was very little media attention in the report, perhaps because the subject is so complex. I hope that it will be an important point of reference for all concerned and a checklist for continued development and action.

I cannot cover the whole subject, as we could not in the report. One area to which we briefly referred, but did not follow up, was regulatory creep. That area will probably justify a further study. We certainly need to monitor how regulatory creep is taking place and how much of the growth of regulatory bodies has added to the expansion of bureaucracy and has increased the number of what, effectively, are civil servants. On the part of government, particularly this Government, whenever there is concern about an issue, there has been a temptation to set up a new regulatory body, hence demonstrating action.
 
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I was interested to note that the Secretary of State for Health is now cutting back a number of the quangos that this Government have set up as part of the current cutting-costs exercise. So there is an issue about how much control there is over the costs of regulatory bodies. Today we read in the Times—I am indebted to the noble Lord, Lord Oakeshott, for revealing this—about the premises that the regulator for the NHS foundation trusts is now taking. I do not see why that regulatory body has to be in Westminster. The Minister's answer as to why it should be there was that this is a decision for the executive chairman. In the past it would have been a decision, in terms of government, that would have been looked at by Parliament and the PAC. There is an area of regulatory creep in this case with a huge new body of expanding numbers and costs which are outwith our normal processes of accountability.

Let us remember that these regulatory bodies are financed either by the public purse directly through taxation or by the levy and charges that are statutorily imposed, which for businesses are another form of taxation that is eventually paid for by the consumers. So the running of the regulators and their costs is a legitimate cause for public and parliamentary concern. I shall have more to say about that in a moment.

Accountability was one of our key themes. I recognise that the Government have made considerable progress in many respects, which we have acknowledged in the report: the move away from a singular regulatory person to separating the role of chairman and chief executive and to having non-executive boards; the new individual appeal mechanisms which have been set up; and the involvement much more of consumers' organisations. Some of the Better Regulation Task Force's work has considerably contributed to this—a matter we pick up in our report.

This progress is demonstrated by the fact that many of our 24 recommendations have been accepted by the Government. I intend to comment briefly on only one—regulatory impact assessments. The important point here is not only all that the Government are doing in having these impact assessments before legislation is brought before the House, but also their having retrospective impact assessments over a period of years afterwards as to whether what has happened has actually met those original regulatory impact assessments.

The four areas where, however, we are still at odds and where I wish to comment specifically, are ones that have already been touched on by noble Lords before me. I want first to refer to what we described as recommendation 11, which is box 10 in the Government's response. That is the recommendation for a lead department to be responsible for promoting effective regulation in practice. We suggested logically that the Cabinet Office should assume this role.

I fully accept, as the Government pointed out in their rather lukewarm response to this recommendation, that they are right to say that these departments—and they refer to the DTI and the Treasury—should jointly take the lead in formulating economic regulatory policy and
 
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ensuring that the regulatory framework is fit for the purpose. However, I think that there is a role beyond that; to look at regulation as a whole. In that respect I was disappointed in the Government's response.

I give an example of a Bill that came before us in the previous Session, the Higher Education Bill. I, with others, was responsible for putting forward an amendment relating to OFFA, the Office for Fair Access, saying that there should be an appeal mechanism for the decisions of that body because in—I would think—rare circumstances those decisions could have major impacts on an individual university. It was only when I referred to the fact that we were making recommendations for appeal mechanisms in our report and that in another Bill, the Pensions Bill, there was an appeal mechanism for establishing the new regulator—two new regulators in two Bills—that the Government graciously gave way and the noble Baroness, Lady Ashton, accepted the recommendation. However, it should not have been necessary for this House to do that. There should be a government department that insists on appeal mechanisms every time a new regulator is set up.

I turn to our recommendation 16, which was in box 15—or perhaps it was box 16; never mind—in the Government's response. This is the recommendation to which reference has already been made about setting up a separate Select Committee in the House. The Government are right to say that this is a matter for the House authorities, but the Government can always give a steer. I have to say that here too they were decidedly lukewarm. I was going to draw attention to the same point as my noble friend Lord Norton; that is, that the House authorities will need to consider carefully what additional scrutiny would be achieved over and above that of the departmental Select Committees and the NAOs.

