Watchdogs (Industry and Regulators Committee Report)

Lord Teverson Excerpts

Monday 9th September 2024 Lords Chamber

[Lord Teverson (LD)]

My Lords, I have not had the opportunity to welcome the Minister to her new position. Her work on the environmental side of things when she was on the Opposition Benches was exemplary, including how she worked with our Benches at that time. I wish her well in her role.

I once accused my noble friend Lord Addington of having entered the House in short trousers, because of his experience here—the noble Baroness, Lady Taylor, was in the other place at that time—in terms of the water industry. With the way things are going, I suspect they may witness the full circle, not through legislation but through a lack of financial engineering and investment, of those organisations—some quite close to this building—suffering and coming back into public ownership of some kind.

I found the report extremely interesting. The history the noble Lord, Lord Skidelsky, gave I found excellent as it put it in an interesting framework. The one thing that came to me from this report is that in this House we very much concentrate on primary legislation. We look extensively at secondary legislation. However, here we have another area, rule-making, which is below those tiers. It is one that is evidently quite untransparent and we need to shed light on it. That, in a way, was the most important message to someone who does not get involved in this area all the time. Having said that, for six years I was a board member of the Marine Management Organisation, one of the less known regulators of the seas around England. I congratulate the noble Lord, Lord Hollick, on his report.

Like the noble Lord, Lord Kerr, I was absolutely astounded that the Secretary of State, Kemi Badenoch, refused—and was distinctly unco-operative with—the committee and, in effective, this House. It is important that Secretaries of State understand that this is a House of Parliament to which they are accountable, even though they are not Members of this place. We need to remember that.

The noble Lord, Lord Kerr, is absolutely right about Ofgem. Over the last year to 18 months, it has generally been understood—even by the previous Government—that the national grid is unable to deliver net zero or what we are doing in terms of the offshore rounds and the various other areas of renewable energy, hence why this House pushed strongly for that regulator to be given an additional responsibility for net zero. It did not have that before; it therefore did not provide that basis operationally to deliver what the country required.

I say distinctly that we on these Benches believe that regulation can be good. Sure, not all regulation, but this has to be said because regulation is so often seen as a burden on industry, economic growth and other areas. Generally, it is not, although bad regulation is clearly bad. It was always an irony that, during the Brexit discussions, we talked about “Singapore on Thames” as if Singapore is a rip-roaring, free-enterprise, absolutely-do-anything economy. It is not; it is one of the most regulated parts of the globe, as well as one of the most successful. A number of Members mentioned the examples of Grenfell, the financial crisis, and the fall of Northern Rock and the other financial institutions of this country, which have shown how dangerous getting rid of regulation—as rather did happen in the City prior to 2008—can be.

The report mentions that we have abolished one other big regulator: the European Commission, which kept a close eye on certain areas. Secretaries of State and heads of department were very concerned about infraction procedures, but that has gone. As part of the trade and co-operation agreement, we now have the Office for Environmental Protection; I will come back to that organisation later on because it was rather ignored recently by the previous Government. We cannot have Governments without transparency; that is one of the key messages that comes out here.

Let me go through one or two important areas that I learned about during my time at a regulator. One concerns independence and funding. The report mentions a divide between regulators that are independent of grant in aid by government and those that are not. I was in one that was completely dependent on grant in aid and was therefore careful about some of its decisions that it made on, in that case, Defra. It relied completely on that funding and its independence was very much impaired by that relationship. There should be a real emphasis on trying to get regulators to be, where they can, sustained through levies or other means; that is most important.

One area where funding is important is enforcement; the report mentions enforcement on a number of occasions. At the end of the day, there is no point in having a regulator if it does not enforce. Clearly, you do not enforce straightaway—you warn, try to educate and do all those other things—but, at the end of the day, if someone transgresses and continues wilfully to transgress, you should be able to enforce. However, the cost of enforcement to regulators, particularly smaller ones, is often huge. In our case, we ended up subcontracting it to the Treasury under the proceeds of crime legislation. Fair enough—maybe that enforcement was done—but I strongly believe that we have an enforcement gap in this country. That is particularly true at the local authority level, which is not considered in this report but is one area that is of great importance because those who keep to regulations are discriminated against by those who do not. This is fundamentally wrong in terms of the way our economy should work.

We have mentioned Ofwat on a number of occasions. It is the view of our Benches that, if a regulator publicly fails so catastrophically, I am afraid you have to get rid of it and change it. During the coalition Government, the FSA, which was mentioned by the noble Baroness, Lady Finn, was in effect abolished and replaced by the FCA and the PRA. I take the lesson that, if you abolish and change, you really have to change; you cannot just keep the same people in different positions. To us, Ofwat’s public reputation is dead, and it needs to be changed.

On timing, I was particularly struck by how slow some regulators work, mainly because departments will not appoint. I applied to be a board member of the Environment Agency some time ago. I was on a shortlist of one and I thought, “I could be here”. Then they told me that I had to go and see the Secretary of State, who was Liz Truss at the time. The civil servants warned me that she could be difficult on occasion and that I had to be careful about how I handled that. Within literally 10 seconds of walking through the Secretary of State’s door, I knew that I was not going to get the appointment—it was quite obvious. I have no problem with that as I was probably not the right person; maybe that was the right judgment. What annoyed me was that it took two to three months to tell me that that was the case. I know from other boards that, exactly as the report says, departments look in their diaries and think, “Oh my goodness, so and so has come up for renewal for a three-year term and we’ve forgotten to do anything about it”. That has to change.

It is key that funding is not just as independent as possible but sufficient for regulatory activity to take place fully. The Environment Agency has been an example of that in the past. Another example, with nutrient neutrality—that will be a topical subject again—is that the OEP was ignored by the previous Government. In future, will the Government take notice of the OEP’s recommendations, as they do of those of the Climate Change Committee, which is in some ways equivalent on the carbon side?

I come back to my noble friend Lord Clement-Jones’s challenge: will we have an office of regulatory performance? What is the alternative to make sure that this area of important regulatory work functions?