It's none of our business any more

Privatised utilities are carving their own paths, to the disgruntlement of politicians, says Paul Vallely

They could have named the office of the regulator of railway privatisation using the formula familiar from those governing the running of the privatised water, gas, electricity and telephone in-dustries. But alongside Ofwat, Ofgas, Offer and Ofte l we are to have ORR - the Office of the Rail Regulator. The endless jokes that Ofrail would have prompted might have been embarrassing.

But then so, too, is the revelation that the holder of the office, John Swift, seems not to be travelling along the same track as the Transport Secretary and doubty advocate of rail privatisation, Brian Mawhinney.

The leak of the plan to have 294 stations out of more than 2,500 offering customers the chance to buy a single ticket for a journey that used the lines of more than one of the privatised railway companies raised a political storm at the weekend. Dr Mawhinney went on radio and said it was only one of a number of options and that he would try to get it scrapped. But he was forced to admit that he has no legal power to make Mr Swift change his plans.

The minister was further humiliated yesterday when it emerged that the regulator's other two options also amounted to a drastic reduction in through-ticketing, and the Labour trade and industry spokesman, Brian Wilson, claimed Mr Swift had threatened to resign after Dr Mawhinney's "false assurance" to protect through-ticketing from the regulator.

Mr Swift underscored the position by pointing out that the secretary of state could advise him but not direct him. "I have been appointed by Parliament to promote the public interest in a new privatised railway," the regulator said yesterday. "One of thepublic interest objectives is to promote the use of the network which includes the promotion of through-ticketing. I am seeking to produce a better value-for-money network."

But where should the balance lie between public interest and value for money when the two do not coincide? And who should determine that?

"It varies from industry to industry," according to Colin Robinson, professor of economics at the University of Surrey. "In electricity, for example, the minister and regulator have joint responsibility to issue new licences to anyone who wants to generate electricity. But, basically, one of the prime purposes of privatisation was to get politics out of decision-making in these industries."

There are those who are optimistic that it will. Stephen Glaister, a transport economist from the London School of Economics, predicted that one of the principal conflicts in railway regulation would come from the Government's ambitions to manage the onset of the market. But he now believes the Government will be persuaded to intervene less in markets as they emerge. Others are not so confident. And others still are not convinced that complete detachment is desirable.

When these basic domestic utilities were nationalised industries, ministers had the statutory power to give directives. They seldom did, instead they just leant on the board members, informally but extremely effectively. "Under the new system," says Professor Robinson, "the regulators are supposed to be independent and distanced from the ministers, but clearly there's a hangover from the old days and ministers do try to lean on the regulators."

Much of this is backroom activity but occasionally the attempts become public. In 1993, ministers tried to persuade the recently privatised coal generators to burn more British coal than they wanted to. "Ministers saw it as a way of supporting the British coal industry - just as under nationalisation the CEGB would burn more in return for compensation," says Robinson. "Effectively, the two generators, National Power and PowerGen, told them to get lost."

Something similar happened last year when the gas regulator, Claire Spottiswoode, stood out against an attempt to make her impose energy- efficiency objectives on British Gas. Mrs Spottiswoode annoyed MPs on the environment select committee by scupperingthe new energy-saving trust, aimed at using money raised from household bills. A subsidy from British Gas to insulate private homes was, she said, in effect, a tax on those who did not receive it. Stephen Littlechild, the electricity regulator, took a similar line.

Angry Labour MPs complained that this would force the Government to abandon pledges it had made at the Rio Earth Summit. They demanded "full disclosure of all the advice given to her concerning the funding of energy-saving initiatives, including the legal advice she alleges has led to her current stance and the private advice she has been receiving from senior Conservative politicians".

This was never disclosed. But the allegation did not surprise Professor Robinson. "Ministers and civil servants were used for 40 years to interfering with everything these industries did and old habits die hard."

If they are interfering now it is not official. Under the privatisation acts, there is provision for limited communication. Regulators report to the secretary of state on an annual basis and they can be called before select committees. In practice, the former is perfunctory and the latter infrequent; Ian Byatt of Ofwat has been before the environment select committee only once in five years.

"There's something called a `direction' which the secretary of state can give to the regulator," says a spokeswoman for Ofwat, "but it's not clear how it works. The legislation is incredibly vague and loosely worded. And we've never actually been given one."

Some feel that the Government should be intervening more. Dieter Helm, of Oxford Economic Research Associates, would like to see a much firmer framework of energy policy in which governments would be able to make "key capacity decisions across fuels". Richard Caborn, the Labour chairman of the trade and industry select committee, is more blunt: "Littlechild is responsible for electricity and Spottiswoode for gas. But who is responsible for the nation's energy policy? No one."

It is for politicians rather than the regulators to define what is in the national interest, he feels, and is pressing for a royal commission to review the subject. "The setting of the industrial strategy of the nation has been virtually put into the hands of a few individuals who are not truly accountable to Parliament, not transparent and who don't have to justify their decisions. Moreover, they are all appointees of the Government; they all come up for renewal. Who is regulating the regulators?

"All this is the inevitable consequence of privatisation. I wonder why the Government doesn't want to stand up now and defend it?"