Areas in Which the Thesis Makes an Original Contribution

The discussion in this chapter and in the next chapter will serve to illustrate that much of the existing economic regulation in Britain arose on a comparatively ad hoc basis as a consequence of the privatisation movement of the 1980s, although externally imposed regulation of this kind has been an established feature of the US scene for more than a century. Existing studies of UK regulation in this area have generally approached the subject from a constitutional, institutional or descriptive perspective. Little if any detailed analysis has so far been carried out on the relationship between issues of regulatory design and the attainment of desirable regulatory objectives.

The present thesis seeks to remedy this omission in the existing scholarship by showing how considerations of regulatory design and approach can lead to improved regulatory outcomes. In pursuing this theme, the thesis includes a strong comparative element, dealing in some detail with the possible application of US regulatory techniques in Britain.

Such an approach is unusual, if not unique, in terms of existing academic analysis.^ For example, the thesis seeks to show how what would be involved in adopting

Some comparative work in this area has been carried out by Professors Graham and Prosser in their book, Privatizing Public Enterprises (Clarendon Press, Oxford, 1991), particularly chapters 6 and 7 dealing with rule making and consumer representation. Baldwin, Rules and Government (Clarendon Press, Oxford, 1995), contains some useful discussion o f the US rule making process in chapter 4 in particular, A more general discussion o f concepts o f public law and democracy in the UK and the US can be found in Craig, Public Law and Democracy in the UK and the USA (Clarendon Press, Oxford, 1990).

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modified US APA-type procedures in the UK and the benefits which could result from such a course. The thesis also contains the first detailed UK study of the extent to which such procedures could be introduced by way of judicial initiatives, perhaps by invoking concepts of fundamental rights or by further development of the doctrine of legitimate expectation, and the issue of whether the regulators themselves could choose to adopt such procedures in the absence of a general empowering statute.

In addition the thesis draws on Commonwealth experience with various regulatory techniques, particularly from Canada, Australia and New Zealand. These studies of Commonwealth regulatory methods include the rule making powers of regulatory bodies in Canada and Australia, and the novel use of arbitration and mediation techniques for the resolution of utility interconnection disputes in New Zealand. Little, if any, comparative academic work has been carried out in these areas to date.

The thesis also incorporates a good deal of empirical research, including an in-depth look at some operational aspects of regulatory agencies in both the UK and the US, based on a number of interviews with regulatory officials and other field work carried out in both jurisdictions. Details of the agencies which have been the subject of this research and the interviews conducted are contained in the Schedules in the Table of Contents. The activities of the major economic regulators in Britain will be described in some detail in the course of the succeeding chapters.

This empirical research into UK regulatory bodies raises several issues which have also been largely unexplored to date. These include the existing and potential use of consensual and innovative techniques in UK regulation, the development of structured industry consultation and participation procedures and the use of discretionary regulatory powers to counter the problem of anti-competitive market behaviour. These aspects are illustrated by reference to the activities of the regulators of the privatised utilities and of rail and air transport and the role of the ITC in relation to television broadcasting and licensing.

Another significant part of the research methodology employed consists of some empirical studies of US regulatory bodies, including several US state public utility commissions and consumer protection agencies, and a study of some of the regulatory activities of a federal regulatory agency, the Federal Communications

Commission (FCC). These case studies of both UK and US economic regulation reflect current practice in both jurisdictions. This has changed considerably, and in many cases unrecognisably, over the past few years.

This is particularly so with US regulation, where the use of fully-fledged adversarial techniques and public hearing procedures is declining in significance in areas such as rate-setting, and consensual procedures and negotiated settlements are assuming increasing importance. The US studies are also important in illustrating how structured methods of representation can promote the consumer interest in regulatory matters, an area which is of much contemporary relevance to the UK situation.

The thesis also seeks to lay a detailed basis for a new model of economic regulation based on the need to balance the interests of competing groups in the regulatory process. It defines the interests involved and shows how innovations in public and administrative law and in regulatory procedure can assist in reconciling them.

In summary, the thesis breaks new ground in its detailed study of theoretical, comparative and empirical aspects of the topic and in the accompanying analysis of the results of this research.

1.4 Research Methodology

1.4.1 The Approaches Taken in the Literature to Date

(i) Introduction

This part of the chapter summarises the approaches taken in the literature to date to the topic of economic regulation from a legal, economic and political science perspective, with a view to identifying how the perspective adopted in this thesis differs from existing studies of the subject. Research for this thesis has involved reference to more than 300 books and monographs and several thousand periodical articles, legislative enactments, reported cases, official publications and other primary and secondary sources. Details of the more relevant items from among this plethora of material are listed in the bibliography that follows the final chapter. Not all of the secondary material will be referred to here but this part of the chapter will

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mention some of the literature which bears more or less directly on the areas covered in this thesis.

