House of Lords report provides clear direction for regulatory reform

A new report by the House of Lords Industry and Regulators Committee (IRC) is the culmination of a wide-ranging inquiry into the performance, independence and accountability of UK regulators. ³⁵ House of Lords, Industry and Regulators Committee, Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators, 1st report of session 2023-24, HL Paper 56, 8 February 2024, committees.parliament.uk/publications/43211/documents/215050/default/ Who watches the watchdogs? represents the latest contribution to an ongoing debate about how regulators should better be held to account, with proposals for new institutions within and outside parliament advanced recently by Lord Tyrie, ³⁶ Tyrie A, Regulating the regulators - Parliamentary Accountability and the Quango State, Centre for Policy Studies, September 2021, retrieved 8 February 2024, cps.org.uk/research/regulating-the-regulators the Regulatory Reform Group, ³⁷ Regulatory Reform Group, The purpose of regulation - Improving accountability of our regulators to get a better deal for consumers, businesses and the United Kingdom, April 2023, retrieved 8 February 2024, www.wpi-strategy.com/regulatoryreformgroup and others. ³⁸ Booth S, Re-engineering Regulation, Policy Exchange, 8 August 2022, retrieved 8 February 2024, policyexchange.org.uk/publication/re-engineering-regulation ³⁹ Gauke D, Sholem M, Green A and Haran G, How should UK financial services regulators be held to account?, Macfarlanes, May 2023.

There is much to welcome in this report, which makes an array of recommendations, including several that reinforce written evidence provided by the Institute for Government. ⁴⁰ House of Lords, Industry and Regulators Committee, Inquiry into UK Regulators, ‘Written evidence from the Institute for Government (UKR0006)’, retrieved 8 February 2024, committees.parliament.uk/writtenevidence/126602/html But more thought is needed to flesh out how its proposed ‘Office for Regulatory Oversight’ would work in practice.

The committee rightly focusses on getting some basics right

The IRC sensibly argues that regulators should be given better prioritised objectives, with clarity from government as to how these are to be balanced. It is also fair in saying that if the government is not content that a responsibility has been delegated to a regulator then it should legislate to change this delegation rather than attempting to influence decisions behind the scenes. This approach would give regulators a clearer job to do and help avoid friction with ministers over individual decisions.

The committee is right that regulators can struggle to secure the skills and resources to do their jobs effectively, and recommends regulators publish assessments of whether they have the capacity to take on new roles given to them, as well as having more flexibility to set their own fees and pay scales. Spending restraint is necessary, of course, but extending regulators’ responsibilities without the resources to match can only result in poor outcomes.

The IRC reasonably proposes that parliamentary select committees should be allowed to hold pre-appointment hearings for all chairs and chief executives of regulators, and that the government should explain its decision if it appoints a candidate who has not been endorsed by the relevant committee. They also identify the detrimental impact of delays in public appointments to regulators’ boards, with a recent report by the National Audit Office revealing that the average time taken to complete a public appointment is now close to seven months ⁴⁹ National Audit Office, Non-executive appointments, HC 513, 2 February 2024, www.nao.org.uk/wp-content/uploads/2024/02/non-executive-appointments.pdfwww.nao.org.uk/wp-content/uploads/2024/02/non-executive-appointments.pdf, p. 4. - more than double the government’s three month target, but also a substantial increase on the average of five months in 2019. ⁵⁰ Commissioner for Public Appointments, Thematic Review - Concluding competitions within three months of the closing date, July 2019, publicappointmentscommissioner.independent.gov.uk/wp-content/uploads/2019/07/Final-Thematic-Review-The-Three-month-aspiration.pdf, p. 4. This problem is only growing worse.

The committee's contribution on accountability should be seen as part of an ongoing debate

Describing a “growing vacuum in regulatory accountability”, with parliament struggling to undertake routine, systematic scrutiny of regulators, ⁵¹ House of Lords, Industry and Regulators Committee, Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators, p. 5. the IRC picks up our recommendation for government to publish a comprehensive list of bodies with regulatory functions, their powers and oversight arrangements. Surprisingly, this does not currently exist, which makes overall oversight of the regulatory landscape difficult. They also sensibly suggest that regulators should self-report more relevant performance information in a way that is digestible to parliamentarians and the public. 

But the proposal doing much of the IRC’s heavy lifting on accountability – and which has received significant pick up in the press ⁵² Khan A, ‘'Urgent reform' needed to improve performance of UK regulators’, FT Adviser, 8 February 2024, retrieved 8 February 2024, www.ftadviser.com/regulation/2024/02/08/urgent-reform-needed-to-improve-performance-of-uk-regulators, Kelly K, ‘'Urgent reform' needed to improve accountability and performance of UK regulators, House of Lords committee warns’, LBC News, 8 February 2024, retrieved 8 February 2024, www.lbc.co.uk/news/urgent-reform-needed-improve-accountability-regulators, Stapleton J, ‘HoL inquiry calls for body to hold regulators to account; Ellison hits out at TPR’, Professional Pensions, 8 February 2024, retrieved 8 February 2024, www.professionalpensions.com/news/4171967/hol-inquiry-calls-body-hold-regulators-account-ellison-hits-tpr – is to establish a new ‘Office for Regulatory Performance’, an independent statutory body analogous to the National Audit Office which would undertake regular performance reviews of regulators, reporting to parliament. 

While evidence to the inquiry reflects enthusiasm for the principle of setting up 'Ofreg’, the details of how it would work are still unclear. More thought is needed as to how it would determine the nature and focus of its work programme – in particular to avoid duplicating work already performed by the NAO, which has recently produced ‘value for money’ reports examining high-profile areas of regulation including financial services, ⁵³ National Audit Office, Financial services regulation - Adapting to change, 8 December 2023, www.nao.org.uk/reports/financial-services-regulation-adapting-to-change environment ⁵⁴ National Audit Office, Regulating to achieve environmental outcomes, 21 April 2023, www.nao.org.uk/reports/regulating-to-achieve-environmental-outcomes and energy supply. ⁵⁵ National Audit Office, The energy supplier market, 22 June 2022, www.nao.org.uk/reports/the-energy-supplier-market

'Ofreg'’s institutional success would be easiest to secure by working in areas MPs and peers already care about, but it would add most value by prioritising areas of regulation that are under scrutinised. The question is whether it could then build the necessary interest in these areas among the responsible select committees – not all of which currently pay much attention to regulators.

The IRC report has little to say about how parliamentarians themselves might scrutinise regulators more effectively. Forthcoming research from the Institute for Government will address this gap, examining how they can better use the information available to them and how the institutional structures within parliament could better support them in performing this function.

What matters now is impact

It would be a mistake for the committee to consider its work complete. This is a time of change for the IRC – a new intake of members including a new committee chair, Baroness Taylor, took up their roles last week. ⁵⁶ House of Lords Business, Appointment of Replacement Member of a Committee, 24 January 2024, retrieved 8 February 2024, lordsbusiness.parliament.uk/ItemOfBusiness?itemOfBusinessId=136232&sectionId=38&businessPaperDate=2024-01-24 New members should continue to disseminate this report’s findings and consider how they can build on its agenda in their future work, including by fleshing out its proposals for how ‘Ofreg’ would work in practice.

The government’s response is due in April, but its limited engagement with the inquiry during its evidence phase suggests a positive response is not guaranteed. Persuasive negotiation – including with government – and wider cross-party consensus will be needed to achieve the committee’s recommended reforms, into the general election and beyond.