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Politics and regulation: recipe for conflict or constructive partnership?

The relationship between regulators and politicians was the subject of an event in the IfG and City of London series on government and regulation.

IfG event on politics and regulation

In recent decades, the boundaries between the worlds of electoral politics and supposedly independent regulatory agencies have become blurred. The legitimacy and accountability of independent regulators is increasingly being called into question in some high-profile policy areas. The relationship between regulators and politicians was the subject of the final event in the Institute for Government and City of London series on government and regulation.

The panellists – Sir Thomas Winsor, Her Majesty's Chief Inspector of Constabulary, and former Rail Regulator and International Rail Regulator; Sir Edward Davey, former Secretary of State for Energy and Climate Change; and Ed Richards, Independent Chair of the Financial Services Trade Associations Review, and former Chief Executive of the Office of Communications (Ofcom) – agreed that, while there are cases of healthy, productive partnerships between departments and regulators, there were also many instances where lines between politics and regulation have become blurred, and where they have fractured under undue pressure.

These pressures have been intensified by two populist (media and public) trends that pose serious threats to independent regulators: first, the idea that elected politicians, although they are seen as scoundrels, should be accountable for everything; and second, that regulation and regulators are bad because they interfere with the normal functioning of the market.

Independent economic regulation can act as a shield from the dangers of political lobbying and short-term political pressure; raise investment by increasing certainty and reducing cost; generate better outcomes through greater expertise and focus; and boost confidence of industry and the public around controversial decisions. Yet problems have emerged where regulators are doing jobs they should not be doing or when politicians have vacated ground they should have occupied; when politicians have lost the plot about why it is good to exercise restraint and let independent regulators take independent decisions – 'I am elected, you're not!' is a line all too often used by politicians when politics and independent regulation come head-to-head; and when regulators have lost a sense of the source of their authority and have become, in the words of Ed Richards, 'slightly lightheaded on the smell of their technical prowess'.

The panellists presented examples where political intolerance and impatience with industries that, for whatever reason, were performing badly, triggered panicked action by ministers. A case in point, according to Sir Thomas Winsor, was the 'political assassination of Railtrack' in the aftermath of the Hatfield rail crash. HM Treasury's plan was illegal, lies were told to a court, and when Sir Thomas, as sector regulator, raised objections to those plans, a minister threatened to introduce emergency legislation to put that regulator under direct political control.

Other examples included the creation of the Cancer Drugs Fund, portrayed as an attempt by the Government to circumvent the work of the National Institute for Health and Care Excellence (NICE); as well as regulation of financial services, mobile roaming, and the energy sector.

On the latter, the work of the Office of Gas and Electricity Markets (Ofgem) and the Competition and Markets Authority (CMA) was praised for having 'saved us from full-scale price regulation' after proposals of populist measures from the then Opposition to freeze energy prices. Regulators were not spared in the apportioning of blame. Sir Thomas cautioned against regulators with 'DNA of deference, the genetic matrix of obedience', which he deemed as 'heaven for the ministers'.

The powers of regulators come from the authority of Parliament, 'not the whim of a minister'. Also, while the case for independent regulators is as strong as ever, regulators must not become so detached from public opinion that they take their decisions and make their statements 'as if they have a divine right to exist'. Their legitimacy would always be under the public's spotlight, which sometimes regulators did not seem to appreciate enough.

Looking forward, regulators should do a 'conspicuously good job', to be ahead of the companies in question, know what is going on, and anticipate what might go wrong. Independent economic regulation requires good nerves, keeping true to the regulator's statutory remit, and not changing behaviour to improve the chances of being reappointed.

Similarly, there was consensus around the notion that much needed two-way communication between departments and regulatory authorities requires a relationship defined by trust, which in the panellists' experience, had not always prevailed.

Institute for Government

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