COMMENT : Unsackable should not mean unaccountable

'The embarrassments of the last 10 days might have been avoided if there had been full disclosure of all the details of the lottery bids and Mr Davis's investigations had been conducted in full public view'
Click to follow
The Independent Online
As Virginia Bottomley has just discovered, it seems to be about as easy to remove one of Britain's regulators from office as it is to impeach an American president. At least two cabinet ministers, including Mrs Bottomley, have sought advice from civil servants and lawyers about whether sacking a regulator is within their powers. Each time they have been told that, short of a regulatory Watergate, they should not bother to try.

The joke of it is that Westminster sources have been suggesting that Mrs Bottomley refrained on political grounds from getting rid of Peter Davis, the lotteries regulator, because senior ministers persuaded her that a sacking would overshadow the success of the lottery. Mr Davis's terms of employment suggest a rather simpler explanation. The lotteries legislation says he can only be removed from office on the grounds of "incapacity or misbehaviour". The plain fact is that if she had sacked him and he had dug his heels in and gone to court, he might have won.

Mr Davis was foolish to accept free flights from GTech against the advice of civil servants. But he certainly did not do it as a result of incapacity, and to prove in court that it was misbehaviour would be an uphill struggle. The word implies deliberate misconduct rather than incompetence or bad judgement. It would probably take more than acceptance of free flights to demonstrate misbehaviour.

So who was the other regulator whose minister asked for advice about whether there could be a sacking? It was Professor Stephen Littlechild of Offer after his decision to reopen the electricity pricing review last spring. The same legal phrase - dismissal only on grounds of "incapacity or misbehaviour" - also protects other key regulators such as Don Cruickshank of Oftel and Clare Spottiswoode of Ofgas.

The phrase appears in the legislation for a very good reason. It allows regulators to deliberate with the independence and freedom from interference of the judiciary. From an investors' point of view, it also protects privatised companies from arbitrary pressure from ministers, for example to reduce prices.

But checks and balances are missing. As well as being unsackable, regulators are pretty nearly unaccountable and their workings are far from transparent. There are difficulties with increasing accountability, either to Parliament or ministers, because it would undermine that treasured independence. The practical alternative, which would do just as much to increase the public confidence that is so clearly lacking, is a much increased level of openness.

The best example of how not to run a regulator is Mr Davis's own little empire at Oflot, though the fault lies not so much with him as with the legal framework in which he operates. Camelot, the company he oversees, is a monopoly working under a licence from government to a contract awarded by the regulator. It is hard to see what harm could come of opening the books of Camelot and Oflot to all comers, yet Mr Davis operates in a ludicrously unnecessary atmosphere of secrecy, all justified by commercial confidentiality.

The embarrassments of the last 10 days might well have been avoided if there had been full disclosure of all the details of the original lottery bids, and if Mr Davis's investigations and negotiations had been conducted in full public view. This is a lesson for all Britain's army of regulators as well as a pointer to the need for urgent reform.

Captain Oates defence will not help Forte

The High Court does not seem to have advanced things very much by ruling that the grandly named, and equally grandly staffed, Council of Forte, should decide for itself what to do about Granada's pounds 3.3bn hostile takeover bid. In theory, the council can decide the outcome of the bid by exercising archaic powers which give its tiny fraction of the company's capital more than 50 per cent of the voting rights. In practice it will find itself back in court if it does anything other than stand aside and let the main body of shareholders decide.

For other shareholders, the decision is becoming a more finely balanced one than it looked at the outset, when Forte's days as an independent company looked limited to the 60-day duration of a normal bid timetable. Since then Forte has astonished all with its willingness to take on board quite radical break-up and restructuring proposals. It has also achieved some success in undermining Granada's case which, given the quality and expense of bidder's advice, has on occasions been put forward in an alarmingly sloppy and ill-thought-out way.

Even so, there is little love lost between Forte and its main institutional shareholders, many of whom are still smarting all these years later over Lord Forte's decision to perpetuate the dynasty by appointing his own son as successor. One question for Sir Rocco, therefore, is whether he should further spice up the defence by sacrificing himself - the so-called Captain Oates defence whereby the top man hits the ejector button to save the rest ("I'm going out, I may be some time"). But however sore shareholders still feel about the manner of Sir Rocco's appointment, we are in truth past the time for tinkering around at the top. For better or for worse, Forte will have to stand or fall by Sir Rocco's record and his promise for the future.

Misbehaving M4 causes concern

Goodhart's law states that if the government has a serious target for something, it is bound to miss it. The eponymous Professor Goodhart is now at the LSE but at the time he first made this observation he was with the Bank of England. He drew up the law with reference to money supply targets in the early monetarist days of Thatcherism. The current broad measure of the money supply, M4, was devised to halt the embarrassment of missed forecasts in the mid-1980s, when existing monetary targets were spectacularly obeying Goodhart's law. It was the slowest-growing alternative the Treasury could find.

Judging by yesterday's figures, M4 is now behaving no better than its predecessors. It has breached its 3-9 per cent target, introduced in March 1993 when the previous target turned out to be too low. Those who think the economy is in a feeble state and in need of a series of base-rate cuts are inclined to dismiss M4's misbehaviour as largely irrelevant.

That is not a view shared by the authorities, however. Both the Chancellor and the Governor of the Bank of England have referred to rapid money supply growth as a cause for concern and a key inflationary indicator at their past three meetings.

And the money and lending figures do seem to demonstrate that there are areas of buoyancy in the economy. Furthermore, they appear to show that the housing market is reviving. Personal borrowing from the big banks last month also remained close to October's record. Yesterday's figures lend credibility to Mr Clarke's prediction that consumer spending will lead to a revival in growth in 1996 - and must put a question mark over the speed of future base rate cuts.

Comments