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The right reverend Prelate the Bishop of Portsmouth mentioned the Isle of Wight. I plead guilty to never having visited. I was talking earlier to two friends in

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Guildford who were going to visit the Hindhead Tunnel this afternoon, so it seems to be well under construction although I fully accept that it has been very slow. He also makes a valid point about resources and the way the money is dealt with, and he referred to the cuts in funding. There are choices but no decisions or announcements have been made. I realise there are rumours and that this debate is timely. Natural England’s board will get a copy of the debate, as will Defra officials. The overall budget has been set but the individual breakdown has not been made available or any final decisions made. The right reverend Prelate also raised issues relating to the proposed national park. I can only say that we anticipate that a decision about the park will be taken by January 2008, so there may be a light at the end of the tunnel.

I fully accept what the noble Earl, Lord Selborne, said. He made a case for making these areas vibrant because if they are not, they will die. They must not be put in aspic; there has to be a vibrancy of work and play. We have to be sensitive to planning matters but we do not want villages to simply die as businesses leave and new ones are not allowed in. So we need good, vibrant, sustainable areas in those parts of our countryside.

I cannot answer all the points made by the noble Lord, Lord Bridges. He certainly gave us a history lesson. I declare an interest only in the sense that I am a member of the RSPB—and the noble Lord is right: Defra does not want to go to war with the RSPB. For the first time in my life I walked the strip of land between the river and the sea at Orford Ness in the Easter Recess last year. I fully accept that people in London have no idea of these areas of outstanding natural beauty, of which the noble Lord gave examples. In a way, it is salutary that local authorities are making decisions about these designated areas and they do not appreciate that they are in them. You do not see a sign like you do when you go into the national parks because it is a matter for the local authority. Local authority signs are up on the roads but AONB signs do not appear in that way.

The noble Lord, Lord Marlesford, may have been personally complimentary but he was also quite nasty. He does not like my department or any of our agencies. It is not true that the Environment Agency has written off the whole of our coastline. That is somewhat of an exaggeration. I do not know all the details but there are proposals in that part of the world to give up some of the land back to the sea. I will seek to write to him and make sure that he receives up-to-date information on this. He asked a specific question about PPS 7 and Section 85 of the Countryside and Rights of Way Act. They will not be diminished by the Planning Bill; I can give him positive assurance on that. The Environment Agency works 100 or more years ahead. In terms of coastal defences and flood plains, they make estimates for a long term ahead. Part of the discussion about the Thames Barrier is predicated on looking a quite long term ahead. The noble Lord made the point about aircraft, as did others. If the aircraft stack up over the water, you could argue for putting the airport in the water. That is not an argument that the Government are putting forward. I do not think I can get into that.



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I shall be on the A30 myself in about 48 hours, so I shall be part of the generation of the noise the noble Lord, Lord Bradshaw, referred to. I think he is right about the noise. In the old days when Dunlop was a proper company they produced a road surface which was better for braking and drainage and, above all, a lot quieter because it was for use on the urban motorways.

There is no difficulty in encouraging tourists. I am not going to say that this is a matter for another government department because, as the debate has shown, by definition virtually every government department is involved in what we are dealing with here. There is no difficulty with tourism. I am happy to make inquiries about that, but I have not been made aware that the areas of outstanding natural beauty are suffering particularly as a result of tourism.

The noble Lord made a point about the funding of the rural community councils. There is also the Rural Services Network, a 250-strong organisation that recently sent Defra a document. I apologise that it got buried under my files on the Climate Change Bill. Nevertheless, there is a case to be made. A lot of the small organisations are run by volunteers, as has been said, and can make a much better contribution than a plan from Whitehall can. They can also be better value for money. Great schemes of mega-billions do not always get down to where we need them.

