19 May 2003
Regulatory bodies are now an established part of the commercial and political landscape. Indeed, many commentators argue that we live in the age of the 'regulatory state', characterised by the shift from public to private sector provision of services and the increasing significance of 'arm's length' Government agencies. But as the role played by these quasi-independent regulatory bodies increases, questions have to be asked about their accountability to the regulated community, elected representatives and the public.
The regulatory state
The number of regulatory bodies has mushroomed over the past 25 years. Governments of all political colours have established semi-independent executive agencies fulfilling various sectoral and departmental regulatory functions. Utilities privatisation was followed by the establishment of economic regulators overseeing the markets for telecommunications in 1984, gas in 1986, water in 1989, electricity in 1989-90 and railways in 1993. This drive has continued since 1997, with the establishment of 'super regulators' such as the Financial Services Authority (FSA) and now the Office of Communications (Ofcom).
A growing power
The growth of these regulatory bodies is especially significant given the aggressive, 'US-style' regulatory environment that is emerging in the UK. Regulators have demonstrated an increased willingness to intervene when a regulatory breach occurs. In 2001, the Office of Fair Trading (OFT) issued 1,040 notices demanding the production of specific documents and obtained warrants to enter and search 37 premises. Regulator activity is on the increase - the Information Commissioner, responsible for enforcing the UK's data protection legislation, prosecuted three times as many offences in 2002 than in 2001. In addition, the consequences of breaching regulations are increasingly severe - the average level of fines levied by the Health and Safety Executive increased by 39 per cent between 2001 and 2002.
This increased willingness to prosecute needs to be seen in the light of the sweeping powers wielded by regulators. Most UK regulators - including the Environment Agency, the Department of Trade and Industry (DTI), the FSA and the OFT - have powers of entry, search and seizure. The DTI and FSA, among other regulators, have the power to hold compulsion interviews where there is no legal 'right to silence'.
When regulators uncover a breach, heavy penalties can be incurred. Under the new Enterprise Act 2002, company directors found guilty of dishonestly engaging in cartel activity could face up to a five-year prison sentence and an unlimited fine. Future legislation looks set to follow this trend. Under proposals being considered by the DTI, withholding information from auditors could become a criminal offence carrying a penalty of up to two years imprisonment.
A right to review?
Given these sweeping powers and UK regulators' increased willingness to use them, it is understandable that there are growing concerns about the adequacy of the tools available to keep these bodies in check.
The decisions of UK regulators can, of course, be challenged in the courts, but the possibility of judicial review must be put into perspective. There have been very few cases in which the courts have granted judicial review against a regulator, demonstrating a marked reluctance to overrule the processes and procedures of UK regulatory bodies. There have been some successful examples of judicial review, such as the High Court's decision against the National Lottery Commission in September 2000, which enabled Camelot to revise, and ultimately win, its bid to operate the National Lottery for a second licence period. However, such instances have been few and far between.
Many believed that the incorporation of the European Convention on Human Rights into UK law would herald a raft of challenges against the decisions of UK regulators, significantly impacting upon the way they exercise their powers. Under the Human Rights Act 1998, regulatory bodies must act in a manner compatible with the convention. Yet, while there have been several high-profile challenges to the powers and procedures of UK regulators since the act came into force in October 2000, few have been upheld.
A democratic deficit
In addition to the courts, our elected representatives are expected to play a significant role in overseeing the actions and procedures of UK regulators. However, the evidence suggests that Parliament has failed to respond effectively to the growth of regulatory agencies over the past two decades.
As early as 1994, Labour MP Peter Hain, now the Secretary of State for Wales, proposed the establishment of a quasi-judicial utilities commission to oversee economic regulators, claiming that regulators were, "independent and all-powerful, and they have extensive discretion, which has often been exercised in a highly personalised fashion".
Peter Riddell, political commentator at The Times, has echoed these sentiments, expressing his concern that "Parliament has failed to cope with the growth of alternative centres of power", and adding that "the official line that these bodies are still accountable, via ministers, to Parliament, is an unconvincing and inadequate description of the real position".
Earlier this year, a report written by Parliamentary think tank the Hansard Society, which was sponsored by DLA, found that Parliament is failing to keep UK regulators in check. A House of Lords committee chaired by eminent political scientist Lord Norton is now examining the whole issue of the accountability of regulators, and is due to report later this year.
A new era of accountability
Parliamentary mechanisms to hold regulators to account compare poorly with those in place in the US. Senior appointments to US regulatory bodies must go through a rigorous approval process, with candidates requiring the backing of the relevant Senate committee before being approved by a vote on the floor of the Senate. Congress also holds considerable sway over the budget allocated to each regulator.
In the UK, efforts to properly scrutinise regulatory bodies must be stepped up. Senior appointments to regulatory bodies with criminal and quasi-criminal sanctions should be approved by the relevant House of Commons select committee. In addition, select committees should be granted the power to compel senior regulators to appear to give evidence. The UK's regulatory chiefs would surely think twice about their actions if they knew they could be expected to justify decisions to a committee of MPs.
Sufficient legal and political mechanisms must exist to keep all public bodies in check. Given the significant powers of enforcement they wield, this is especially true in the case of the regulators. Parliamentarians, as well as judges, need to ensure that the actions of regulators are considered and proportionate. Only when regulators become properly accountable to Parliament and to the public will regulatory risk become sufficiently defined and manageable. Until then, there will invariably be an unknown quantity in the equation.
Neil Gerrard is Head of the Regulatory Group at DLA