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In the report, we have made recommendations designed to improve the transparency and efficiency of regulators, not least through the introduction of impact assessments and post-implementation review. The value of such assessments and review is clear. Indeed, the principle of post-implementation review is crucial, applicable to all public policy-making bodies, be they government departments in respect of primary and secondary legislation or regulators making regulatory decisions. The case for such review has been made by the Constitution Committee, the Merits of Statutory Instruments Committee and the Regulators Committee. I am pleased that the principle is accepted by the Government and is being pursued, including in respect of post-legislative scrutiny.

As we made clear in the report, advances are being made in respect of regulators, but there is still a considerable way to go in ensuring systematic assessment and review. That is clear from the study undertaken for the committee by the National Audit Office. I draw attention in particular to Table 14 on page 113.

However, it is the issue of accountability that I wish to pursue. As the noble Lord, Lord McIntosh, mentioned, in 2004, the Constitution Committee produced its report entitled The Regulatory State: Ensuring its Accountability. As he mentioned, I chaired the committee. In its response, the Government welcomed the report as,

of its sort. That may seem surprising, given that regulators are subject to extensive scrutiny by parliamentary committees, as well as by other bodies. Indeed, in the report, we identified what we referred to as 360 degrees of accountability.

Each regulatory body established by statute is bound by the statute creating it—the Lord, Lord Borrie, touched on that. Each is accountable to government, consumers, the regulated bodies, the courts and to Parliament, but it is the accountability of the individual regulator. In terms of parliamentary accountability, each regulatory body is covered by a departmental Select Committee in the other place. Most are subject to scrutiny by the National Audit Office. However, there is no mechanism in place for scrutiny of the regulators collectively, of what the Constitution Committee termed the “regulatory state”. There is what I would call “vertical scrutiny”—that is, scrutiny within a sector—but very limited “horizontal scrutiny”; that is, across all regulatory bodies. The more the number of regulatory bodies has increased, each created by a statute tailored to that particular regulatory regime, the greater the need

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to stand back and ensure that regulators collectively are accountable to Parliament.

The need to ensure consistent and comprehensive scrutiny of the regulatory state is clear from the report of the Constitution Committee as well as from the report before us today. Particular regulators may be subject to scrutiny by their respective departmental Select Committees—but how do we know what is happening with regulation as regulation? How do we know what the overall burden of regulation is? Is it increasing or decreasing? How do we know what is best practice? Is one regulatory regime proving more effective and efficient than another in encouraging competition and protecting the needs of the consumer? We can answer those questions only through comparative scrutiny.

What capacity does Parliament have to engage in such scrutiny? The NAO, which reports to the Public Accounts Committee in the other place, can examine most, but not all, economic regulators. The Constitution Committee of this House can look at the regulatory state—that is within its remit—but it has other responsibilities. The Regulators Committee, as we make clear in the report, necessarily had to limit the scope of the inquiry to regulators, not regulation, and to focus on the economic regulatory work of the major UK economic regulators. Even that narrow focus still required extensive work over the course of the Session. Our report is therefore a prompt to take the necessary action to ensure accountability, rather than delivering such accountability.

As the Constitution Committee argued in 2004, improved parliamentary scrutiny rests on capacity, consistency and co-ordination. A departmental Select Committee does not have the capacity for sustained and consistent scrutiny. Its terms of reference do not permit co-ordinated scrutiny of the regulatory state. Anyone who doubts the need for looking at regulators in a consistent and co-ordinated way should look at Table 2 on page 25 of the report. One can see from that the sheer variety of statutory duties imposed on regulators; it is a patchwork quilt of duties. It may be that each set of duties is appropriate, but there may be a case for more consistency. How do we know without thorough inquiry?