(ii) UK Legal Texts

To begin with legal texts, the subject of regulation in the United Kingdom has received some attention from legal commentators in recent years. The standard UK administrative and public law texts generally include one or more chapters on the subject of economic and social regulation, which often focus on areas such as consultation procedures, the accountability of the regulators and the applicable legislative framework.^

Texts which deal more generally with the constitutional status of governmental and quasi-govemmental agencies and with matters of general constitutional principle in this area also provide useful background.^® More specialised texts dealing with particular areas of administrative law such as judicial review,^ ^ delegated

9. Perhaps the best overall treatment o f the subject in the general texts is found in Craig,

Administrative Law (Sweet & Maxwell, London, 3rd ed, 1994), who devotes part o f several chapters, particularly 3, 6, 7 and 11, to the processes o f government, rule making and discretion, with particular reference to the UK regulatory process and also draws some limited comparisons with US practice. Other general texts such as Foulkes, Administrative Law (Butterworths, London, 7th ed, 1990) and Wade and Forsyth, Administrative Law (GUP, Oxford, 7th ed, 1994) focus more on administrative tribunals generally and tend to deal with economic regulation only in passing. McEldowney, Public Law (Sweet & Maxwell, London, 1994) has a useful chapter on nationalisation, privatisation and the regulation o f the privatised industries. Thompson, Textbook on Constitutional and Administrative Law (Blackstone Press Limited, London, 1993) also contains a brief treatment of these areas.

10. These range from earlier works such as Dicey, Introduction to the Study o f the Law o f the Constitution (10th ed, Wade, 1959, reprinted 1985, Macmillan, London, 1st ed published 1885); Robson, Justice and Administrative Law: A Study o f the British Constitution

(Macmillan & Co, London, 1928); Jennings, The Law and the Constitution (University of London Press, London, 1933); Laski, A Grammar o f Politics (George Allen & Unwin, London, 1925); Schwartz, Law & the Executive in Britain (Cambridge University Press, Cambridge, 1949) to more recent contributions such as Wade and Bradley, Constitutional and Administrative Law (11th ed by Bradley and Ewing, Longman, London, 1993), Turpin,

British Government and the Constitution, (Weidenfeld & Nicolson, London, 2nd ed, 1990); Graham and Prosser, Waiving the Rules: the Constitution under Thatcherism (Open UP, Milton Keynes, 1988); Oliver, Government in the UK (Open UP, Milton Keynes & Philadelphia, 1991); Jowell and Oliver (eds). The Changing Constitution (Clarendon Press, Oxford, 3rd ed, 1994); Giddings (ed). Parliamentary Accountability. A Study o f Parliament and the Executive Agencies (Macmillan, Basingstoke, 1995).

11. The most comprehensive and certainly the most up to date general text on judicial review in the United Kingdom is de Smith, Woolf and Jowell, Judicial Review o f Administrative Action

legislation, 12 access to official information and the problem of government secrecy, and administrative procedures generally, l"* have been essential sources of reference.

In terms of legal approaches to the regulatory process itself there have been several publications which are worthy of note here. These include a pioneering study by Professors Graham and Prosser, published in 1991, of constitutional aspects of the privatisation process, which contains a chapter on regulatory procedures, and also makes some reference to the United States regulatory position and to US techniques such as negotiated rule making, Baldwin and McCrudden have edited a book, published in 1987, which includes some interesting case studies of UK social and

(Sweet & Maxwell, London, 5th ed, 1995) which contains much useful material on the public law status o f various regulatory bodies and the reviewability o f their decisions and makes some reference to US and Commonwealth developments in this area. The other major recent text in this area is Wade and Forsyth, Administrative Law (Clarendon Press, Oxford, 7th ed,

1994). Other useful sources on the subject o f judicial review of bodies having public functions are Schwartz and Wade, Legal Control o f Government (Clarendon Press, Oxford, 1972); Lewis, Judicial Remedies in Public Law (Sweet & Maxwell, London, 1992); Supperstone and Goudie, Judicial Review (Butterworths, London, 1992); Sunkin, Bridges and Meszaros, Judicial Review in Perspective (The Public Law Project, London, 1993); Richardson and Genn, Administrative Law and Government Action (Clarendon Press, Oxford, 1994); Fordham, Judicial Review Handbook (Wiley Chancery Law Publishing, London, 1994).

