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Lord Triesman: My Lords, I thank all noble Lords who have taken part in a debate which, perhaps unsurprisingly, has been very wide-ranging. I say "unsurprisingly", because the point has been made by many noble Lords that regulation has very extensive scope, and many issues have been touched on. However, I confess that there are always matters, even in a broad scope, that turn out to be a bit surprising. I congratulate the noble Earl, Lord Northesk, on his confidence that the civil servants now in such large numbers and spread throughout the country are all natural Labour voters. I had not considered that possibility, or that their voting tendencies might not be spread among all parties.

I am very glad to have the opportunity of responding to the debate on behalf of the Government and to congratulate, as many noble Lords have, the noble Lord, Lord Norton of Louth, on his chairmanship of the Constitution Committee and its report. It is a comprehensive and valuable inquiry, by any standards, and the subject matter, as I think everyone would agree, is of the greatest importance to the economy, the business community and customers of essential services. As such, the Government welcome and agree with many of the items in the committee's report and with parts of its analysis. It is a very valuable contribution to the development of thinking on regulatory accountability.

I have also read the CRI lecture of the noble Lord, Lord Norton, Who Regulates the Regulators?, published by Bath University, and the Parliamentary Affairs paper in October, Regulating the Regulatory State. Even if the noble Lord, Lord Dahrendorf, is right that you could not submit the committee report for the research assessment exercise, as one who has had to do so in my time, I am pretty sure that the other papers most certainly can be.

The key points that have been made are that while the Government have accepted a great many of the recommendations, they have not accepted what are said to be the most significant ones. I think that I am quoting the noble Lord, Lord Norton, accurately, in referring to the recommendations which embody the intellectual thrust. The noble Lord, Lord Holme, was concerned about those same issues, as were other noble Lords, including the noble Lord, Lord MacGregor. It has been said that we need to improve accountability in a much more thorough way and that we need to deal with the other issues about how that accountability is to be expressed and how people might accumulate rights of appeal, and so on.

I want to set out the Government's response to the report in a few moments. First, I should like to put the issues of regulation and accountability in context. Part of that context is that which the noble Lord, Lord Dahrendorf, mentioned—the operation of the Regulatory Reform Act 2001 and the necessity for review. I think that we probably all agree about having a review—the only question is when. I, too, understand that it will take place in mid-2005.

On regulation, I should like to focus on the examples provided by the key sectoral regulators for utilities. These regulators were brought into being by statute in order to
 
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provide important safeguards in crucial sectors where there were natural monopolies, dominance, information asymmetry or some combination of all those elements. The dangers of predatory behaviour by incumbents—foreclosure, monopoly pricing and other consumer detriment—had to be guarded against. Whatever is said about the growth of regulation in recent years, those were the guiding principles which were plainly behind what the previous government did, and I think it as well that we acknowledge that.

At the same time, it is essential to keep it in mind that the regulated companies usually operate within the private sector. They need to attract investment, as well as to respond to the emergence of competition. The noble Lord, Lord Blackwell, made some of those very points with regard to the nature of business and the interests of business in this respect. They are not, as businesses, wholly immune from the market. It is right to emphasise that their customers are the crucial factor in this and should guide much of our thinking. I do not accept the point of the noble Lord, Lord Blackwell, that boards tend to take less responsibility in these circumstances; I do not think that passivity is one of their hallmarks. For the most part, they have been pretty rigorous.

The independence of regulators provides the certainty necessary for businesses to operate and prosper in a regulated market. That includes the key independence from political interference in their day-to-day working and their decision making.

As the committee's report mentions, regulators have been established at different times and in different ways, but they share a basic model: a sector-specific regulator charged with a responsibility to operate under a hierarchy of statutory duties to achieve a range of public policy objectives. The statutory nature of each regulator's duties, coupled with their independence from government, underpins the successful operation of the regulatory framework.

Accountability is essential for those who hold public office, and in the context of this debate, it is a necessary adjunct to the pursuit of better, more effective regulation. But the word "accountability" is open to different interpretations, as, from the excellent drafting of the report, I know the noble Lord, Lord Norton, recognises. In the most common usage, it can imply being answerable to a person or a body in some higher authority, perhaps holding powers to censure, rebuke or penalise. It can describe the way in which the functions are undertaken, the processes used and the openness with which policies are developed and decisions taken, which we usually refer to as transparency. Accountability can also mean the processes that exist to review, amend or overturn decisions, such as those vested in a higher court. It has had all those meanings in today's debate.

