In her keynote lecture on the future of independent economic regulation at the London School of Economics last Tuesday evening, Ofwat chief executive Cathryn Ross embraced the concept of a more interventionist government; scoped out ongoing involvement of regulators in markets; said companies should expect watchdogs to be more demanding; and hinted that the direction of travel would increasingly be towards multi-utility regulation.
Ross began the lecture by recapping the original intentions of independent economic regulation at the time of privatisation, and went on to identify three key drivers for change: a changing public policy purpose (what sort of society and economy we want); shifting roles of the key players; and systemic change which has challenged the original top-down approach. Going forward, she said independent economic regulation had a bright future, proving it responds to the following challenges:
Redefining its relationship with government – Ross said the relationship needed to mature to become: “A relationship which sees us acknowledge that…government will have things to say and quite properly will have interventions to make. Which sees us help government to do what it is trying to do in these sectors transparently, and with the benefit of our expertise, but which gives us permission to be critical friend (rather than a cheerleader). Because let’s face it, economic history is littered with examples of, quite possibly well-intentioned, government interventions in markets that were not an unalloyed success.”
Remaining involved in competitive markets and intervening to ensure they perform for different groups of customer.
Demanding more of companies at the macro level on service, corporate governance and transparency, and being less inclined to step in at the micro level. Ross said this “infantilises the sector”: “Rather than provoking and challenging and holding to account, the regulator ends up providing a safety net for companies and that isn’t what we should be doing at all.”
Not losing sight of what matters to customers and citizens which could include, but is not limited to, structural change: “We do need to reflect on the world as customers and those who provide services to them increasingly see it. And it is a world of multi-utility bundles, of connected home services and a more holistic view of the customer as a human being living a multi-dimensional life, rather than as a water bill payer, or a telecoms bill payer or an energy bill payer.”