Sir Keir Starmer’s plan for fundamental reform of the British state has major implications for regulation in the UK. The Prime Minister has committed his government to slashing the cost of bureaucracy, abolishing a swathe of quangos, and easing regulatory burdens on business in the hope of encouraging growth.
Businesses once viewed the UK’s system of regulation as world leading. But the recent Treasury policy paper New Approach to Ensure Regulators and Regulation Support Growth said this system is not functioning as effectively as it should and is overly complex.
The previous Conservative government had a similar desire to streamline regulation. During his stint as chancellor, Jeremy Hunt called the major regulators into the Treasury to discuss what more they could do to support growth. He also extended the Growth Duty to the utility regulators, obliging them to take any impact on economic growth into consideration in their decision making.
One of the Labour government’s key pledges was to cut administrative costs for business by 25% by the end of this Parliament. Ministers have already made bold moves to support investment in infrastructure including taking decisions on energy infrastructure, expanding Heathrow Airport and reforming the planning process. Infrastructure investment may be a resilient investment opportunity, but the UK relies on foreign capital, for which the fight is acute and global. The attractiveness of our regulatory regime is a key factor in decision making for business.
Businesses have called for regulators to shift to a more constructive dialogue with those they regulate, avoiding an adversarial approach which can hinder innovation and growth. Regulators have been unable to act technocratically and offer stability; there is a perception instead that they are acting politically, for example with Ofgem setting energy bills price cap. Some investors have argued that the current regulatory model in energy and water has led to underinvestment in infrastructure as regulators have prioritised low bills over strategic investment.
Sections of the public have raised concerns that regulators are not operating effectively, with frequent news stories reflecting worries about issues ranging from sewage leaks to high household bills. Both members of the public and investors want the government to step in.
The government’s announced review of arm’s-length bodies (ALBs) this week will in part seek to address the balance of decision making between quangos and ministers. Whitehall departments will conduct the review under the scrutiny of the Cabinet Secretary and respective secretary of state.
Departments are also conducting performance reviews of regulators they sponsor. Without any external challenge, sponsor departments might struggle to be objective and fall short in their oversight of regulators. Departments tend to rely on their regulators for expertise in relevant sectors. Bias may cause departments to fail to spot opportunities for consolidation and end up maintaining the status quo. They could also ignore more fundamental questions, such as whether a financial regulator should oversee the energy retail market to allow Ofgem to focus on the achievement of Net Zero targets.
Keeping these review process open for input from and scrutiny by stakeholders and the wider public will ensure they are rigorous, transparent and support growth objectives.