Another issue that was raised, although I think it is accepted, is the difference between the national parks and the areas of outstanding natural beauty. We fund them differently. The national parks are virtually quasi local authorities. There is a big difference between them in that the national parks have planning powers, which is a substantial change to the way in which they are administered. There are some 40 areas of outstanding natural beauty. I do not know how many local authorities are involved in those 40 areas; I should have asked, but I did not. The noble Lord, Lord Plumb, told us that there are 17 areas of outstanding natural beauty in the Cotswolds, so the numbers are enormous. It may be that greater numbers of areas of outstanding natural beauty being in fairly small local authorities with smaller capacities does not give them a loud voice. That may be a difficulty; I do not know. A good many local authorities in this country will have an area of outstanding natural beauty, or part of it, in their area, and I do not know whether some local authorities give them more importance than others.

The noble Lord, Lord Bridges, asked about decision-making. I am reminded that back in 2005, the then Minister, Alun Michael, issued a note to departments to ensure that they took account of areas of outstanding natural beauty in their decisions. As it is 2008, and as I have been reminded that we are coming to the end of a period of this Government—those are not my words but another Peer’s; he is very optimistic—I will take the opportunity to see whether we can reissue Alun Michael’s salutary reminder to other departments to ensure that they take account of the areas of outstanding natural beauty in their decision-making.

I mentioned PPS 7. I cannot get into the question of the stacking of aircraft, which is a matter for the

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Civil Aviation Authority and the Department for Transport. I often wonder why we still fly to Paris and Brussels, but I have said that before. On the other hand, ruling out cheap flights is not an answer. It may be a slip of the noble Lord’s tongue, but having only expensive flights is not a message that any Government would want to give to their population. We must deal with the question much more sensitively than that.

I have probably covered a good deal of the issues without coming to the first paragraph of my speech. I will trawl those that I think I have not covered to ensure that I cover them all. I congratulate the noble Lord, Lord Renton, again on securing the debate and on the way in which he introduced the subject. It is always a pleasure to congratulate someone who has had a big influence on legislation. Today was a fitting tribute to that.

4.54 pm

Lord Renton of Mount Harry: My Lords, I congratulate and thank all those who have spoken in this debate, including the Minister and others on the Front Bench. The speeches were unusually thoughtful, knowledgeable, passionate at times and, typically in the case of the Minister, very lively.

I am delighted that in the course of the last two hours we have strayed from Cumbria, through the Lake District, to the north Pennines, and on to the Chilterns and Cotswolds. We have touched briefly on Oxford, quite a lot on Suffolk, and we then moved down to the Kent Downs, Hampshire, Sussex and the Isle of Wight. We have all supported the idea that AONBs need more help. We have all expressed the wish that they should be able to fulfil their important objectives. I was particularly delighted to hear from the Minister that the Government strongly intend, in the EU financial negotiations, to move CAP money from Pillar 1 to Pillar 2. Reading this debate on the internet or in Hansard will give great pleasure to all those who work for the AONBs and all those who wish to protect our beautiful countryside. I beg leave to withdraw the Motion for Papers.

Motion for Papers, by leave, withdrawn.

Economy: Regulators (Regulators Committee Report)

4.55 pm

Lord McIntosh of Haringey rose to move, That this House takes note of the report of the Select Committee on Regulators on UK Economic Regulators.

The noble Lord said: My Lords, it is with great pleasure that I open my remarks by thanking those who have taken part in the work of the Select Committee on Regulators in the past Session. I thank the members of the committee, in particular those few who have found it possible to stay until this last moment before we depart for our Recess. I thank the clerk and the specialist adviser, Sarah Price and Boaz Nathanson, and the two specialist advisers, Graham Corbett and Eileen Marshall, who helped us so much.

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I have been in this House for 25 years and have never had any contact with the committee system before. I am puzzled by it; it is a very strange way to gain wisdom. First, for a committee such as ours, which lasts only for one Session, the timing is very tight. You put out for evidence in December, get it back by February, talk and listen to people between February and June, produce a draft report by the end of July, and debate it in October. I am a researcher by trade and I would wish to spend a considerable time ascertaining basic facts before I started asking questions. Evidence-based, which these reports are, means evidence in the legal sense—in other words, what people said to us, rather than what is the truth. It is our ability to discover and ask the right questions, and question answers if they are not clear, which leads to the quality of the final report. Any defects in that quality are my personal responsibility and not those of the others who took part. It is a strange business.