12. See for example Allen, Law and Orders (Stevens & Sons, London, 3rd ed, 1965), now a little dated; Ganz, Quasi-legislation: Recent developments in secondary legislation (Sweet & Maxwell, London, 1987); Harding, Public Duties and Public Law (Clarendon Press, Oxford, 1989); Puttick, Challenging Delegated Legislation (Waterlow Publishers, London, 1988). 13. See for example Birkinshaw, Government and Information: The Law Relating to Access,

Disclosure and Regulation (Butterworths, London, 1990); Birkinshaw, Harden and Lewis,

Government by Moonlight: The Hybrid Parts o f the State (Unwin Hyman, London, 1990); Ponting, Secrecy in Britain (Basil Blackwell, Oxford, 1990).

14. Examples include Lewis and Harden, The Noble Lie (Hutchinson, London, 1986), which advocates the adoption o f US administrative law procedures in the UK, including 'hard look' judicial review; Craig, Public Law and Democracy in the UK and the USA, supra note 8, which takes a more cautious stance on such issues; Loughlin, Public Law and Political Theory (Clarendon Press, Oxford, 1992); Feldman, Civil Liberties and Human Rights in England and Wales (Clarendon Press, Oxford, 1993) in relation to the scope for introducing participation rights through judicial action, a matter which will be addressed in more detail in chapter 8. An interesting recent work which emphasises the benefits o f participation in the administrative process is Galligan, Due Process and Fair Procedures: A Study o f Administrative Procedures (Clarendon Press, Oxford, 1996).

15. See Graham and Prosser, Privatizing Public Enterprises, supra note 8, and chapter 7 in particular.

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economic regulation and regulatory bodies but which predates more recent developments in the area.^^

Baldwin has written more recently on the subject of government rule making and regulatory compliance, with particular reference to the field of occupational health and safety and to EU influences on the rule making process, and Black has done the same in relation to the UK financial services sector. This book draws some interesting comparisons with US practice in this area and vvdll be referred to in later chapters. It also contains a useful analysis of the relationship between rules and discretion, an issue which will arise later in this thesis and which has been the subject of more specialised work by other writers. Other work along similar lines in relation to issues of regulatory compliance, particularly in the environmental protection area, has also been produced.

A more general treatment of the regulatory process has recently been undertaken by Professor Ogus, who has dealt with areas of both economic and social regulation and has related developments in this area to the underlying political and economic theories.20 It includes some thoughtful material on the use of criminal sanctions and on regulatory techniques such as public ownership and jfranchising. This book provides a useful survey of theories of regulation but does not deal in any depth with

16. See Baldwin and McCrudden, Regulation and Public Law (Weidenfeld & Nicolson, London, 1987).

17. Baldwin, Rules and Government, supra note 8. The influence o f EU developments on utilities regulation, particularly in the telecommunications area, has been recently discussed from an institutional perspective in two essays by Scott: " Changing Patterns o f European Utilities Law and Policy: An Institutional Hypothesis" in Shaw and More (eds). New Legal Dynamics o f European Union (Clarendon Press, Oxford, 1995) and in "Institutional Competition and Coordination in the Process of Telecommunications Liberalization" in McCahery, Bratton, Picciotto and Scott (eds). International Regulatory Competition and Coordination

(Clarendon Press, Oxford, 1996). In relation to the UK financial services sector see Black,

Rules and Regulators (OUP, Oxford, 1997).

18. Galligan, Discretionary Powers (Clarendon Press, Oxford, 1986); Hawkins (ed). The Uses o f Discretion (Clarendon Press, Oxford, 1992).

19. See for example Richardson, Ogus and Burrows, Policing Pollution: A Study o f Regulation and Enforcement (OUP, Oxford, 1982); Hawkins, Environment and Enforcement: Regulation and the Social Definition o f Pollution (OUP, Oxford, 1984); Ogus and Veljanovski, Readings in the Economics o f Law and Regulation (Clarendon Press, Oxford,

1984); Hutter, The Reasonable Arm o f the Law (Clarendon Press, Oxford, 1988). 20. Ogus, supra note 1.

