It's time to reform the regulators

· Leading regulators examine 25 years of regulatory experience and say how regulation should change in the next 25.

· Blair-era regulators for utilities, communications, rail have had their day, says think-tank.

· The Coalition is failing in its promise to rein back regulation.

· The regulatory offices are expanding – when they should instead be encouraging competition and scaling their bureaucracy back.

In a report released today (Thursday) the independent Adam Smith Institute (ASI) calls for radical changes in the way the privatised utility and transport networks are regulated. The gas, water, electricity, telephones and rail regulators, it says, have lost their independence and have become subservient to national politicians and officials. Regulators should be given a new mission – to make the utilities fully competitive and then phase themselves out.

Margaret Thatcher created the first regulatory offices – such as Ofcom, Ofgem, and Ofwat – as a way of curbing newly privatised utility monopolies. But regulation has become Britain’s fastest-growing industry, says the Institute, and the regulators are strangling the utilities with nitpicking intervention when they should focus on the real concerns of customers. Meanwhile the utilities have become adept at ‘gaming’ the system, using its very complexity to hide profits and inefficiencies.

In the report, five experienced regulators – Stephen Littlechild (electricity), Ian Byatt (water), Graham Corbett (mail), John Swift and Chris Bolt (rail), reflect on how the system has developed over the last quarter century, and where it should go from here. They argue for gradual change in the system and a restoration of independence from government. Professor Littlechild wants regulators to become much less adversarial, and to facilitate negotiated agreements, rather than imposing prices and rules as they do now.

Academic expert Tim Ambler goes further, questioning whether the regulatory offices are still effective, and arguing that the regulatory offices should work harder to make the utilities properly competitive and then dissolve themselves. He argues that in banking and finance too, most of the problems stem from too little competition and too much regulation, rather than the opposite. Regulators should concentrate on creating real competition which in turn will protect customers.

Adam Smith Institute director Dr Eamonn Butler says the need for radical change has become urgent, as regulators have been captured by the politicians and civil servants. They are no longer independent. “The regulatory system needs to be smaller, less bureaucratic and more focused,” he says. “Regulators should focus on opening their markets to competition rather than increasingly detailed control.”

Competition is the best regulator, and the regulatory offices should aim to grow competition and then retire gracefully. Regulators are not something inevitable: we just need to figure out how to run our utilities without them.


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