In the time available to me, I am going to do two more things, other than question the committee procedure of this House. First, I am going to race through the recommendations of the committee. Secondly, I want to say some things about what has happened in the regulatory world since we drafted our report at the end of July and since we reported in October. What has been happening is quite dramatic. I have 11 points to make about the report and I will race through them.

On regulators’ statutory remits, we decided that they were pretty good, despite being arrived at almost at random in a series of privatisation Acts which were never thought out as a whole. There were never any consistent policy decisions about the establishment of the regulatory estate, but it seems, on the whole, to work. We recommended against new legislation, but said that there should be standardisation of remits as opportunities arise.

We looked at the working methods of regulators and the value for money they provide. It is certainly true that the cost of regulation has gone up, but we concluded that, generally, the cost has gone up because of the increased workload that has been put onto regulators, rather than through inefficiency. I take the particular example of the FSA being given mortgages and general insurance markets, which enormously increased the number of firms that it had to regulate.

We looked at the issue of risk-based regulation and principle-based regulation. In evidence to us, Ed Balls made it clear what had not been entirely clear to me: that you can have risk-based and principle-based regulation. You have to have it when you are dealing with large numbers of smaller firms—what you might call retail regulation—but it is much more difficult and not necessarily desirable for very large firms. I shall be saying more than a word about Northern Rock in due course. Some of the conclusions to which we came have been invalidated by subsequent events.

Thanks to the National Audit Office and Ed Humpherson in particular, we looked at regulatory impact assessments. The NAO concluded in a study that it did for us that regulators are pretty good at pre-impact assessments—better than the Government

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in fact—but not so good at post-evaluation. It is a bit like post-legislative scrutiny: it is a good thing but it has not actually happened. We concluded that regulators on the whole should be responsible for their own impact assessments although there were certainly exceptions, particularly for post hoc examination.

We looked at the issue of the citizen and the consumer—the public interest. We concluded that the definition of “public interest” or the obligations to citizens should be defined by the Government and Parliament and promoted by the regulators. Ofcom is a good example of that. But we certainly did not think that the interests of citizens should be ignored even though the phrase “public interest” is not much more than a Humpty Dumpty phrase. It means whatever you wish it to mean, but it should mean something. On consumer representation, we concluded that, generally, consumer representation should stand alone as separate from the regulators themselves.

We looked at the relationship between sector regulators and functional regulators—the OFT and the Competition Commission. We thought that concurrency arrangements were working quite well, but we still needed more referrals to the functional regulators and there should be more use of competition law.

We looked at relationships between regulators and the Government. Again, we thought that it was working pretty well, but we were taken aback that Ministers giving evidence to us did not seem to know much about what each other were doing although they were reasonably well informed about their own responsibilities.

Because we were concentrating on economic regulators and the economic effects of the regulation system as a whole, we looked at issues of competition and competitiveness. Not all regulators are competition regulators and, on the whole, although competitiveness should follow from greater competition, that does not always happen. We were unkind to Ofwat and the water industry for not achieving any effective competition.

We looked at whether sectoral regulators were going to fade away—whether there should be a sunset clause—as many people thought would happen when they were first established. We came to the conclusion that St Augustine of Hippo was right:

Yes, it is a desirable thing, but we are nowhere near that yet. There is a continuing role for the Government. Matthew Parris in the Times last Saturday made that very clear. He said:

If the committee had known that it would have agreed with it.

Finally, we looked at accountability and parliamentary oversight. Some of that happens, of course. We think that it is important for the OFT to report to the Joint Regulators Group and that it is important for Ministers to talk to each other perhaps more than they do. We are very appreciative of the work of the House of Commons departmental Select Committees. For example, the Treasury Select Committee report on Northern Rock in January was an outstanding piece of work.

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We felt very much frustrated by our limited timescale, the fact that we had to limit ourselves, therefore, to particular issues of regulators, not of regulation, to economic regulators and to cut out all sorts of important issues that this House should consider; for example, the social and environmental effects of regulation. Therefore, we recommended, in line with the recommendation of the Constitution Committee, chaired by the noble Lord, Lord Norton, in 2003-04, that ideally there should be a Joint Committee of both Houses or, if not, a continuing Select Committee of this House, which would have responsibility for the regulatory estate, because, as I have said, it is always with us.

