---

Economy: Regulators (Regulators Committee Report)

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 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 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, "““a long-standing period of settling down into the current regulatory framework””." 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: "““Governance will depend on stronger and more independent national regulatory authorities. Noble Lords have this Government’s assurance that we will continue to push and press on that. I shall refer the specific transport points raised by noble Lords to the Secretary of State for Transport and I assure them that they will be taken up””.—[Official Report, 14/3/08; col. 1705.]" 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, "““the current structure will secure a higher sale price by enhancing the commercial stability of High Speed 1””.—[Official Report, 31/3/08; col. 784.]" 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 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.