– in the House of Commons at 8:15 pm on 15 May 2006.
'(1) A Minister of the Crown may by order under this section make any provision which he considers would serve the purpose in subsection (2).
(2) That purpose is securing that regulatory functions are exercised so as to comply with the principles in subsection (3).
(3) Those principles are that—
(a) regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent;
(b) regulatory activities should be targeted only at cases in which action is needed.
(4) Subject to this Part, the provision that may be made under subsection (1) for the purpose in subsection (2) includes—
(a) provision modifying the way in which a regulatory function is exercised by any person,
(b) provision amending the constitution of a body exercising regulatory functions which is established by or under an enactment,
(c) provision transferring, or providing for the transfer or delegation of, the regulatory functions conferred on any person,
(d) provision creating a new body to which, or a new office to the holder of which, functions are transferred under paragraph (c),
(e) provision abolishing a body or office established by or under an enactment,
and provision made by amending or repealing any enactment.
(5) An order under this section may contain such consequential, supplementary, incidental or transitional provision (including provision made by amending or repealing any enactment or other provision) as the Minister making it considers appropriate.
(6) An order under this section may bind the Crown.
(7) An order under this section must be made in accordance with this Part.'. — [Mr. McFadden.]
Brought up, and read the First time.
I beg to move, That the clause be read a Second time.
New clause 20, together with new clause 19, will amend the order-making power in part 1 to focus on better regulation objectives. New clause 20 will provide a power for a Minister, by order, to make provision that he considers will ensure that regulatory functions are exercised so as to comply with the Better Regulation Task Force's five principles of good regulation, which state that regulatory activities must be carried on in a way that is transparent, accountable, proportionate, consistent and should be targeted only at cases in which action is needed.
Having sat through what we have sat through this afternoon, I quite appreciate what the hon. Gentleman is saying.
Making regulatory functions more consistent with those principles is in line with the recommendations in Philip Hampton's 2005 report that regulators should conduct their business in ways that are risk-based. The Hampton report proposed that the principle of risk assessment should be entrenched in regulators so that the burden of enforcement falls on the highest risk businesses and least on those with the best record of compliance.
Although the Hampton report found that there is much good practice in UK regulation, the proposed order-making power in new clause 20 could be used to effect real further improvement. For example, the report found that fewer than half of the regulators in the Hampton review used risk assessment to reduce enforcement activity on high performing businesses. By being able to make provision modifying the way in which regulatory functions are exercised, the Government could begin to propose improvements that would ensure that more inspection is proportionate to risk and consistent. That would have a real effect on those regulated, because the burden of inspection would be reduced on the vast majority of the regulated and would be focused on the cases in which there was a real problem. New clause 20 would allow a Minister by order to modify the way in which a regulatory function is exercised, to secure that regulatory functions are carried out in accordance with the five principles.
Certainly the merger of regulators is an element of the Bill and is possible under the Bill.
One example may be that a regulator could have regard to the views of a body that represented consumers in that area—such as the Gas and Electricity Consumer Council—so that the regulator's activities are carried out in a way that is more accountable to consumers.
New clause 20 would also allow a Minister by order to amend the constitution of a body exercising regulatory functions under an enactment if doing so would make it more transparent and accountable. An example could be amending the statute governing a regulator to provide that it has a board structure, with perhaps a proportion of the board being comprised of non-executive directors, to improve accountability and transparency. It would also be possible by order to transfer the regulatory functions of one regulator to another. That power could be used where two regulators exercise oversight of related areas. For instance, where two regulators are operating in closely related areas, to make their work more transparent to the regulated and more proportionate to risk, it may be appropriate to transfer the functions of two regulators to a single regulator.
Will the Minister explain to me, because I am not absolutely clear about this point, how new clause 20 relates to clause 23, which excludes some regulators from provisions? I mention that only because he mentioned gas and electricity consumer groups and, of course, the Gas and Electricity Markets Authority is one of those specifically excluded from the principles underlying the Bill.
If the hon. Gentleman will allow me, I will come back to that at the end of my remarks.
New clause 20 would also permit the creation of a new body to carry out the functions of existing regulators if the Minister considered that that would be for the purpose of securing that regulatory functions were exercised so as to comply with the five principles.
