UK Regulation and Competition conference 2024

Hosted by Graham Mather of The Regulation Forum and chaired by Lord Currie, Chair of the Advertising Standards Authority, a select group of senior economic regulators convened on 23 April to discuss the challenges of regulating energy, water, telecoms and other commercial markets. The Institute of Regulation was there.

Minister Lord Dominic Johnson argued that we need to move beyond regulating for its own sake or for fear of being held to account for inaction. Free markets should be trusted, with regulation in place to encourage growth, not just to stop innovation due to regulatory protections of the environment and consumers. Regulators must see their roles as enablers and regulation as a service, with far greater transparency, and far quicker decision-making. Upskilling regulators is important too, so that they can reduce regulation as well as make it smarter. Principles-based regulation remains vital key.

Geoffrey Norris, a senior economic regulation advisor to the Gordon Brown government, noted that regulatory decisions are almost always contentious with someone, and regulators need to navigate through that noise. He reminded attendees of the three waves of regulatory policy over the last 40 years: first, there was the privatisation of the 1980s and 1990s that reshaped the utility sector, and led to the need for arms-length regulatory bodies; second came the post-1997 reform of competition policy that took more decisions away from ministers and focused more on the needs of consumers and markets; and third came a more recent layering of public concerns about the environment, growth and ownership of assets on top of existing regulatory responsibilities. He believed that any incoming Labour government would be comfortable talking about a regulatory state, but would spend time working on its application in practice. Independent economic regulation would remain important; net zero would be a defining issue that all regulators would need to consider; security and market resilience would be key too. And Labour would remain concerned about affordability as well. He doubted whether there would be more nationalisations, though events sometimes force government's hands. The challenge for regulators would be to be proactive in responding to the demands in their own markets and to demonstrate that they can move fast when required, and demonstrate that their regulatory regime is responsive and effective.

Mark McAllister, Chair of Ofgem, compared regulators to referees. Their role is mostly to let the game flow, but not to be afraid to intervene. Regulators have a privileged role, with their ability to see the whole market, and bring people together. They must facilitate partnerships, while focusing always not only on price but customer service too. Reputation must be transparent, communicating not just with suppliers but the public and charities and other interest groups too. Ofgem will need to be more creative and bolder too in facing the challenges of national energy problems ahead. Lord Michael Grade, Chair of Ofcom, had three guiding rules for regulation: create fair markets; minimise harm; and know when to intervene. Regulators sometimes need to act fast, but there's a benefit also of taking time, to build evidence and to see the market evolve. Legislation also becomes quickly out of date if rushed through, so it's better to think about the consequences before passing new laws. As such, the regulation of online safety, a new Ofcom responsibility, will take time to bed in. He also noted the increase in Ofcom's regulatory responsibilities, but accepted that the regulated companies have fingers in many markets and their regulator needs to understand them all too.

Sir Stephen Hillier, chair of the Civil Aviation Authority, said that the core job of any regulator is to be relentlessly effective in doing the day job in line with its statutory duties. But regulators have to be responsive too to new issues and unexpected crises. The CAA has been rated highly internationally but is pushing itself to improve, and to collaborate with others to protect UK citizens flying abroad on non-UK carriers. The CAA thinks of itself as a provider of a service to those it regulates, and accountable to government too. It has different duties in the space sector where it is enabling innovation more than regulating an existing mature market. And, although it is hard to predict the challenges of the coming years, safety must remain at the heart of its regulatory regime. Price will always be important too, and he noted that, although airline customers care about the environment and accessibility, they still want cheap flights. The CAA wants more powers to protect consumer interests as airlines currently take too long to pay compensation for example. And it wants to recruit and retain its staff too; he was relieved that, like Ofcom, the CAA is not constrained by the low pay ranges in the civil service which, if paid, would denude the regulator of necessary skills.

Marcus Bokkerink, Chair of the Competition and Markets Authority, made five points. First, open, competitive markets are vital: competitive markets lead to economic growth. Second, having open markets doesn’t mean leaving them alone, as some firms will always try to limit competition to retain profit. Effective competition is the best regulatory tool, so the regulator must tackle cartels and protect consumers, even if firms complain when decisions go against them. Third, not all markets are the same, and some will require additional regulation to substitute for competitive conditions. It is simplistic simply to have a regulatory bonfire, but some regulation can get in the way if poorly designed. So, the regulation must be specific: monopoly markets need some form of competition as do markets with entrenched firms; in markets where there are potential negative spillover effects on wider society, such as financial markets, regulation is necessary too. Fourth, the stability and predictability of regulated markets matter, so as to ensure investment and innovation. Giving regulators operational independence is vital to assure market that political whim won’t upend investment and business strategies. In this regard, the UK's regulatory regime is a national asset. And fifth, regulatory regimes need to be accountable, so transparency is vital both from regulators and politicians, with politicians influencing strategically, and regulators building trust in their decisions to win the confidence of consumers and suppliers.

Olivier Guersent, Director General of Competition at the EU said that, in respect of digital markets, the EU is now in its enforcement phase, after a long design phase then implementation phase. Following the enactment of new laws, some aspects of tech regulation are in place: choice on devices is easier, for example. But it is still hard to download apps outside app stores. The EU is therefore opening cases against three IT platforms (which he called gatekeepers): Apple, Google and Meta, who were each, in different ways, slow to respond to the needs of consumers. He was keen for the EU and UK to play together to regulate the tech 'gatekeepers' as, on some issues, one regulatory regime will be more effective than the other, given the different regulatory tools at their disposal. He was concerned that many EU regulators still need to build their capacity to tackle regulatory issues on AI, as there is a scarcity of expertise, though he praised the skills at the CMA. He questioned whether AI could be regulated as a new technology, but perhaps tackle its regulation indirectly, such as via chip manufacturers, cloud services or data accumulators. He reiterated the need for a mixed approach to AI regulation, due to its fast evolution: some immediate interventions may prove ineffective; investigations take time; and AI is global, so it's important to work across national boundaries.

Iain Coucher, Chair of Ofwat, noted the challenges in his sector. First, they were undertaking a long-term price review for suppliers, reviewing their business plans, and ensuring investment in environment improvement, though this may lead to increased bills for consumers. Second, there were significant concerns about pollution and system overloads when it rained. Third, there were also concerns about water companies' director pay and dividends. Fourth, Thames Water was taking up lots of Ofwat's time, due to its size and complexity, and the fact that it represents a quarter of industry, with significantly underperformance over many years and transformation necessarily taking time. But it was still important to remember that the quality of UK water is still the best in world and pollution levels are normally acceptable when it doesn't rain a lot. But future challenges, whether population growth, increased ground water run off, or less predictable weather due to global warming, are tremendous. Water companies will need to raise their game, invest in technology and skills, and prevent problems by identifying vulnerability in the system and encouraging innovation.

The Institute of Regulation will continue to participate in these conversations, whether relating to the political environment, changing duties on regulators, collaboration, the economics of regulation or on accountability and engagement on global issues.