All those elements of accountability are relevant to the debate on the regulatory frameworks, and all have been considered by the committee in the course of its report. A key point that I will leave in your Lordships' thoughts is that any process of accountability in the case of regulators needs to ensure that the fundamental issue of the independence of the regulators is not compromised by what is proposed.
 
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The Government have taken major steps to reform and improve regulation, including the 2001 Act. The Better Regulation Task Force, on which I was proud to serve under the chairmanship of my noble friend Lord Haskins, was set up in September 1997. It has accountability and transparency as two of its five principles of good regulation. However, I remind the House that, important as those two are, the other three are not unimportant either. There is also proportionality, consistency and targeting. The Government have reformed regulation of the electricity and gas markets, the postal services market, the telecommunications and broadcasting market, the water industry, and the financial services markets, with all five of those principles in mind. They were all major initiatives, reflecting the importance of those sectors, and the Government's desire not only for deregulation, but for better, more effective regulation. I hope that those observations will serve as an acknowledgment and appreciation of the complex task which faced the committee in dealing with this complex subject, and the importance that I and the Government attach to it.

In the response to the report, the Government have set out a number of ways in which sectoral regulators are held to account. These include parliamentary scrutiny by Select Committees. The noble Lord, Lord Holme, and others have made the point that it is absolutely right that the Select Committee should have that role. The noble Lord, Lord Roper, also made that point. There are also the appeals to the Competition Commission and the Competition Appeals Tribunal, and judicial review. Whatever the expense or difficulty, judicial review remains a route, and it is right to mention it. There are transparency arrangements, notably regulatory impact assessments; corporate governance; and consumer representation. I promise the noble Lord, Lord Elton, that I shall return to that last matter. Many of those processes have been revised and enhanced by government in the course of the work that I mentioned to review and improve the regulatory framework.

The committee made 24 recommendations in its report, in the areas of the overall regulatory framework, exposure to scrutiny, and independent review and improving appeals. The Government have accepted many of these recommendations without reservation. However, in publishing the Government's response, the committee noted that there were proposals that had not been fully accepted, and mentioned those concerning leadership within government, audit and the appeals process. The committee anticipated a more detailed explanation of the Government's position on these issues. I have been invited to provide more detail today, and I shall return to those points. The noble Lord, Lord Norton, emphasised them in the lecture published by Bath University, to which I referred and which has had wide circulation in academic and other communities. The noble Earl, Lord Northesk, also urged us to consider that set of developments.

The committee's recommendation 11 called for a much stronger communication of the "whole of Government" view of regulation. It recommended that
 
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the Government should appoint a lead department to be responsible for promoting effective regulation in practice, thereby co-ordinating the various roles currently played by a number of departments, including the Treasury, the DTI, the Cabinet Office and the office of the Prime Minister. The committee went on to recommend that the Cabinet Office would most logically assume that role, possibly by expanding the remit of the Regulatory Impact Unit.

The Government have made it plain that we agree with the importance of communicating regulatory principles and policies to the independent regulators and to a wider audience. If that needs restating today, I most certainly do so. We believe that effective communication of those principles and policies contributes to increased transparency and the reduction of regulatory uncertainty. The noble Lord, Lord MacGregor, appealed for exactly that in his comments. We recognise the value of ensuring greater consistency between regulatory policies, when that is appropriate, and of clarifying the lines of accountability between government and regulators. Consequently, we are committed to communicating effectively the "whole of Government" view of regulation, and agree with the committee that it is an objective of key importance.

The committee's report recognised that the wide number of forms which regulation takes can lead to a very broad definition of regulation. If I may say so—although perhaps it is a rather personal and injudicious comment—I have sometimes thought that the breadth of the definitions of regulation were so wide as to encompass almost everything. That includes the one provided by the Better Regulation Task Force. It was hard to think of what would not count as "regulation"—hence some of the difficulties in the task that we are considering.

Regulatory principles and policies need to be considered firmly in the context of the relevant market and policy areas. That is the starting point of the Government's response. It should be clear that detailed policy on regulation of the gas and electricity markets, for example, cannot and should not be divorced from wider responsibility for policy on energy matters generally. In the same way, detailed policy on regulation of the water industry or regulation of broadcasting needs to be considered alongside the wider policy on those issues in the relevant departments. Regulation, particularly economic regulation of individual sectors through independent regulators, requires specific knowledge of each sector. That is common ground, I suspect. That knowledge and responsibility is vested in the relevant Ministers and departments. It is crucial that responsibility and authority should not be diluted and disseminated by adding an additional layer of bureaucracy, with the attendant prospect of loss of coherence and clarity which that could entail.

