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by Karma Loveday

Government looks to competition and systems thinking for economic regulators

The government has called on the water, energy and telecoms regulators to work more closely across sectors, substantially under the auspices of the UK Regulators Network, as part of a refreshed approach to economic regulation.


Last week, the Department for Business, Energy and Industrial Strategy (BEIS) published a policy paper in response to the National Infrastructure Commission’s (NIC's) 2019 study on regulation. This study highlighted that, while the current system of regulation had generated significant investment over the past decades, it was increasingly facing new challenges that it was not designed to address.


In a letter to the chiefs of Ofwat, Ofgem and Ofcom accompanying the policy paper, business secretary, Kwasi Kwarteng, set out the government’s overarching ambitions for utility regulators across three outcomes:

  • promoting growth;

  • delivering a fair deal for consumer; and

  • fostering sustainability.

Promoting growth

Government continues to see competition as the most reliable means of promoting growth, efficiency and innovation. It instructed Ofwat to undertake a “high level stocktake” by spring this year “to identify both opportunities and barriers to unlocking more competition in strategic investment”. Kwarteng said this would feed into a consultation on economic regulation later this year. BEIS also set out support for regulatory sandboxes to incubate new business models; for using data to improve outcomes; and told the regulators to work together on common challenges regarding setting the periodic cost of capital.


Delivering a fair deal for consumers

The Government asked for more coordination and investment across sectors where this would minimise costs or improve services across the whole system. It praised regulators’ attention to vulnerable customers and instructed them to hold the focus.


Fostering sustainability

Kwarteng said: “We encourage you all to consider resilience in decisions to support investment and seek opportunities to test, adapt and transform infrastructure to maintain resilience and security of supply.” He told each regulator to review its regulatory framework for compatibility with Government Net Zero Strategy pathways to 2050 and interim carbon budgets, reporting back by Summer 2022. He also stated support for investment in natural assets.


Among the policies set out in the BEIS paper were commitments to review regulators’ duties, set a long term strategic framework for regulators and boost competition in strategic investments. The NIC welcomed these changes as reflecting the thrust of its 2019 recommendations but said the paper stopped short of fully endorsing the recommendations or agreeing to make the necessary policy changes.


NIC chair, Sir John Armitt, said: “It is now over two years since we made these recommendations to government. We recognise that there have been significant issues in the regulatory space, not least for consumers facing rises in the price of energy, but this is a missed opportunity to ensure all regulators are straining every muscle to help achieve net zero and deliver for consumer interests. We need real policy changes rather than the promise of further reviews.”


Among the NIC’s recommendations were net zero and resilience duties for regulators; legislation to remove barriers to competition in the provision of strategic network enhancements; and Strategic Policy Statements for every sector.

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