Meddling in the duties of regulators is an unfortunate failure of the UK

The UK is struggling with a homework epidemic. The latest (voluntary, it must be said) casualty is energy regulator Ofgem, which will be legally bound to focus on achieving net zero emissions as it oversees the UK energy market.

And who could object? Decarbonizing the economy requires every government, every independent body and every quango to push in the same direction.

Britain’s energy sector has welcomed the additional mandate, which it says could lift Ofgem’s eyes from current customer bills to the growing need for future investment. A phalanx of luminaries had called for new duty, including the government’s “offshore wind champion” Tim Pick. And you could reasonably argue that, at the margin, it gives Ofgem more flexibility in its decision-making.

The danger is in assuming that he will do much more than that. “In terms of the overall pricing and regulatory policy outcome, it’s minimal,” says Scott Flavell, regulatory expert at Sia Partners.

One question is why it was really necessary. Ofgem already has duties or requirements to reduce greenhouse gas emissions, to think about future consumers and to take account of existing legislation, with the net zero 2050 target already enshrined in law. One would think that for a regulator that works well under strong strategic government leadership, that might have been enough.

But the slow spread of UK rights has been going on for some time. In the energy sector, legal obligations fell from eight during privatization to twenty-one, according to a 2022 government report.

The telecommunications and water sectors have seen a similar trend, with Ofwat dropping from six primary and secondary tasks in 1989 to around 14 in 2014, depending on what you’re counting. In fairness, none of these have specified that they should try to prevent the country from being subsumed by raw sewage. You wonder how it slipped through the cracks.

The proliferation continues. Financial regulators acquire the duty to think about the international competitiveness of the sector, which goes against what should be their top priority of financial stability. Everyone is in favor of adding their own pet topic (and I’m as guilty as everyone else here), whether it’s financial inclusion or protecting vulnerable customers.

An economic growth bond came into effect for some regulators in 2017, but is being reviewed in a bid to “reinvigorate” it after a noticeable absence of, well, growth. Ofwat, Ofgem and Ofcom could get a new growth right. For any impending challenge, there is a duty to correspond: in March, the government suggested a legal obligation for regulators to “give due consideration” to its principles on AI regulation.

If you think this sounds like cheap policymaking, it’s because: at best, it’s a cheap way to signal government priorities; at worst, it amounts to shifting responsibility on a large scale and risks clogging the system. As the government’s 2022 report states, “the increasing complexity of existing rights risks both stifling regulatory decision-making and limiting the effectiveness of new rights where they are introduced”.

You may wonder whether adding social policy objectives to the remit of economic regulators makes sense. But certainly nothing about regulators’ struggles to wisely balance the big items of customer bills and system investments successfully suggests that asking them to triangulate for multiple other goals will help.

Most regulators operate on the basis of self-preservation, constantly seeking failure that will bring them before a select committee. In recent years, the political climate has strongly favored maintaining low bills. That could now change: Ofgem has already started speeding up network transmission connections, some experts say, amid a large and growing backlog. Ofcom has lifted its price chains to allow BT to invest in fiber more quickly.

A greater focus on net zero is welcome. But elevating it to a concern for Ofgem will not remove the compromises and competing pressures in its decision-making. Nor can it overturn a slow and overly prescriptive regulatory culture or substitute for the necessary political guidance or cross-government planning, according to Adam Bell of consultancy Stonehaven.

The UK is still debating how fast it wants to move towards net zero and has big holes in its plans to get there. All the regulatory obligations in the world cannot fill these gaps.

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