I here recall two other principles of the "better regulations" mission—the principles of proportionality and targeting. The noble Lord, Lord Norton, introduced in the report and his excellent opening speech the
 
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question of regulation and regulatory creep. Almost all noble Lords have referred to that problem when the extent of regulation currently manifest has been discussed. However, significant efforts have been made through legislation to set sunset clauses, to try to claw back areas from regulation and to ensure, for example, that if new regulation is arriving in one place, there is corresponding reduction of regulatory burdens in other places. I believe that the noble Lord, Lord Elton, was appealing for exactly that. I believe—and I hope that all noble Lords would agree—that the dangers of creating new layers are dangers that we should not ignore.

As a brief aside, I remember that once, in my trade union experience, there was a recognition that the union's executive had established a very large number of committees to oversee everything. It therefore established a committee to abolish committees; that committee was retained, and we created two others to monitor its work. I have always used that as a precaution in my own thinking about future developments.

Co-ordination between different policy areas is a matter for clear allocation of responsibility for cross-cutting work, and for co-ordination of efforts to disseminate and achieve best practice. The Cabinet Office Regulatory Impact Unit has a role in promoting a better regulation agenda across government, including a focus on bearing down on the burden of regulation. We fully support that role, and the Cabinet Office advises on those matters. Of course, we need to identify and spread best practice, and to assess key policy issues which are common across a number of regulated sectors. That is the function of the Treasury and DTI, through their joint work programme on cross-cutting regulatory issues.

The joint team, drawn from both departments, ensures that policy-making across the different regulatory sectors can be joined up, and can reflect innovation and evolving best practice. Again, that takes place within the better regulation framework established by the Cabinet Office. I was asked which Minister had general responsibility; it is Ruth Kelly, as I suspect noble Lords may know, though I emphasise that the Better Regulation Task Force remains independent.

The Government believe that the Treasury and the DTI should jointly lead in formulating economic regulation policy and in ensuring that the regulatory framework is fit for purpose. That reflects their broader responsibilities; the Treasury and the DTI have a joint target to increase United Kingdom productivity, and economic regulation plays an important part in working towards that objective. The DTI will co-ordinate and communicate on behalf of government on issues where the DTI has a significant cross-cutting and sector responsibility.

These arrangements deliver the objective of co-ordination and communication. Care is taken to avoid division of authority from responsibility. There may be some interesting questions to take up in the suggestion made by the noble Lord, Lord Roper, about a quinquennial look at these matters. I have added a year to what he said; I apologise. I will think
 
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that through and perhaps come back to the noble Lord and others on another occasion. The issue of Select Committees is plainly a matter for Parliament.

The second recommendation of the committee is that the NAO should have access consistently to all regulatory bodies, including the Financial Services Authority. The Government value the vital functions discharged by the National Audit Office in monitoring value for money and financial control in spending public money. The Government believe that regulators should always ensure value for money and accountability for expenditure, which should be embedded in their processes and their thinking.

We need to recognise that there are significant differences between the regulators and the ways in which they are constituted. That has an effect on the way in which they are held accountable for their cost-effectiveness. Some sectoral regulators, such as Ofgem, Ofwat, Ofcom, and others were set up by legislation in such a way as to bring them within the scope of audit by the NAO. I do not think, with great respect to the noble Lord, Lord MacGregor, that it is a weak response to say that others are set up in different ways.

The noble Lord, Lord Norton, asked a question about this. Other bodies, such as the FSA and the Civil Aviation Authority, have different constitutions. The FSA is a private company limited by guarantee, and it is directly financed by the industry. The relevant audit requirements are those applicable under company law. It is worth noting that the FSA has no financial relationship with government or Parliament, and it is not to be regarded as acting on behalf of the Crown; it does not. That is a distinct difference from other regulators which are either non-ministerial government departments or are partly funded by public money.

There are mechanisms in place to ensure that the FSA expenditure is reasonable. The FSA has to have regard to the need to use its resources in the most efficient and economic way. It is required to consult on that and to set its pricing in advance. The FSA provides information on the costs of regulatory authorities in overseas jurisdictions in its annual report, and it holds an annual public meeting to consider that report.

