Regulation
Ministers have in recent years found that regulation is generally more politically attractive than the alternatives (such as tax and spend). They have also found that regulation is generally more effective if it can be de-politicised, so that regulators take long term decisions free from political interference. But the popularity of regulation amongst politicians has caused growing concern about the burden of regulation (see a separate series of notes) and concern about the growth of the Regulatory State, whilst others have expressed doubt about whether the independence of regulators us quite as strong as it is supposed to be. This note explores these two latter concerns.
The growth of regulation is often cited as one of three major changes in the UK constitution in the late 20th Century - the others being our membership of an expanding EU, and devolution. Some politicians express concern that there is no effective oversight of this new and powerful "State within a State", and draw attention to the damage that cumulative regulation might do to traditional freedoms and to econonomic growth. Those expressing such concerns are in effect pushing back against Ministers' determination to delegate politically difficult decisions to regulators: decisions ranging from control of interest rates to the choice of medicines available through the National Health Service.
It is hard to underestimate the constitutional significance of such delegations, especially in the field of economic regulation. All the utility regulators have wide powers, such as the power to establish price controls etc. for the companies which they regulate. Some, such as the energy regulator Ofgem, can go further and make laws, in the form of Statutory Instruments, albeit subject to the approval of Parliament. The Competition Commission has even wider powers. It can make a wide range of orders to overcome competition problems. Such orders, which might for instance establish a price control or require businesses to behave in certain ways, can be binding on companies and individuals - and require no parliamentary approval whatsoever.
A House of Lords committee reported on this subject in in 2004:- (The Regulatory State: Ensuring its Accountability) although this report concentrated mainly (but not exclusively) on the accountability or otherwise of the economic regulators.
More generally, however, regulators are perhaps over-accountable - in particular to the courts and via the media. There are growing concerns that the tension between accountability and transparency, on the one hand, and regulators' wish to avoid blame, on the other hand, is leading to over-weak and over-bureaucratic regulation. Follow this link for a more detailed discussion of this subject.
No regulator is entirely independent of government. This is because every regulator is 'sponsored' by a government department which is responsible for:
Also, there is bound to be reasonably frequent communication between government and regulator, as the regulator explains what it is doing and assists the government in developing or defending its policies. Government Ministers - or more likely their officials - may in response express various degrees of surprise or concern about the regulator's policies and/or decisions. This can be characterised as 'putting pressure on' the regulator. In practice, however, decent regulators are perfectly capable of withstanding such pressure, as long as their independence is truly valued, and as long as the pressure is not accompanied by threats - such as to the regulator's reappointment or budget.
Some regulators are more 'independent' than others. It is clearly not possible for politicians to assert that they have washed their hands of responsibility for the quality of education and health services, so the regulators of those services tend to operate in a more overtly political environment. But successive Health Ministers have sensibly managed to keep a reasonable distance from the decisions of NICE (the National Institute for Health and Clinical Excellence) which decides which treatments and medicines should be made available free of charge on the NHS. (It is, though, worth noting that it is really quite amazing that Ministers can so effectively wash their hands of decisions that are literally 'life and death' for their electorate).
But there is widespread agreement that economic regulators should be pretty well totally divorced from short term political pressure. The industries and their investors welcome the longer-term planning horizons and better decision-making that are encouraged by keeping politicians well away from setting price controls, merger control etc. And politicians, for their part, welcome their being kept well away from the complex investigations which are necessary in these areas - and the likelihood that the decisions are bound to upset either the industry or its customers - and possibly both. The promise of independent regulation was accordingly a key feature of UK privatisations of previously state-owned industries beginning with the early 1980s privatisation of British Telecom. The regulators, for their part, clearly enjoyed their freedom and - most obviously in the case of Rail Regulator Tom Winsor - reacted very noisily when they felt it was being compromised. Less noisily, the Board of the postal regulator Postcomm offered to acquiesce in having its powers suspended if the Government wished to persist in its plan to delay the introduction of competition, and allow significant price rises, so as to facilitate the sale of Royal Mail to the Dutch mail operator, TPG.
But there is - perhaps inevitably - some evidence that later generations of regulators are (depending on your point of view) either made of less stern stuff or sensibly allowing their regulatory decisions to take account of wider considerations. Examples of this behaviour might include:
It is interesting to discuss these issues with those economists and others who work for economic regulators. Some at least of them argue that "regulators can't take on the Government", regulators are "independent up to a point", and that regulators "wouldn't have been allowed to" do certain things. These are not phrases that would ever have passed the lips of their predecessors.
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