Regulatory Enforcement and Sanctions Bill [HL]

My Lords, I, too, want to concentrate on Part 4. My noble friends Lord Borrie and Lady Young clearly thought that Part 4 was an add-on, and I agree. I want to address the issue of Part 4 in relation to the large economic regulators largely regulating monopolies. And the problem with which I have to start is that I am not sure which of the regulators are covered by Part 4, because Schedule 5 refers to Part 3. In passing I should say that Schedule 5 is an interesting list because it contains all the usual suspects except for Ofgem. Perhaps energy is unregulated in this respect, or has a different process, but there are many similarities between energy and railways, which I shall concentrate on. Perhaps my noble friend can explain not only what has happened to Ofgem but, even more importantly, which regulators are covered by Part 4—or is it any future regulator we can think of? I do not know. I want to concentrate on the possibly unintended effects of the large economic industries and regulators, particularly those concerned with the railways. I declare an interest as chairman of the Rail Freight Group. We are talking here about what could be major confrontations between the regulators and the industries they regulate. These big industries have access to massive legal support and can run up enormous costs. On the whole, they do not like being regulated. The biggest case in recent years has been a little spat between the Directorate General for Competition and Microsoft, which must be one of the biggest monopolies in the world. The case has gone on and on, and I am happy when DG Competition wins. Perhaps one day I can have a computer that actually works rather than this awful Vista—the only system you can buy these days in a computer—which does not really work. There are big battles not only with Microsoft but in energy and on the railways. Some noble Lords may have read the Commission's recent White Paper on energy. I was struck by a comparison made in the Financial Times, I think, between the energy regulatory regimes in the UK and in Germany. The Commission is basically trying to impose EU-wide the EU model, which separates the production and the distribution of energy. The article pointed out that although wholesale energy prices in the UK are 30 per cent higher than those in Germany, our retail prices are 30 per cent lower. The inference is that regulation here is much more effective than it is in Germany, where it tends to involve going to court with hundreds of lawyers and grinding the regulator down. On the railways, there is a big concern that the provisions of Clause 68, the first clause in Part 4, could be used by the regulated industry to frustrate the work of the regulator, whose duty is set out in Section 4 of the Railways Act as amended. He is required to balance regulatory burdens and sanctions with the ability for persons to continue to plan their businesses with a reasonable degree of assurance. I have had a number of representations on this from the industry as well as from the regulator. The industry investing in the railways—and this applies to energy just as well—relies on the regulator to ensure that all parties are treated equally and fairly and is also treated thus by the regulated monopoly itself. The problem is that the Bill would allow a regulated industry which believes that its regulator is imposing or maintaining unnecessary burdens to go through this rigmarole of publishing a statement justifying this so-called problem. But the problem is that a burden to a regulated industry might be a lifeline to a new entrant or even to an established train operator. The difference, as the noble Lord, Lord Cope, will probably recognise, is that the big regulated industries have access to unlimited legal funds that can frustrate the regulator’s work. Clause 69 is even more important as it allows Governments to do the same and effectively to interfere in the work of regulators. I remind noble Lords that independent regulators are the bedrock of ensuring efficient operation of the monopoly and encouraging private sector investment. The Office of Rail Regulation and energy regulators are, as I have said, particularly successful in that. Government interference in the independence of regulators will destroy the confidence of industry. I am afraid that, on the railways, Governments have a pretty poor record of trying to interfere with the regulator’s activities. The latest instance is the Crossrail Bill, which I believe will come to your Lordships' House in the new year. As currently drafted it contains 24 clauses that allow the Government to direct the regulator to do something if they do not like what the regulator would have recommended on his own. The power is to do with access to tracks, but I will not go into any detail on that now. That is interfering in the due process of the regulator’s activities. I believe that Clauses 68 and 69, in Part 4, will make it more rather than less easy for large economic regulators to do their job properly. I have to ask the Minister why such provisions are included, if they are. Who asked for it? The noble Baroness mentioned the lack of consultation. I would just like to know who—be it the regulators or the companies regulated—have actually asked for this? Most of them seem to accept that the regulators need independence and the confidence that that brings. They do not want regulation that allows or even encourages the regulated industries or government to frustrate their work. In conclusion, my noble friend said, in his opening remarks, that the burden of red tape killed enterprise. I suggest that Part 4, if enacted, would kill enterprise. These clauses are unnecessary in respect of major economic regulators, especially the railways. These regulators already have the powers and duties that allow them to do their work in regulating major monopoly companies. I expect, along with colleagues, to see whether we can make some changes in Committee to improve the Bill.