---

Legislative and Regulatory Reform Bill

In responding to Amendment No. 47A, I shall speak also to Amendment No. 47B, although I recognise that their thrusts are slightly different. I thank noble Lords who have participated in this discussion. I must say at the outset that I am unable to accept either of the amendments, for reasons that I hope will convince all noble Lords. I am a bit surprised that the noble Baroness, Lady Wilcox, moved Amendment No. 47A, because it appears to be in conflict with her party’s policy intentions in another place. During the Standing Committee debate on 9 March, the Conservative opposition spokesperson on the Bill in the other place, the member for North East Hertfordshire, Mr Oliver Heald, said: "““It would be wrong to let off the ‘Ofs’””—" which he had previously described as, "““Ofgas, Ofwat and the rest of them””." He went on to say: "““We need to have a system where the main regulators in this country set the standard, trailblazing for good principles of the sort set out in clause 19—transparency, accountability, proportionate behaviour, consistency—and targeting their actions. They should not be the ones who lag behind””." Clause 19 is now Clause 23. I recognise that the opposition Front Bench in another place raised this during a clause stand part debate on Part 2, but I think that the policy intentions of the Opposition in another place are clear. I repeat that Mr Heald said that the ““Ofs””, "““should not be the ones who lag behind””.—[Official Report, Commons Standing Committee A, 9/3/06; col. 271.]." The Government wholeheartedly agree that the economic regulators should not be the ones who lag behind in the context of the better regulation agenda. It is true that the economic regulators are excluded from the provisions in Part 2. Noble Lords may findit useful if I restate the specific reasons forthis exclusion. Part 2 implements certain recommendations in Philip Hampton’s report Reducing administrative burdens: effective inspection and enforcement. That report made recommendations for reducing administrative burdens by promoting more efficient approaches to regulatory inspection and enforcement without compromising regulatory standards and outcomes. Economic regulators were excluded from the scope of the Hampton report because they had been the subject of a series of recent studies and because they concentrate on economic solutions to market failures rather than inspection and enforcement by regulators, which is the main focus of Part 2. The provisions in Clause 1 and, for that matter, in Clause 2 are wider in purpose and do not relate only to inspection and enforcement. The Government believe that businesses must have the right to raise concerns if economic regulators are carrying out their functions in ways that are, for instance, overly bureaucratic, or if they are not exercising their functions in line with the five principles of good regulation. If there are sound reasons for suggesting any modifications of their statutory functions for the purposes of removing or reducing burdens, or for modifying the way in which those functions are carried out, it should be possible to address these by order as it would be possible for any other regulator. Regulators, including the economic regulators, operate within not a stagnant but an ever-evolving and diverse environment. They need to be flexible and responsive to the challenges presented by the markets in which they operate. They must not be, "““the ones who lag behind””." In fact, they must be the ones who are ahead of the game. In some cases this might require a modification of one or more of their regulatory functions. If noble Lords would care to go to the websites of some of the regulators and look at what is in their corporate plans and at the range of changing circumstances that the regulators recognise they face in the coming years, they will, I hope, understand the thrust of that point. This amendment would take away from economic regulators a legislative vehicle that would enable such a valuable modification, even if it were required and requested by the regulator. Indeed, a recent article in the Observer said that, by definition, a regulatory body is bureaucratic, so the question is whether it could be less so. In principle, it should be possible, where appropriate, for Government and Parliament, in consultation with the regulators, to agree any sensible modification of their functions in the same way as they could for any other regulator. That is what Clause 1 would permit. It is worth noting that, although this amendment is said to apply to Clause 2 as well as to Clause 1, it would not be possible under Clause 2 to modifyor abolish a regulatory function. Indeed, the Government have tabled Amendment No. 38 to make that even clearer. Clause 2 can be used to modify the way in which a regulator’s functions are exercised, but the functions themselves would have to stay intact and could not be abolished. That being the case, I will concentrate on the effect of this amendment on what provision can be made under Clause 1. The Government simply do not accept that not excluding the economic regulators from Part 1 will lead to market uncertainty. Including them in Part 1 will not lead to any heightened sense of insecurity for the market. Clause 1 provides an order-making power for the purpose of removing or reducing burdens. This power will be used only where appropriate, after full consultation and where proposals meet the relevant preconditions—for example, that orders are proportionate to the policy objectives behind them and fairly balance the public interest against the interests of any person adversely affected by them. To paraphrase the Member for North East Hertfordshire during the Standing Committee debate on 9 March, to exclude the economic regulators from Part 1 of the Bill would be potentially to ““let off”” the big boys—the big regulators that have been set up by statute. Often they are the ones that people are most worried about. Would the noble Baroness, Lady Wilcox, be happy that, even if a specific and worthwhile proposal for reform of a regulatory function had been identified, the regulator could just go on acting in an excessive way and the powers that we are debating today could not be taken advantage of? I stress that the Government have no current intention of abolishing or even merging any of the economic regulators. The Government believe that those regulators are successful in carrying out their functions. Let us think specifically about a hypothetical order that would modify or abolish the functions of an economic regulator. If there was any doubt about whether such an order might undermine market security, or, in the language of the Bill, that it might create new obstacles to productivity, including innovation and competition, or impose new obstacles to the efficient working of the regulator in carrying out its functions, it would be unlikely that that order was for the purpose of removing or reducing burdens such as obstacles to productivity or efficiency. Further, the preconditions in Clause 4 mean that, if a proposal to modify or abolish some of the functions of an economic regulator would be likely to remove necessary protections or fail to satisfy one of the other preconditions, surely the Minister would reasonably consider that the preconditions were not met and therefore that the order could not be made. However, let us assume that this hypothetical and unreasonable Minister seeks to consult on his proposal. He would be under a statutory obligation to consult those affected by the proposal. He must therefore consult the body whose functions he is seeking to abolish or modify. The economic regulator would surely respond with evidence of where market security was at risk, and other consultees would be likely to agree. In these circumstances, the Government’s undertakings not to pursue highly controversial proposals by order and not to undermine the independence of regulators would come into play, and the Minister would reconsider the wisdom of pursuing his proposal by order. For argument’s sake, however, let us assume that the Minister persists and lays the order contrary to overwhelming evidence that suggests that the order should progress no further. The explanatory document that the Minister must lay alongside the order must give details of any consultation and any representations received. It must further give an assessment of what burdens would be removed or reduced and why he considers that the preconditions, including necessary protection, are satisfied. The role of the parliamentary committees, based on this and other evidence, is to judge whether they agree with the Minister’s opinion. Members of the Committee will agree that, in the circumstances that I have described, the committees would be likely to find the order to be an inappropriate use of the power. If the committees did not agree that it removed or reduced burdens, they would question whether it was within the vires of the power. In such a case, they could of course exercise their statutory veto to block the order. There is a further undertaking that the Government will not push an order through in the face of opposition from the relevant parliamentary committee. So the order would then fall unless overturned by a resolution of the House. Let us assume, though—