2023-06-19 04:00:43
The UK is in the grips of a duty epidemic. The latest victim (willing, it must be said) is energy regulator Ofgem, which will be legally required to focus on reaching net zero emissions as it oversees the UK energy market.
And who could object? Decarbonising the economy requires every bit of government, every arms-length body and every quango to be pushing in the same direction.
The UK energy sector has welcomed the additional mandate, which it thinks could lift Ofgem’s eyes from customers’ current bills to the increasing need for future investment. A phalanx of luminaries had called for a new duty, including government “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 assuming it will do much more than that. “In terms of the overall outcome on prices and regulatory policy, it is minimal,” says Scott Flavell, regulation 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 have regard to existing legislation, with the 2050 net zero target already enshrined in law. You would think that for a well-functioning regulator under strong strategic direction from the government, that might have been sufficient.
But the slow spread of UK duties has been going on for some time. In the energy sector, statutory duties have risen from eight at privatisation to twenty-one, according to a 2022 government report.
The telecoms and water sectors have seen a similar trend, with Ofwat going from a neat six primary and secondary duties in 1989 to about 14 in 2014, depending on what you count. In fairness, none of those specified that it should try to prevent the country being subsumed by raw sewage. You wonder how that slipped through the cracks.
The proliferation continues. Financial regulators are gaining a duty to think about international competitiveness of the sector, one that cuts against what should be their overriding priority of financial stability. Everyone favours adding their own pet topic (and I’m as guilty as the rest here) be it financial inclusion or safeguarding vulnerable customers.
An economic growth duty came into force for some regulators in 2017 but is being reviewed with the intention of “reinvigorating” it after a notable absence of, well, growth. Ofwat, Ofgem and Ofcom could get a new growth duty. For any looming challenge, there is a duty to match: in March, the government suggested a statutory duty for regulators to have “due regard to” its principles on AI regulation.
If you think this sounds like cheap policymaking, that’s because it is: at best, it’s a cut-price way of signalling government priorities; at worst, it is buck-passing on a grand scale and risks gumming up the system. As the government’s 2022 report said, “increasing complexity of existing duties risks both stifling regulatory decision making and limiting the effectiveness of new duties where they are introduced.”
You can debate whether adding social policy goals into economic regulators’ remits makes sense at all. But certainly, nothing about the regulators’ struggles to balance sensibly the big-ticket items of customer bills and system investment successfully suggests that asking them to triangulate for multiple other goals will help.
Most regulators operate on the basis of self-preservation, constantly scanning for the failing that will get them hauled in front of a select committee. In recent years, the political mood has strongly favoured keeping bills low. That might now be changing: Ofgem has already started moving faster on network transmission connections, say some experts, amid a vast and growing backlog. Ofcom lifted its price shackles to enable BT to invest faster in fibre.
More focus on net zero is welcome. But elevating it as a concern for Ofgem won’t remove the trade-offs and competing pressures in its decision-making. Nor, says Adam Bell at consultancy Stonehaven, can it unseat a sluggish and overly prescriptive regulatory culture or substitute for needed policy direction or cross-government planning.
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 duties in the world can’t plug those gaps.
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