INSIDE OUT: The regulatory institutions are now more vulnerable to interference, and the present generation of ministers cannot resist meddling

INSIDE OUT: The regulatory institutions are now more vulnerable to interference, and the present generation of ministers cannot resist meddling - One of my favourite pastimes under the Tory government was to tease senior civil servants and ministers about

by ROBERT PESTON, editorial director of QUEST, www.csquest.com,e-mail Peston@Peston.com
Last Updated: 31 Aug 2010

One of my favourite pastimes under the Tory government was to tease senior civil servants and ministers about this or that diktat from one of the UK's all-powerful regulators. Mere mention of Cruickshank's mauling of BT, Littlechild's electricity industry reforms or Spottiswoode's latest lively media interview would turn my interlocutor pink with frustration.

How diverting to see their own creations turn against them. The painful fact for Whitehall and Westminster was that government had almost no sway over regulators covering gas, water, electricity and telecoms utilities.

In privatising vast swathes of the state, the Thatcher administration had given unfettered authority to an assortment of watchdogs to prevent the utilities fleecing consumers. Once appointed, it was almost impossible to dismiss a regulator.

I once had a semi-serious conversation with a senior government member about whether a 'men-in-white-coats' clause could be invoked to get rid of a truculent regulator, whose plans to restructure an industry were characteristic of an individual in want of several marbles. Psychiatrists were not called, but it was a close thing.

It was therefore a matter of some importance for the new Labour government in 1997 that these potentates should be defenestrated. While in opposition, the team around Gordon Brown had devised a new structure with checks and balances through supervisory boards of executives and non-executives.

The respectable reason for doing this was that it was dangerous to allow one person to have so much power. The risk of a regulator doing something catastrophically stupid was thought to be too great.

So assorted energy regulatory bodies have been crunched together to form Ofgem, where responsibilities are divided between a markets authority of 11 members and a management committee of five executives. Meanwhile, the lottery regulator Oflot was dismantled and replaced by a National Lottery Commission of five part-time commissioners overseeing an executive staff.

An absurdly complicated structure for regulating the privatised rail industry has also been put in place. Prices are determined by the Office of the Rail Regulator, and long-term investment is overseen by the Strategic Rail Authority - and both institutions are subject to continual interventions by the Department of Environment, Transport and the Regions.

Finally, the government has outlined plans to replace five telecoms and media regulators with a single cross-media regulatory body, Ofcom.

A regulatory revolution has been in train, but has there been a rise in the standing of individual regulators and the system as a whole? Not exactly. The institutions seem to be in the throes of post-adolescent doubt about what they are for - and their judgment seems to have been impaired.

The bungled process of choosing the next operator of the National Lottery is the worst example of watchdog wobbles. We also witnessed a telecoms regulator giving a poor account of himself in front of a hostile committee of MPs last autumn. And in recent months, there has been the spectacle of assorted rail bodies vying for influence.

Some of this can be put down to the strains of adapting to a new framework.

But there may be a more fundamental problem: the institutions are now more vulnerable to interference, and this generation of ministers cannot resist meddling, in a way that was not quite so true of the Tories.

The point is that the passage of time has led to the creation of a self-contained regulatory industry. Employment prospects of those working in it depend on the goodwill of the government. So regulators no longer relish alienating ministers, as they once did.

Also, the redistribution of power from an individual to boards of executives and non-executives makes the system more susceptible to political pressure.

Ears can be bent and arms twisted by ministers in the run-up to a controversial regulatory decision. It is easier to nobble a board than one self-righteous individual whose reputation rests on the appearance of untouchability.

This perception of political tainting was acute in the case of the Lottery.

An impression was created of a commission favouring Branson when it thought that was what the prime minister wanted, and ditching him when it became clear that ministers preferred Camelot. All the decisions may have been taken with impartiality, but at the time no politicians or business people believed this - and that was damaging enough.

As the government mulls the structure of its new-media super-regulator, Ofcom, I hope it has learnt this lesson, but the signs are otherwise.

I am told it is likely to have a board of perhaps nine people, of whom six will be non-executive. Plenty of scope here for Rupert Murdoch and his rivals to believe that their economic fate rests on wooing the politicians rather than on the strength of quasi-judicial submissions to a fearless promoter of competition and consumer interests. I am almost nostalgic for the megalomaniac regulators of yesteryear.

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