Finally, if as a consequence of the creation of a new body or the transferral of a function, another regulatory body becomes obsolete, it may be necessary to abolish it. That, too, would be possible under the order-making power of new clause 20, if the Minister considers that it will ensure that regulatory functions are exercised so as to comply with the five principles of good regulation. It is important that I make it clear at this point that, under new clause 20, an order may propose changes to a body carrying out regulatory functions only if those functions continue to be exercised. Any modification by order of the functions themselves would have to be dealt with under new clause 19, or by way of primary legislation. I assure hon. Members that it is not in any way our intention to erode the independence from Government of those regulators set up by statute. Our aim with this new clause is to have an order-making power that can be used to ensure that all regulators conduct their business in a way that is consistent with the five better regulation principles.
An order made under new clause 20 will of course be subject to the same checks and balances as any other. Such an order must meet the preconditions in clause 3, and a Minister must consult widely on any proposed order.
A full explanatory document will be submitted to relevant parliamentary Committees. The Government have also given an undertaking that they will not do anything highly controversial using an order and that an order will not be forced through despite opposition from the relevant parliamentary Committees. As we will discuss tomorrow, the Government have placed on a statutory footing a veto for relevant Committees of either House. That will provide further assurance for those concerned that an order will proceed only if the informed view of the House and another place is satisfied that its outcome is desirable.
Let me turn to the question asked by Mr. Heath. Clause 23 excludes certain economic regulators from being specified by order for the purposes of clauses 20 and 21, which relate to the principles and the code. Those regulators are not excluded from new clause 20. I hope that that clarifies the situation, and I ask hon. Members to accept the new clause.
We welcome new clause 20, which, as the Minister said, is designed to promote the regulatory principles that derive from the Hampton review and the five principles of better regulation. There is clearly a role for merging regulators, and there is a proposal to merge 35 national regulators into seven. However, if changes to the role of a major regulator might impact on the public or have a great effect on business, it should be possible for full parliamentary scrutiny to take place. When the former Minister addressed that matter in Committee, I understood that he gave an assurance that that would happen. However, subject to that point, we welcome the new clause as a step in the right direction.
I hope that I can also be relatively brief because I support new clause 20. I had intended to be even briefer, but after hearing the Minister's reply to my intervention, I am struggling to reconcile what the new clause says with the provisions of clauses 20 and 21. The Minister must correct me if I have misunderstood him, but he told us that although clause 23 excludes certain regulators from the provisions of clauses 20 and 21, those regulators are not excluded from the provisions of new clause 20.
We said in Committee that it was an anomaly that the specified regulators were excluded from clause 20, which says:
"Any person exercising a regulatory function to which this section applies must have regard to the principles in subsection (2) in the exercise of the function ... Those principles are that ... (a) regulatory activities should be carried in a way which is transparent, accountable, proportionate and consistent; ... (b) regulatory activities should be targeted only at cases in which action is needed."
Sharp-witted Members will have realised that those words also appear in new clause 20. That measure will require a Minister to secure that regulatory functions are exercised by bodies in such as way as to comply with those precise principles, although certain regulators are excluded from those requirements as the Bill stands. There is thus a group of regulators that apparently does not need to comply with those principles by virtue of clause 23, but is required to do so by virtue of new clause 20, which the Minister will be able to use to ensure that regulatory functions are exercised in such a way that they comply with those principles. That seems to be an anomaly, albeit not an unwelcome one because at least the principles are there somewhere. Nevertheless, the anomaly might need to be sorted out at a later stage.
Clause 20(3) says that the duty to follow the principles
"is subject to any other requirement affecting the exercise of the regulatory function."
As we said in Committee, that would exclude the Financial Services Authority to some extent and other financial regulators if confidentiality is important. However, it may still apply to them subject to that modification. I wonder whether that is what the Minister is saying.
The hon. Gentleman rightly draws attention to subsection (3), but it only complicates matters further. We are not clear, because of the way in which procedure works, where the new clause will sit in the Bill. Perhaps the Minister will be able to tell us because it is a basic question. I am assuming that it forms part of part 1, but it may be part of part 2. I think the Minister nods to say that it would be in part 1, in which case we have one provision in part 1 and something that could be construed as a different provision in part 2.
I do not think that that matters so long as everyone understands exactly what applies to them. I fear that there will be confusion unless an explanatory note is produced, so that we all understand how the measure works before it gets to another place. Otherwise, I can foresee at least a day's debate on the misapplication of the new clause and existing clause 23.
On that note, I am happy to offer the hon. Gentleman an explanatory note.
Question put and agreed to.
Clause read a Second time, and added to the Bill.