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Economy: Regulators (Regulators Committee Report)

My Lords, I declare an interest as a member of the Select Committee on Regulators, and I pay tribute to the excellent chairmanship of the noble Lord, Lord McIntosh of Haringey. He provided a cogent overview of our recommendations and, since our report was published, there have been important developments, as he clearly delineated. Those developments reinforce the case that I shall develop. Rather than repeat what the noble Lord, Lord McIntosh, said, I shall concentrate on one aspect of the report, reinforcing what my noble friend Lord MacGregor said. I shall focus not on specific regulators but rather on regulators as a species, and address one question posed in the report: who regulates the regulators? Not who regulates a particular regulator, but who regulates the regulators? I begin with a statement of fact and a number of propositions, which I think are generally acceptable. The statement of fact is that, over recent decades, there has been a substantial increase in the number of regulatory bodies established by statue, and in the volume of regulation. As the Constitution Committee noted in its 2004 report on the regulatory state, the regulatory state is now extensive, with significant costs attached to complying with regulation. I have four propositions. First, the need for some regulation is apparent, especially to encourage competition and to protect consumers. Secondly, where established by statute, the powers and responsibilities of the regulator need to be clearly prescribed. Thirdly, where there is scope for competition, the extent of regulation should diminish as competition is achieved and, in the fullness of time, the regulatory body should cease to exist. Fourthly, the activities of the regulators should be characterised by transparency, efficiency and accountability. It is the last of those that I shall address. 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, "““the first-ever comprehensive inquiry””" 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 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 opportunity to examine the whole regulatory process. Furthermore, as we say at paragraph 6.63, "““we are the child of the Constitution Committee’s report, but not the wished child. Our existence is terminated with the publication of this Report and the subsequent debate on it to be held on the floor of the House””." 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 agree with the conclusion of many of our witnesses that ‘there is a crucial need for greater parliamentary oversight ... over regulation bodies’ ... The question of who regulates the regulators has not been answered and will not go away. There is a need for a committee to pursue cross-sector best practice and to ensure that the recommendations of this Report are followed-through””." 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.