What has happened since we drafted and considered our report? A huge amount has happened. I could give many examples, but I shall concentrate on the FSA and Northern Rock. Ofgem, for example, after giving very self-congratulatory evidence to us, allowed price increases in January this year of 12.7 per cent for electricity and 17.2 per cent for gas. As for competition, Ofgem has allowed the number of suppliers to decrease from 20 in 1998 to six today, with vertical integration that makes it very hard for anyone else to enter the market. There have been problems with the Civil Aviation Authority and the Office of Rail Regulation, with which I do not have time to deal, and with OFWAT, with which we did have time to deal.

I want to talk most of all about financial regulation, because there has been a huge change in the success and stability of financial markets. A lot of it was predictable. It was predictable while we were reporting, so we are at fault, or I am at fault. Alan Greenspan said in 2005:

I do not think that anyone would say that now, although he wrote a typically equivocal article in the Financial Times a couple of weeks ago. The Minister, my noble friend Lady Vadera, will recall that he spoke at a meeting in the Treasury a few years ago when he made a particularly opaque speech which I came out of saying, “I don’t think I understood much of that, but I think that he was approving of derivatives and hedge funds. And I think he is wrong”. I still think that he is wrong.

We had plenty of warning, if we had known about it. The Government and society had plenty of warning. The Bank of England Financial Stability Report in April last year said:

That means that those who are supposed to be assessing risk are,

The report said that there is less information on borrowers and on monitoring. Has not all of that proved to be true in the past six months?

The FSA’s oral evidence to us in March last year—and the questioning, which again is my fault—was all

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about over-regulation. It was all about the accusation by the Royal Bank of Scotland that the UK regulatory regime was one of the more onerous. I do not think that we would say that today. The Treasury Select Committee, in its report in January, found no excuses for the way in which Northern Rock was regulated by the FSA. There were plenty of warning signals. The report said that the business model of Northern Rock was clearly stated, that there should have been a warning in the rapid expansion of Northern Rock, that the fall in the share price was a warning, and that the Basel II waiver, where they pay dividends and weaken the balance sheet, should also have been a warning. The report said that Northern Rock looked at solvency and not liquidity and pointed out that liquid assets for all of these businesses had gone down from 20 to 30 per cent 40 or 50 years ago to 1 per cent now. Mervyn King told the Treasury Committee last week that,

and,

In other words, more regulation, not necessarily lighter regulation.

The FSA internal audit, published in February this year, was candid about what went wrong in the supervision of Northern Rock. There have been three reorganisations—three heads of department—in the past four years. In that time, there have been eight meetings, of which five were on the same day and none kept adequate formal records. The Treasury Committee questioned whether there was any meaning in “close and continuous supervision”. It questioned the lack of a risk mitigation programme. Since it made comparisons with only five other banks, there is still a lot of work to be done. The FSA audit said that Northern Rock was at,

What does that mean? Does it mean that other banks were being regulated more closely? I think not—but that is what it ought to mean. It ought also to mean that Northern Rock was inspected more closely. Mr Hector Sants, in his response last week to the internal audit report, said that the,

Is it indeed? It seems to me that Mr Sants is recommending much more regulation, increased links with the Bank of England and with international organisations, increased resources, an increase in the number of staff, and an increased priority for their work.

At the conclusion of this exercise, I am deeply dissatisfied, not with the work that we did, which was of considerable value in the limited time available to us and with the terms on which we were appointed. However, I do think that we and everyone else failed to anticipate the conclusion that society must now reach—that the regulatory state is with us for good. The Economist this week said that the experiences of Northern Rock,

It added that,



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The regulatory state is with us to stay and we shall need continued and better parliamentary oversight of it. We shall have to find a way of achieving that. I beg to move.

Moved, That this House takes note of the report of the Select Committee on Regulators on UK Economic Regulators (First Report, Session 2006-07, HL Paper 189).—(Lord McIntosh of Haringey.)

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