The need for greater parliamentary scrutiny was made by various witnesses who gave evidence to the Constitution Committee and was reiterated in evidence to the Regulators Committee. We have agreed with those witnesses who have stressed the need for such scrutiny. How, then, to deliver such accountability? The Constitution Committee recommended a Joint Committee of both Houses. It felt that such a committee would supplement, not supplant, the committees that had oversight of individual regulators and that it should focus its work around the annual reports and published impact assessments of the regulators. When the other place appeared unreceptive to the proposal, your Lordships’ House agreed to set up an ad hoc committee. The Regulators Committee was given a broad remit, to “examine the regulatory process”, but, for the reasons already explained by the noble Lord, Lord McIntosh, we looked at the major economic regulators. In other words, we have not had the

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opportunity to examine the whole regulatory process. Furthermore, as we say at paragraph 6.63,

It is vital that examination of the regulatory state, of the health of the process of regulation, does not come to an end with this very debate. As we stress in paragraph 6.65, there is a need for a wider, and continuing, review. We also state:

We therefore recommended that the creation of a Joint Committee of both Houses be established. If that proves impossible to achieve, then we recommend a sessional committee of your Lordships’ House.

The volume of regulation in this country is substantial, it imposes substantial costs and it has implications for the health of our economy. Yet we have no means of ensuring that such regulation is monitored, assessed and, if necessary, modified by Parliament in order to meet the needs of the consumer and of competitiveness.

A parliamentary committee is a means of ensuring such accountability. It is to the benefit of not only Parliament but Government. Government establish regulatory bodies for constitutional, political and economic reasons. It is to Government’s benefit to ensure that regulation is effective, efficient and utilised only where necessary.

The Minister may feel that she has got off lightly in that she need only respond—as she did in the written response to the report—that this is essentially a matter for the House and House authorities. However, Government are not totally detached from the parliamentary process. As I have indicated, it is to the benefit of Government to see such a committee established. The Minister’s response to the report acknowledges in effect the value of comparative scrutiny. How are we to ensure that what the Minister acknowledges is desirable, as for instance on post-implementation evaluation, is delivered? Recent events have reinforced the case. Although my comments are addressed as much, if not more so, to the House authorities as they are to the Minister, it will, however, be helpful to have the Minister’s endorsement of the recommendation.

The impact of regulation needs to be assessed and monitored on a consistent and comprehensive basis. We presently lack the means for doing that at a parliamentary level. We need to create the means. There are resource implications, but the importance of the subject is such that it would be a false economy for this House not to act on the committee’s recommendation.

5.52 pm

Lord Berkeley: My Lords, I am pleased to be taking part in this debate. I congratulate the committee and my noble friend Lord McIntosh of Haringey on chairing

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it. It is a most excellent report. I gave evidence to the committee as chairman of the Rail Freight Group and I declare an interest in that regard. Having read the report and listened to the excellent contributions so far, there is a strong case for ongoing scrutiny of the whole regulatory structure.

A common theme in the report is the burden on the regulated industries. There has clearly been a lot of lobbying from these industries which, I believe, resulted in the Regulatory Enforcement and Sanctions Bill that many of us participated in. I am grateful to my noble friend the Minister for the changes that she agreed to make to the last part of the Bill in trying to deal with some of the concerns of the economic regulators.

However, we hear far less about the effect on the regulated industries and the need for the regulators to be really independent; to have lots of information to do their jobs properly; and to get the support from customers, users, Parliament and others to feel confident that they can act without fear of government intervention or judicial review.

One of the jobs of regulators is often to promote competition and to get costs down, particularly if they are regulating a monopoly such as Network Rail or Royal Mail. Nobody, in my experience, has come up with an alternative way of doing it. We hear a lot of complaints from the regulated industries. The Royal Mail is the latest one, warning of the dire consequences if it is not allowed to do anything and that it might go bust. Railtrack did go bust and the railways are still running. The regulators have to have solutions up their sleeve.

When trying to find a regulatory balance, we must recognise that, where regulation is necessary, in particular when there is a need to support or develop competition or regulate the costs of monopolies, regulators need the maximum encouragement to go further and faster in their work; otherwise, one will get regulatory capture. We have talked about that many times previously—I do not want to go into it in too much detail tonight—but big companies which are regulated can spend unlimited resources on putting out information which will either make the regulator’s job impossible or help to mitigate the effects. One has only to listen to the debate on the third runway at Heathrow and the information that is put out, sometimes against the CAA and others, to see that we must be very careful about that.

There is the question of the last mile for Postcomm getting letters delivered or opening up Post Offices to allow them to accept parcels, letters and other trade from companies other than Royal Mail. I was astonished to read in paragraph 7.22 of the report about Ofwat being unable to encourage competition. The report is not very clear about whose fault it is—Ofwat’s, the Government’s or somebody else’s—but it is quite extraordinary that, in a network industry, of which plenty of others are mentioned in this report, you apparently cannot have competition. Competition will in almost any way allow bench-marking and possibly some good cost reductions, too.

