Lords: urgent reform of regulators required to preserve their integrity and legitimacy

The House of Lords Industry and Regulators Committee has called for the creation of an ‘Office for Regulatory Performance’ to investigate and report on regulators’ performance and support Parliament in holding regulators to account.

That was among the many actions advocated by the committee in its new report, Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators, which scrutinised the work of the UK’s 90 regulators and found urgent reform is needed to improve accountability and performance.

The committee's findings

• There is a perception that some regulatory leaders have been appointed on account of their political loyalty rather than their experience and capability.

• There have been unacceptable government delays of appointments to regulators’ boards, which hampers the governance of regulators and makes the positions less attractive.

• While some regulators can raise their own revenues through levies and charges, others depend on the government for their funding. This inevitably influences their ability to carry out their functions independently.

• Some regulators are being overloaded with objectives, without clear guidance on how they should prioritise between them.

• The waters have been muddied between regulatory and political issues, resulting in the government’s strategic guidance effectively ducking decisions on which it should give a view.

• Regulators face a challenge to recruit and retain more specialised staff due to the higher rates of pay available for the same skills in the private sector.

• There is a potential precedent for select committees to embed specialist advisers within a regulator to review its activities, created by the Treasury Select Committee following the 2008 financial crisis.

Calls on government

• Streamline regulators’ duties and objectives and provide prioritisation in the event of conflicts.

• Be responsible for how policy priorities should be decided, for example on matters of social or economic policy, such as the size of bills, and give regulators’ boards the power to seek explicit guidance on such decisions.

• Allow Parliament to play a more prominent role in scrutinising appointments to regulators and provide a public explanation if it chooses to make an appointment that has not been endorsed by the relevant select committee.

• State clearly what it has delegated to regulators to decide independently, and in which areas it will be appropriate for the Government to provide direction. If not, it should legislate to end this delegation rather than attempting to influence regulators’ decisions.

• Ensure the consumer view is properly heard by regulators, by expanding statutory provisions for independent consumer advocacy.

• As a matter of principle, consider allowing relevant regulators the power to raise their own revenues.

• Tackle the challenges of, and insufficient investment in, long-term infrastructure projects by placing the National Infrastructure Commission on a statutory footing.

• Allow regulators greater discretion to move outside of current pay scales to attract the necessary staff.

Chair of the inquiry, Lord Hollick, said: “We are especially concerned at cases where the government has failed to resolve political or distributional questions facing regulators, and instead interfered in their day-to-day workings.“Independent regulators must have the confidence to tell the government and the public about the serious problems facing their sector and be able to set out proposals to meet them with clarity, efficiency and transparency.”

He added: “If the integrity and legitimacy of the UK’s regulatory system is to be preserved, the findings and recommendations in our report must be addressed by the government, regulators and Parliament.”