There was a pretty clear indication that the Government do not think that this provision is necessary. However, I should like to spend some time indicating why I think it is important. I have to say that all regulatory bodies that came before us stressed that their authority—and these are the regulators speaking—derived from the original legislation, and all of them talked about the importance of scrutiny by individual Select Committees.

Hence, it is essential that Parliament regularly scrutinises the overall regulatory climate and the developments and progress of the issues surrounding individual regulators. Various consumer and producer bodies drew this to our attention. It was equally clear from their evidence that they thought that Parliament currently deals with this in a way that is spasmodic and which does not always work well.

Those of us with long experience of Select Committees know why it is not perhaps the most effective method of parliamentary scrutiny. Parliamentary Select Committees vary in their quality, attendance and the continuity of membership. They have a lot to do. For a departmental Select Committee, the work of an individual regulator and dealing with
 
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an annual report is unlikely to have much priority. To put the matter in a different way to the noble Lord, Lord Holme: it is rarely politically sexy.

To look at the regulatory systems as a whole needs continuity, interest, expertise and an ability to take an overall view which goes way beyond individual departments. The point I was making about overall cost could never be explored on an individual departmental basis. Hence, I believe that our Joint Committee recommendation was the right way forward. The Government could give a steer in that regard; I shall be interested in the Minister's response.

I turn next to the box that refers to the fact that the NAO should have access consistently to all regulatory bodies and of course the SFA and the CAA are outwith the NAO position. I have to say that the Government's response was pretty weak. They said that,

Government and Parliament set up those bodies, so they are statutory to all those whose businesses and lives they can so deeply affect. Their charges are effectively a tax. I do not believe that Parliament can scrutinise effectively their cost effectiveness, value-for-money and so on, unless they have a mechanism such as that for the NAO which would enable the evidence to be thoroughly examined and the reports given to Parliament. The game, as my noble friend Lord Norton suggested, was given away in the Government's response in paragraph 54 where they said:

If it is accountable to the Treasury, it should also be accountable to Parliament. I therefore believe that it is important that bodies such as these should be subject to the NAO scrutiny.

The Government in their response also relied on these original statutes for the NAO. That was reminiscent of the reliance on the original statute in setting up the Parliamentary Ombudsman when there was pressure for the Parliamentary Ombudsman to be able to investigate the Government Actuary's department in the Equitable Life case. Now the Government have given way. I think that the time will come when they will have to give way on this too. They should grasp it now.

Finally, I refer to the appeal mechanism and the various recommendations we made. Here, too, I acknowledge that the Government have made considerable progress. They have introduced appeals mechanisms in setting up a number of new regulators. However, I believe that they are wrong to dismiss our recommendations here so firmly. First, our evidence showed strong demand for such a system by those who were subject to regulation without an adequate appeal system at present. We have listed those in the report. We stress too that the situation is now dynamic, with EU
 
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influence coming to bear, with the Government having their own DTI inquiries into regulation and so on. So, I believe that the demand has intensified.

Secondly, there is the inadequacy of the current checks on which the Government relied. We all know that the judicial review process is not a satisfactory substitute for a proper appeal on merit, because it cannot even entertain that sort of argument. We also know and saw from the evidence that parliamentary scrutiny does not provide an appeals mechanism. All the objections that the Government made in their responses—the scope for delay, additional cost and so on—were adequately dealt with in our report, which also dealt with the issue of frivolous complaints. We were talking about those areas of regulation where there are gaps and no adequate mechanisms at present. We did not argue for a huge new system immediately but for a,

and that that should be introduced over time and accorded to all those who are subject to regulation. I am a little encouraged that, in their response, the Government, after being dismissive, concluded with this modification:

In acknowledging all that the Government have done, I believe that they should go further with that appeals process. I encourage the Minister to move a little further in that direction in his response today.

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