I cannot let this opportunity go without spending a few minutes on railways. The Office of Rail

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Regulation is mentioned quite a lot in the report. I and other people believe that it has good processes, and consults well and widely. It needs to be a little more proactive on occasions, but it is after all keeping on programme to get Network Rail’s costs down; by 31 per cent in five years and we hope much the same in the next five years, although that is not decided. Costs down means charges down; it does not apply just to railways either. It also improves efficiencies. The little detail with which we are troubled at the moment is keeping the network open for the customers, the train operators, to run the trains rather than closing it for maintenance. In that regard, they have a long way to go.

I hope that the Office of Rail Regulation will in the future look at corporate structure and accountability. The noble Lord, Lord Norton, talked about accountability of regulators. In the case of Network Rail, there is a problem of accountability of the company itself, which is a peculiar hybrid. I do not think that anybody wishes to change it, but it has to be reviewed. Network Rail is similar to Royal Mail, not in the company structure, or who owns it or its accountability, but in the fact that it gets much of its money from the state, which certainly affects the way in which the regulators have to deal with problems when they arise.

It was good to read in paragraph 6.56 of the report that the Minister for Transport, Tom Harris MP, put in a plea for,

He is absolutely right. My noble friend Lord Jones of Birmingham, talking about regulation of the railways in a debate in which several of us participated on 14 March, said:

Ten days later, they still have not been taken up. In a debate on the Channel Tunnel Rail Link on Monday evening, my noble friend Lord Bassam of Brighton said that the Government wanted to ignore the regulatory policy of this Government and keep the Department for Transport as a regulator of the Channel Tunnel Rail Link because,

There is nothing about any other regulatory rule, nothing about getting more traffic on the line. It is just for the short-term taxpayer’s gain. The department will set the charges to suit its own ends rather than relating them to the costs of operations and maintenance and it is very unlikely to do what the Office of Rail Regulation is doing and impose an efficiency requirement on the baby that it has just sold off.

The noble Lord, Lord Bradshaw, and I both met potential buyers for this line who said that, as investment companies, they would much prefer the certainty of independent regulation than the uncertainty of departmental regulation. Not only that, but they would

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pay a higher price for that certainty. I do not know whether my noble friend Lord Bassam did not believe us but he seems to be batting on with this policy, which is totally contrary to the BERR policy and will do nothing to provide the comfort and stability of investors that the Government clearly intend.

I suggest to my noble friend—who I hope is going to respond on this—that she advise her noble friend in the Department for Transport what government policy on independent regulation is. Perhaps it is time, as the report says in paragraph 6.60, to have this inter-ministerial forum, as the noble Lord, Lord MacGregor, suggested. My honourable friend the Minister for Transport Tom Harris suggested in his evidence that a long period of stability is needed to settle into the current regulatory framework. We have not had it that long—only three or four years—and already the Government are trying to change the rules. I hope my noble friend can persuade her noble friend and my noble friend to look at the Channel Tunnel Rail Link again and possibly comply with the regulatory policy that she and her colleagues are putting out.

I conclude by congratulating my noble friend on this excellent report, emphasising again that there is much more to do on regulation in the medium and long term and that we need some process for scrutiny here and in the other place.

6.02 pm

Lord Bradshaw: My Lords, it is just as well to remind ourselves of the history of the development of regulation. It was a result of the privatisation of the industries. Most of the industries were transferred from the public sector to the private sector, almost debt-free. The companies who bought them borrowed huge sums of money, geared up their balance sheets, gave the money away to shareholders and then came back to the Government and said, “You want us to do all this; give us some more money or let us put the price up”. In the case of water, for example, people’s supplies were being taxed in order to pay these big companies. In my view, it is quite staggeringly bad economics. I have never supported the privatisation and I still think it was wrong. A company like Railtrack went bust because a) it was incompetent and b) it had paid out too much money—not very different in some ways from Northern Rock. But you need to have in place regulators who are thoroughly professional and able to take information, both from here and abroad—benchmarking information to which the noble Lord, Lord Berkeley, referred. That is very important and it becomes more important as the number of companies supplying power has dropped from 20 to six. The more concentration you get, the more important it is to get benchmarking from overseas. The regulators are gaining experience and are more professional, and some companies such as Network Rail do not like it very much when they are told that the services that they are giving are being given elsewhere more cheaply and efficiently and with less impact on the customer.

