Is the ideal of independent regulation appropriate? Evidence from the United Kingdom

Abstract

The liberalization of utilities has generally led to the creation of an economic regulator, nominally independent of government. The United Kingdom, as a pioneer of this process, has more than 30 years of experience with independent regulators. However, by 2019, the three main regulated utilities in the United Kingdom, energy, water and rail, were in disarray with a combination of high prices, poor service and a failure to achieve the goals of competition set at the time of the reforms. Government, the companies and the regulators must all bear the blame for this situation. We focus on the regulator in this article and argue that there a number of factors behind their failings including a concentration on economic issues to the detriment of other issues such as environment and public welfare, a lack of public accountability and a poor culture in the regulators based on a view that regulatory interventions were always counterproductive. Given that regulators are appointed by government and funded by Parliamentary vote, the claim of independence is not credible and there are circumstances when government should be able to overrule regulators in the broader public interest. We suggest that expanding the range of skills among the regulatory decision makers, regular rigorous Parliamentary scrutiny and a much stronger focus on the attributes consumers require – affordability, reliability and sustainability – rather than the current obsession with competition would improve the regulators’ performance.