PROPOSED NEW STRUCTURE FOR THE OFFICE OF FAIR TRADING (OFT)

PROPOSED FAIR TRADING AUTHORITY

1. The Office of Fair Trading (OFT) is a regulatory body established by the Fair Trading Act 1973. That Act gives it a wide range of functions in the areas of consumer protection and competition. The Competition Act 1998 increased its responsibilities and power very significantly and Government proposals to give the OFT a new role in setting national standards for local consumer protection activity would do so further. In addition the Government is currently consulting on leaving merger decisions to the competition authorities. The Government believes that in view of these increased responsibilities and power it is no longer appropriate for all of the body's powers to be vested in an individual. Reform should depersonalise regulation, and broaden the base of decision-making expertise which informs it. The recently-created regulator for the Energy sector, the Gas and Electricity Markets Authority, reflects this conception of regulation; its activities will be guided by a board made up of individuals of diverse relevant experience.

2. This consultation document seeks views on details of the Government's proposals for structural reform of the OFT. The current arrangements, where the statutory powers of OFT are placed in the office of Director General of Fair Trading, would be replaced with the OFT being made a statutory Authority, and its chairman heading a Board. Though we would envisage the Board involving itself in matters of strategy rather than day-to-day business, we propose that the Board should have the statutory authority to participate fully in decisions and in the executive functions of the OFT.

3. Such changes to the structure of the OFT would require primary legislation, which would be subject to the availability of Parliamentary time. We propose that legislation would establish the Authority, and stipulate that the Authority should be a body corporate comprising the Director General as chairman, and at least four other members. Following the model of OFGEM, Members of the Board should be appointed by the Secretary of State, who would be required to consult the chairman in making the appointments (a schedule in the legislation would set out the detailed provisions for the appointments and terms and conditions of members of the Authority). Members of the Board would be appointed through the usual Nolan procedures, and in making the appointments the Secretary of State would need to be satisfied that the persons had knowledge or experience which would be relevant to the Authority's functions. As a Non-Ministerial Government Department, the Authority would be a Crown body and the Authority's staff, civil servants. 

4. The principles underpinning the new proposals are that the new Authority should:

Independence: the functioning of the Board

5. To ensure its independence we do not propose to define closely the role and functioning of the Board in legislation, but to leave details to the discretion of the Chairman of the Board, in consultation with the Secretary of State.

6. We believe that it is desirable for the Authority to regulate its own procedures, including on matters such as quorum. In doing so the Authority needs to be able to establish working arrangements that are sufficiently flexible that it can take a wide variety of decisions, some of which must be taken quickly. It will be important that absence through non-attendance or withdrawal enforced by potential conflicts of interest should not affect the validity of Authority decisions. We envisage that the Board will concentrate on strategic and major decisions. We suggest that the legislation should state that powers and duties of the Authority (other than making statutory instruments) could be undertaken by members of staff authorised by the Authority to do so. There are similar provisions in the Fair Trading Act regulating how the OFT operates now. These mean that minor and routine functions, such as giving guidance or requiring information, can be carried out effectively and in a timely way. 

Ensuring a broad mix of experience within the decision making process

7. We propose that the Board should have between five and eight members. The legislation would stipulate only a minimum membership of the Board, so that the exact size could be varied from time to time. It is likely that the Chairman would want his or her most senior official(s) on the Board, but our intention would be to ensure through a statutory minimum that there would always be members without executive functions on the Board. Part-time members could bring valuable outside perspective to the decision-making of the Authority which might be hard to achieve through restricting membership only to those willing to serve full-time. We would welcome comments on the appropriate balance between OFT officials and outsiders. Our preliminary view is that outsiders should be in the majority.

8. Members would need a broad range of experience, including experience relevant to the work of the OFT on competition and consumer protection. But we do not believe that the members should represent sectional interests. They would be appointed on their own merits and would be expected to approach decision-making without preconceptions drawn from their previous experience.

Avoiding conflicts of interest

9. The board will need to develop systems to avoid conflicts of interest. Part- timers, in particular those also engaged in commercial life, would have external interests which very likely would land certainly could) at some time conflict with issues dealt with at OFT, with its "whole economy" responsibilities. The workings of the Board would have to be such that any member with a personal interest would have to withdraw from consideration of a relevant issue. The interests of members should be declared and open, and the workings of the Board open, to demonstrate that interested parties have not been involved.

Accountability: open and clear working arrangements

10. While keen to ensure its independence, the Government has a direct interest in the probity and efficiency of the Authority. More generally, the Authority must be accountable to the Secretary of State, Parliament and the public for its decisions and ways of working. It will have to take into account the general principles of good governance of all bodies corporate. We propose that the Chairman should publish Board members' attendance and the arrangements for decision-making, and that minutes of meetings and board members' opinions should be routinely published. In addition, decisions under the Competition Act 1998 are generally required to be consistent with EC jurisprudence, and these will be published as reasoned decisions and be appealable to the Competition Commission Appeals Tribunal.

11. We also propose that the Authority be required by law to submit to the Secretary of State, and publish, an annual report which sets out clearly how the Authority has operated throughout the year. The Board will be accountable to Parliament through regular reports and evidence to relevant Parliamentary committees. Through making its reports public, the Authority will be accountable to the public at large.

Consumer Strategy and Law Reform Team
DTI
September 2000

Please send your response to Philip Harris, Chair of the Competition Law Study Group (address on Competition Law Study Group Web Page) or, if submitting as a personal response, please inform Philip Harris and then send it in writing or by e-mail by 26 January to: Colin Baron, Department of Trade and industry, Consumer Law Reform Team, Room 2126, 1 Victoria Street, London SW1H OET, Telephone: 020 7215 6439, Fax: 020 7215 5435, e-mail: colin.baron@dti.gov.uk