Obviously there is a need for the Government to keep abreast of what is going on, but the quoted

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paragraph 6.56 shows that they are not. I endorse the comments made here that there is a definite need for a specialist or sessional Select Committee. I do not have the confidence that has been expressed here about the National Audit Office. We were until recently almost inundated with great thick reports from it full of pictures and not much substance. The NAO is not highly professional. Members of this House probably bring more focus to the issue than a National Audit Office person who moves from job to job looking at the health service one day, education the next and transport two or three weeks later.

Politicians should not hide behind regulators. It is the regulators’ job to evaluate business plans and to determine how much it should cost to fulfil them. If there is any public money involved, it is for the Government to decide what they want to buy and how much should be picked up by the customer. That is an explicitly political decision, and I do not applaud the idea of the Government somehow blaming regulators when many of the things go wrong.

The noble Lord, Lord MacGregor, referred to the comment by the Railways Minister that Ministers are so busy that they simply have no time to get around to this. If Ministers are that busy, they are not doing their job properly, which means that they must delegate away from themselves the trivia that many of them deal with so that they can get their minds around the principles as they are paid to do. It came to our notice last week through the trade press that the Department for Transport has now decided that any variation in the Great Western Trains franchise is a red box item. Quite honestly, if Ministers have the time to deal with the variations in the Great Western timetables but not with serious regulatory issues, I am sorry but they have got their priorities wrong and need to be put right about them.

Promotion of competition is important, but it will come as no surprise to Members of this House that the train company of the person who is lauded by the general public as being at the forefront of competition—I will give noble Lords a few guesses, but Richard Branson might be one of them—is invoking the agreement, which was made a long time ago when the west coast main line was opened, to moderate competition between the Midlands and London, which in fact means shutting out the new train operator operating from Wrexham and Shrewsbury to London so that it cannot call at Wolverhampton or Birmingham. What a competitive attitude to take. Even worse, the company has now announced that it is running a service from Wrexham. Lo and behold, Mr Branson is now running a faster train from Wrexham via Chester. He is, I think, receiving £250 million a year in compensation from the taxpayer to undermine someone else who is providing a service to the people of the Borders which people in Wrexham, Shrewsbury and Telford do not have. It is important that we promote real competition and challenge the people who would prevent it.

The noble Lord, Lord Berkeley, has mentioned the need for independence of regulation. It is most important that there is a clear dividing line between what the regulator is supposed to do and what people can expect from the regulator, and what Ministers are

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supposed to do and what people can expect of them. When a quinquennial—meaning every five years—review, is made by a regulator, it has to be done in that time, whereas with Ministers, I am afraid that often the decision will be made in the summer, at the end of the year, early next year, or later on. It really does drag on and on. I have Answers at home with all that sort of information from Questions I have asked.

The Competition Commission is cumbersome and expensive. It is expensive to go to and very slow to answer. I urge people not to send more things there than are really necessary. I believe that our regulators are doing a good job. This is a good report and it is right that Parliament should focus on it. I look forward to what the Minister has to say.

6.11 pm

Baroness Wilcox: My Lords, I thank the noble Lord, Lord McIntosh of Haringey, for bringing to this House, if reluctantly, the report of the ad hoc Select Committee on Regulators entitled UKEconomic Regulators. He obviously did not enjoy it; he was obviously embarrassed by doing it. The noble Lord is the first to say that the evidence was taken as far back as June last year; that, by the time the committee had produced its work, all hell had broken loose; and that what it had written was rather dull and dreary. I think he is wrong. The noble Lord will look back on this episode in his life as worth while and far-reaching. He said that it is the first time he has had anything to do with a Select Committee. I have been on several Select Committees and, over time, you begin to realise just how much can be done. I served on the Science and Technology Select Committee. I remember the small piece of work we did on aircraft travel, health and deep vein thrombosis. We have revisited that work, and it is quite amazing now what the airlines are doing about it. It cost the country very little because it was done by a little Select Committee of this place. I do not want the noble Lord to give up hope on this or to think that this is the last time he is ever going to do it.

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