The matter of ex-post examination of its finances means that the FSA is formally accountable to the Treasury. I answer the question put by one or two noble Lords; Treasury Ministers are accountable to Parliament in exercising their powers in relation to the reports that they receive. A similar position exists for the Civil Aviation Authority. I will write to any noble Lord who wants to go through the distinctions between that and the FSA. In determining and setting charges, all these bodies are accountable through mechanisms that are discernable. All of them reflect what I would describe as a targeted approach.

The committee recommended that appeals should provide an opportunity for the regulated to have their objections reviewed on the merits of the case, subject only to the condition that the appeal body should have the clear ability and power to identify and penalise appeals designed to frustrate equitable regulation. We
 
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support the aim of the recommendation, to ensure that appeals mechanisms are targeted and dealt with in a timely fashion to maximise regulatory certainty and minimise regulatory burdens.

However, there are already effective appeals mechanisms, and the Government are not convinced of the benefits of further extending a general right to appeal all decisions on the merits. The consequences seem to be that almost all decisions, particularly decisions on pricing, are likely to be appealed. We would run into problems that could be elaborated at great length, but can be put fairly simply. The processes themselves would begin to take so long that price-sensitive decisions of fundamental importance would take too long to get out into the marketplace and have a real and sensible impact in that marketplace. The decisions taken and the regulators' authority in taking decisions would be weakened, although I do take the point that has been made by the noble Lord, Lord MacGregor, about OFFA. It is occasionally possible that the nature of a decision would be of such fundamental and devastating impact if it was got wrong that it would be churlish to say the least to leave it without any sort of right of appeal.

The Government do not see the merit of a single body, a regulatory appeals tribunal, with a remit to consider appeals against the decisions of this extensive set of independent regulators. They are diverse, and there needs to be a proper and diverse response. The route of appeal, whether by judicial review or review on the merits of appeal as a way of re-hearing must be proportionate in all cases to the specific circumstances and the type of decision that the regulator is taking.

The relationship between the regulators and the relevant consumer bodies is an important point that was raised by the noble Lord, Lord Elton. I have also re-read the report that he mentioned. Some consumer bodies are very effective indeed, and the meetings that they hold are very effective, and everyone says so. Others are less so. The report indicates a number of ways in which that performance could be improved and the money spent more effectively. We have accepted that today, and it needs further work.

I have been asked specifically about the regulatory accountability body that is chaired by the Prime Minister. It is a prior hurdle for clearance before Cabinet and Cabinet committee considerations. The formation of the committee was announced in the Budget Statement of 17 March 2004 as a new measure for strengthening scrutiny of major regulatory proposals. In its forward plan it is looking at the implementation of all major regulatory proposals to ensure that there are compensating deregulatory measures so that there is no unnecessary growth in regulation. The panel for regulatory accountability assesses impact for all significant proposals to ensure that business views have been taken into account. I have already said that the Minister responsible for this area is Ruth Kelly.

The Freedom of Information Act applies to relevant regulatory bodies in the same way as government departments. It provides greater transparency, but it
 
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needs to strike a balance between the right to know and the important matters of commercial confidentiality. Not all regulators are non-ministerial government departments, and therefore not all fall within the means of the Act.

In the course of this debate, a number of points have been made, and I will go though them all and write to noble Lords if I have not addressed them specifically. I claim on behalf of the Government, perhaps contrary to the points made by the noble Baroness, Lady Noakes, that the mechanisms that have appeared for regulation started some time ago, as has been said, and they increased considerably during the period in which there was a movement from nationalised to privatised industries. The point that strikes me most forcefully is that as that process took place those who were affected by it welcomed and came to rely on the independence of the regulators from politicians and from the day to day impact of political affairs. It is hardly surprising in that light that more people wanted to see regulation conducted in that way, having seen the benefits of starting it in that way.

We consistently seek to produce by message and deed uniformity not for its own sake, but in order to make sure that people understand where they are. We seek to ensure that initiative is not stifled, and that best practice is shared. We seek to maintain relevant, appropriate and proportionate regulatory frameworks that meet the needs of individual regulated markets and most essentially their consumers. We will continue to study this report to see whether there are other areas in it that could also be elaborated or taken on as they are. In that, I express my gratitude for the report.


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