US or Commonwealth experience of differing regulatory approaches. Indeed it expresses some degree of scepticism as to the efficacy of the US regulatory process, but without providing much accompanying analysis of the US system to support this view.21

In the general competition law area, which is relevant to regulatory issues in the economic sphere, there have been some recent texts which address points of interest, particularly in relation to aspects such as interconnection arrangements, the role of the MMC and problems arising from the abuse of a dominant market position.22

The position of consumers under UK law has also been the subject of several texts.^3 In addition, there are more specialised publications which cover particular industries from a legal perspective, including the former nationalised industries,^^ the electricity industry,25 the water industry,^^ civil aviation^^ and television broadcasting.^^ To

21. See for example the excerpt referred to in note 142, infra. For a similarly ambivalent view of the application o f US public law concepts to the UK scene see Loveland (ed), A Special Relationship? American Influences on Public Law in the UK (Clarendon Press, Oxford, 1995), especially chapter 1 by Loveland entitled, "Introduction: Should We Take Lessons from America?" At p 5 Loveland observes: "The attitude taken in this volume towards 'Americanization' as a subcurrent within the (to misquote Lord Denning) incoming internationalist tide is perhaps best characterized as 'open-minded scepticism'."

22. Later chapters make reference in particular to Whish and Sufrin, Competition Law

(Butterworths, London, 3rd ed, 1993). See also Frazer and Waterson, Competition Law and Policy: Cases, Materials and Commentary (Harvester Wheatsheaf, London, 1994); McCahery, Bratton, Picciotto and Scott (eds), supra note 17. For EC developments in this area see Korah, EC Competition Law and Practice (Sweet & Maxwell, London, 1994); Lonbay, Frontiers o f Competition Law (Wiley Chancery Law Publishing, London, 1994). 23. See for example Cranston, Consumers and the Law (Weidenfeld & Nicolson, London, 2nd

ed, 1984); Ramsay, Consumer Protection: Text and Materials (Weidenfeld & Nicolson, London, 1989).

24. Prosser, Nationalized Industries and Public Control (Clarendon Press, Oxford, 1986). 25. McEldowney, Electricity Supply Handbook: Law and Practice (Chancery Law Publishing,

London, 1992).

26. Macrory, The Water Act 1989 (Sweet & Maxwell, London, 1989), which is largely a reproduction o f the relevant legislation in annotated form.

27. Baldwin, Regulating the Airlines (Clarendon Press, Oxford, 1985), although the CAA regulatory regime has undergone significant changes since this book was published, as will be described in chapter 7; Blackshaw, Aviation Law & Regulation (Pitman Publishing, London,

1992).

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date there have been few if any UK legal texts dealing specifically with the contemporaiy energy sector as a whole, or with the gas industry, rail transport, and telecommunications.^^

Later chapters of this thesis discuss the possible adoption in the UK of consensual regulatory techniques, perhaps involving the use of mediation and ADR type techniques. In the course of this exercise some of the literature in this evolving area will be referred to, of which there are some UK examples.^o

Finally in relation to legal aspects of economic regulation in Britain, some mention should be made of the numerous individual monographs published by various institutions and interest groups in this area.^! These are of variable quality, some being excellent and perceptive surveys, and others giving the impression that they were concocted in haste the morning before being presented at a conference. Some have obviously been tailored for a particular political or economic audience and many of them toe a discernible party line in rather obvious ways. Particular examples have clearly been commissioned specifically to promote a particular political or economic perspective. Nevertheless, subject to these reservations, these can often be a fhiitful source of information, statistics and detail on current regulatory policies and practices, and a number of these publications are referred to in the notes to the various chapters.

29. Some work has been done on the historical evolution o f regulation o f railways regulation in the UK - see Kostal, Law and English Railway Capitalism 1825-1875 (Clarendon Press, Oxford, 1994). The general law relating to gas and water is covered in the older texts such as Michael and Will, The Law Relating to Gas and Water (Butterworth & Co, London, 8th ed, 1935). A more general descriptive survey, including some coverage o f legal aspects, is contained in Barnett, Regulation o f the UK Utilities: Prospects to 2000 (Financial Times Publishing, London, 1996). The telecommunications industry is addressed from a comparative perspective in Long (ed). Telecommunications Law and Practice (Sweet & Maxwell, London, 2nd ed, 1995).

30. Peacock (ed). The Regulation Game: How British and West German Companies Bargain with Government (Basil Blackwell, Oxford, 1984); Brown and Marriott, ADR Principles and Practice (Sweet & Maxwell, London, 1993).

31. There seem to be at least 20 such organisations publishing relevant material in the UK, some o f the more prominent examples being the Centre for the Study o f the Regulated Industries, the Regulatory Policy Institute, the Institute o f Economic Affairs, the Institute for Public Policy Research, the Public Finance Foundation, the Adam Smith Institute, the Fabian Society, the European Policy Forum, Oxford Economic Research Associates and the Centre