Chris Blackhurst: How many regulators does it take to run British business into the ground?

Midweek View: Reducing the level of scrutiny simply lowers the incentives for regulators to make sound decisions
Click to follow
The Independent Online

At this time of year, everyone likes a good old quiz. So, hands up who can tell me how many regulators there are in the UK? The answer is 60, not including professional associations which govern their members, and inspectorates that assess official institutes and institutions. To think, it's not so long that we had virtually none at all. Then came the Thatcher privatisations and they began to grow rapidly in number. Back then, we were told they were likely to be only temporary – they were there to promote competition and once that had been achieved they would take a back seat or vanish completely. Today, Ofgem, Ofwat, Ofcom and the rest are still with us. They've been joined by others, so we now have 60 sets of officials to contend with.

Originally, too, we were told that by promoting competition they would bring down prices. That hasn't happened either – witness, politicians becoming exercised and wanting to intervene to curb price increases. It's not that the regulators have become soft: I was recently treated to a diatribe from a senior executive of one of our mobile phone networks against the level of interference his company had to endure from Ofcom. It's more that, having gone from a situation where the watchdogs were set up as an alternative to politicians, the latter, with one eye on a pending election, think the former are fair game: bloated bureaucracies that were meant to make consumers' bills cheaper, and have failed. So, Labour demands the abolition of Ofgem, and the Government has turned on Ofwat to reduce water bills.

The regulators don't like this one bit, oh no. They argue they were appointed to do a job and they should be free to do it without kowtowing to Westminster. Hmm. They need a reality check: the fact is that no self-respecting minister is going to let his or her regulator have a clear ride, especially when household bills are under such pressure.

However, there is one set of regulators that sail on regardless. These are the ones charged with boosting competition per se: the Competition Commission, formed out of the old Monopolies and Mergers Commission as was; and the Office of Fair Trading. Among the referees, the Competition Commission is king. It's the body that undertakes inquiries after the OFT has had a look; it's the one to which other regulators refer matters when they can't agree with the industries they oversee.

The trouble is, the Competition Commission has gone a bit nuts recently. Some of its decisions have caused eyebrows to shoot up, not just here but abroad. It blocked two NHS Foundation Trusts from merging, not because it was against the merger as such but because its chairman said he'd not been given enough evidence that it would deliver benefits. This prompted the NHS chief executive, Sir David Nicholson, to complain that NHS restructurings which make "perfect sense from the point of view of patients" are being held back because they could be seen as infringing competition between healthcare providers.

It's not just the NHS that has had cause to moan. Foreign governments are equally frustrated and perplexed. The Competition Commission blocked Akzo Nobel's attempted acquisition of Metlac, which the German authorities had approved. It ruled against Eurotunnel buying some cross-Channel ferries from the now defunct SeaFrance, even though the French had no objection. This row has prompted the French government to ask its national competition authority to take up the cudgels at Brussels and see whether the EU can be persuaded to make the different rules and procedures more consistent.

These are not the only causes for concern. In aggregates, we've seen one Competition Commission panel say one thing, only for another panel to demand further changes a few months later. While this approach would be frowned upon in many organisations, here it seems to be positively welcomed, with the Competition Commission delighting in the way its officials take different stances and appear not to talk to each other.

There are grumblings, too, that the Competition Commission's mind is made up before it starts, that it tackles an issue with a pre-set view and searches for evidence that corroborates that position. The Competition Commission points to its stakeholder surveys indicating "wide satisfaction" with its role. But in the most recent poll, nearly a quarter of respondents felt the Competition Commission sought to pre-judge outcomes, particularly where market inquiries are concerned.

In the Competition Commission's case, nobody is guarding the guardian: there is no real oversight of what it does. Once, ministers used to fulfil that role but not any more – they gave it up in favour of the judiciary being able to wade in. However, the legal oversight has been very limited. OFT decisions on cartels can be appealed on the merits; but for Competition Commission decisions, the Competition Appeals Tribunal can only determine whether the right procedures were followed: crucially, it cannot assess if the Competition Commission properly understood and acted upon the evidence.

So even when the Competition Appeals Tribunal finds against the Competition Commission, as it did on the Eurotunnel ferries purchase, it makes no difference since the Competition Appeals Tribunal can only re-order the case to be re-examined by the Competition Commission.

On the private healthcare inquiry, likely to be the Competition Commission's final report, the Competition Appeals Tribunal found it had been "unfair" and "irrational" in refusing to let hospital groups see the evidence upon which its finding was based (even on a confidential basis). That too, though, is unlikely to change anything: the Competition Commission is still intent on stripping the three main operators of many of their hospitals and forcing them to operate at a loss, regardless of the consequences. Given that a third of private hospital patients are NHS patients and the Government wants the private hospital sector to help the NHS this winter, this again shows a lack of joined-up thinking. But the Competition Commission is indifferent.

It's a shame to see the Competition Commission go out on such a low note – depressing even, given its proud history and that of its predecessor, the Monopolies and Mergers Commission. However, there is an opportunity to set matters right. In April, the Competition Commission and OFT will merge to form the Competition and Markets Authority. In the run-up, the Department for Business has been consulting on what level of judicial scrutiny should apply under the new regime.

Hitherto, the Competition Commission has argued there's no need for someone to inspect its decisions, since it is itself a second, review body (coming in after the OFT had a first probe), so only its procedures should be subject to judicial review, not its actual decisions . However, that will no longer wash when the OFT and Competition Commission become one.

As the Competition Appeals Tribunal has said, reducing the level of scrutiny simply "lowers the incentives for regulators to make sound decisions". Either the judiciary should have proper oversight, or ministers must keep tabs on what the new competition regulator is doing. Not being accountable or answerable to anyone just leads to bad decisions – as we've seen.