Is Ofcom lean?
From ‘letters’, the Daily Telegraph, 21 Nov:
SIR – You say (Leading article, November 20) that Ofcom is “vastly overstaffed”.
Ofcom was formed by merging five bodies into a single, leaner organisation. It now employs more than 300 fewer people than the combined headcount of the previous regulatory bodies, despite having substantially more duties than our predecessors.
In every one of our six years of existence we have reduced our budget in real terms. Today we are operating under a budget 21 per cent lower in real terms than when we began. We have saved taxpayers and businesses nearly £120 million in the past five years.
There will of course always be new challenges, but the record so far is not quite as you suggest.
Ed Richards
Chief Executive, Ofcom
London SE1
My take: Richards has a point — a small point. But here is some additional context:
– Regulation — for the most part — functions as a tax on a firm’s activities. End users such as you and me pay that tax. We can say that particular regulatory actions (most those that are de-regulatory) save money. But for the most part regulation imposes additional costs on certain economic activity for the betterment of society. (think advertising regulation). Life is one huge trade-off, right?
– We have not observed Ofcom throwing cash around like MPs or some other public entities. Ofcom generally seems responsible with its share of the public purse. Still, Ofcom is not transparent on the details of its expenses, particularly those related to travel and entertainment. The BBC is now more transparent than Ofcom on those costs. Why doesn’t Ofcom, for example, publish the travel and expenses claims of its senior staff in the same manner as MPs or the BBC? That’s long overdue. Ed Richards cannot credibly claim Ofcom is lean without publishing his expense claims and letting people judge for themselves, knowing all the facts. Simple as that.
– It is increasingly silly to compare the costs of Ofcom to the combined costs of the five legacy regulators. Will Ofcom still do this ten years from now? 2002 was a different era and — duh! — Ofcom should be vastly more efficient than five regulators who operated in an era of analogue technology and limited competition. Why boast about something that you are expected to do? I would like to see a comparison of Ofcom with something like ACMA, the comparable Australian regulator. My guess is that Ed Richards would not be able to make the ‘leaner regulator’ claim look as cogent.
– The CEO of Ofcom is an important job and Ofcom is a large organisation. But I suspect Richards’ successor will earn considerably less than he does. The appetite for paying regulators upwards of 400,000 GBP no longer exists — it is simply too difficult to justify. We were once told that such salaries were important to attract the top talent and the comparable media and comms salaries were much higher. But that argument was from the era when some — not all — people regarded Ofcom as something more like a consultancy or a professional services firm. It must have been great while it lasted. But today that illusion is gone. Ofcom is a regulator and needs to have pay packages that are more realistic to its mission.
– Stay tuned…
d
Ofcom does publish details of Board travel expenses:
http://www.ofcom.org.uk/about/accoun/expenses/
It is absolutely right that it is silly to keep comparing Ofcom to what went before. The fact that Ofcom can get by with 300 fewer staff tells you only that the old system was bloated. It tells you nothing about how many staff OFcom should have currently.
Plus, efficiency gains like replacing a bloated system with a more efficient one are one-off. You can’t keep claiming them forever.
Richards’ mantra about year on year reductions in budgets is nonsensical. It’s spending that matters, not budgets. And Ofcom’s spending has not gone down year on year in real terms in the five full years that it’s been operating.
Here are the facts, from Ofcom’s accounts. If you look just at operating costs, the figures are:
2004/05: £122.9 m
2005/06: £124.4 m
2006/07: £125.2 m
2007/08: £133.9 m
2008/09: £125.3 m.
So it’s not right to say that costs have gone down year on year in real terms. It is fair to say that they’ve declined in real terms over this period. I calculate the decline to be about 15% rather than the 21% Richards’ claims. The figures are a bit less flattering if you add in net capex, which is also spending that is required in order for OFcom to do its job. Including net capex, the fall in real terms is about 10% over this period.
Who knows where that mystical £120 million comes from?
So on the question – is Ofcom lean? – the answers are probably that it is leaner than the totality of what it replaced (but that doesn’t tell you anything about how lean it could or should be now, and you can’t keep going on about that one-off change forever), and that it has been getting marginally leaner over time (but not to the extent that Richards thinks).
Of course, any organisation should be judged on the basis of output, not input. The question of whether anyone gets £125m worth of value from Ofcom each year is a different one entirely.
Finally, why does OFcom have to keep so much money in the bank. It has a cash balance of tens of millions of pounds. While it has hefty current liabilities on its balance sheet, most of those seem to relate to internal government transfers. Surely it could get by with a fraction of the cash it holds, and return the rest to its stakeholders, who could no doubt put it to better use. Maybe one of Ofcom’s accountants can explain why they’re so cash rich for such a lean public sector body.
Freddy, Ofcom releases that summary page you link to, but I would not call it “details” of expenses and I would not call it transparent. With the BBC, we got hotel names!
Still, it is useful to some degree.
“I would like to see a comparison of Ofcom with something like ACMA, the comparable Australian regulator. My guess is that Ed Richards would not be able to make the ‘leaner regulator’ claim look as cogent.”
Australia has a population approximately one third that of the of the UK’s.
ACMA’s headcount is two thirds that of OFCOM’s.
ACMA’s budget is three quarters that of OFCOM’s.
My guess is that your guess is wrong.
Hi Anon,
I have two reactions:
1. It is better, don’t you think, to compare Ofcom to other regulators than to compare it to the five legacy regulators. (which is today a misleading comparison). Comparisons are never perfect, but we should compare Ofcom to a contemporary regulator with similar duties.
2. Population is somewhat relevant to certain regulatory duties like call centres. But population is not really relevant to most other functions such as policy making or radio spectrum auctions. For example, the FCC has a budget about of about 203 million GBP, but the US population is about five times larger than the UK. If you use the underlying population as your primary measurement tool, then the FCC is vastly more efficient than Ofcom. Ofcom should have a budget 20% the size of the FCC following your logic. That’s 40-50 million GBP.
The truth is that each of the FCC, ACMA and Ofcom cannot be expected to be efficient unless they are subjected to robust oversight. I think that is the nature of public bodies that spend other peoples’ money.
By creating pay phone plus, that was part of Ofcoms duties but now a separate regulator whose costs are covered by a percentage of call costs, Ofcom should be able to show savings. Part of Ofcoms costs now come direct from our bills.
To compare Ofcom to ACMA you would need to look at value for money. Do Australians rate the telecom industry second only to the porn industry for untrustworthy industries? Do Australians complain more about telecom services than any other sector? If not they are getting value for money while we in the UK obviously are not.
We could compare the number of regulations passed, enforcement notices issued and number of prosecutions made. If we exclude pointless PR exercises like guideance notes, voluntary codes and other legally unenforcable documents then I guess Ofcom would fare very badly.