Quick fixes: party manifestos and the governance of infrastructure

Energy prices, water bills, bus and rail fares all feature prominently in most of the political parties’ manifestos. They are important topics in a politically charged debate about living standards and how far the economic recovery is affecting the lives of ordinary people. Some electoral pledges involve efforts to increase competition among private sector providers. Some are about giving regulators more powers and improving their effectiveness through various types of institutional reform – including the creation of new regulatory bodies in place of old ones. But others are effectively about government stepping in to take on responsibilities previously held by regulators, most notably proposals to freeze prices (e.g. energy and rail sectors). Our work with the LSE Growth Commission and our subsequent research on the political economy of infrastructure has shown important problems in the planning and implementation of infrastructure policy, particularly in the cases of energy generation and transport. It is encouraging that these problems have been recognised in the manifestos. But the parties' proposals reveal a growing ambiguity about the role of the state in privatised industries subject to independent regulation, and how to address perceived performance problems in some regulators. There are also signs that party manifesto processes may have not allowed the time or openness required to test specific proposals and their wider impacts on the overall regulatory regime. The narrowing role of independent regulators Many of the pledges will see government incrementally take on regulatory functions, which is a continuation of a long-term trend that has clear risks. First, and most obvious, it increases uncertainty for private investors, which can, in turn, raise the cost of capital, mean lower investment and, as a result, undermine the interests of consumers (and/or taxpayers) in the long-run. Increasing political risk and uncertainty is precisely one of the problems that our research has identified as damaging investment in infrastructure in the UK, alongside deficiencies in the evidence base underpinning individual projects, failure to foster local community consent, and lack of forward-looking strategies. Second, the gradual move of government into the regulatory sphere risks creating an institutional architecture more by accident than by design. Energy generation offers a good example. It has seen a gradual return to forms of government intervention typical of the 60s and 70s, before the wave of privatisations. Yet, this trend seems to be less the product of thoughtful policymaking than of an accumulation of interventions whose combined effects have not been fully anticipated. Third, there is little clarity on how specific pledges – such as interventions to fix prices – can be implemented without creating a clash of responsibilities between government and arm’s-length bodies. There is potential to fuel duplication, confuse accountability, and leave unaddressed wider problems we have highlighted in government’s management of bodies that operate at arm’s length from political control. The need for a different approach Governments can and should change regulatory frameworks if they are deemed not to be performing appropriately. But they should consider the relative merits of alternative governance arrangements first – and not forget that privatisation, supported by independent regulation, has brought some benefits. Proposals for government to take on regulatory responsibilities reveal not only lack of confidence in some regulators but also an implicit concern that Whitehall might be incapable of supporting them to improve their performance. In the past, such concerns have often led to hasty restructuring of arm’s-length bodies, imposing considerable disruption for debatable benefits – frequently showing “action” but failing to address the underlying weaknesses in arm’s-length government in the UK. Departments have many other levers to improve regulators’ performance – from replacing their leaders, to creating new “strategic steers”, and promoting processes of review and continual improvement. A returning or new government should explore these options before restructuring – as well as taking the wider steps we recommend to increase performance and public confidence in arm’s-length government. Taken together this set of manifesto commitments reinforces our view that there remain fundamental problems in infrastructure policymaking – and confirms the need to create institutions to facilitate and improve the quality of debate and deliberation in the policymaking process. Too often, the British political system leaves policymaking exposed to an unhelpful combination of narrow party-political tactics, pressure from interest groups with legitimate claims on infrastructure decisions, and hostility from local communities to individual projects. This can create a toxic political environment which breeds high-profile legal challenges, public campaigns, political lobbying, public protest and, ultimately, inefficient decision-making. Any new government that wishes to take infrastructure policy seriously will need to address these issues.