The House of Lords Industry and Regulators Committee has raised significant concerns over the role of UK regulators, their ability to operate with genuine independence from Government, and how they are held to account.

In a new report - Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators – the Committee warns:

“Regulators now wield significant power and influence over the UK’s economy and everyday life.

“However, amid a series of high-profile failures, there are growing concerns about the functioning of the three-way relationship between the regulators, the Government, and Parliament, particularly the role and performance of regulators, their independence, and their accountability. If the integrity and legitimacy of the UK’s regulators are to be preserved, these concerns must be addressed.”

The Industry and Regulators Committee concludes that a fresh approach to overseeing UK regulation is required, calling for the creation of a new, independent statutory body - the ‘Office for Regulatory Performance’ - to investigate and report on regulators’ performance and support Parliament in holding regulators to account.

The Committee also warns:

“While many regulators were keen to stress their independence from government, we heard concerns from some quarters about increasing politicisation of regulation.”

"Widespread perception, which the Committee shares, that regulators’ accountability to Parliament is insufficient"

After hearing from a wide range of witnesses, the Committee also found that:

• Parliament’s role in scrutinising regulators, particularly through select committees, is of fundamental importance. However, there is a widespread perception, which the Committee shares, that regulators’ accountability to Parliament is insufficient.
• there is a perception that some regulatory leaders have been appointed on account of their political loyalty rather than their experience and capability;
• there have been unacceptable Government delays of appointments to regulators’ boards, which hampers the governance of regulators and makes the positions less attractive;
• while some regulators can raise their own revenues through levies and charges, others depend on the Government for their funding. This inevitably influences their ability to carry out their functions independently;
• some regulators are being overloaded with objectives, without clear guidance on how they should prioritise between them;
• the waters have been muddied between regulatory and political issues, resulting in the Government’s strategic guidance effectively ducking decisions on which it should give a view;
• regulators face a challenge to recruit and retain more specialised staff due to the higher rates of pay available for the same skills in the private sector, particularly in areas of rapid change such as digital and technological skills.
• there is a potential precedent for select committees to embed Specialist Advisers within a regulator to review its activities, created by the Treasury Select Committee following the 2008 financial crisis;

As a result, the Committee is calling on the Government to:

• streamline regulators’ duties and objectives and provide prioritisation in the event of conflicts;
• be responsible for how policy priorities should be decided, for example on matters of social or economic policy, such as the size of bills, and give regulators’ boards the power to seek explicit guidance on such decisions;
• allow Parliament to play a more prominent role in scrutinising appointments to regulators;
• provide a public explanation if it chooses to make an appointment that has not been endorsed by the relevant select committee;
• state clearly what it has delegated to regulators to decide independently, and in which areas it will be appropriate for the Government to provide direction. If not, it should legislate to end this delegation rather than attempting to influence regulators’ decisions;
• ensure the consumer view is properly heard by regulators, by expanding statutory provisions for independent consumer advocacy;
• as a matter of principle, consider allowing relevant regulators the power to raise their own revenues;
• tackle the challenges of, and insufficient investment in, long-term infrastructure projects by placing the National Infrastructure Commission (NIC) on a statutory footing;
• allow regulators greater discretion to move outside of current payscales to attract the necessary staff.

"Accountability can be helped or hindered by regulators’ own approach to transparency"

Commenting on transparency and engagement, the report says accountability can be helped or hindered by regulators’ own approach to transparency, which was “variable, and in some cases unsatisfactory.”

“Regulators should set out performance information prominently, clearly and succinctly, rather than publishing reams of dense information….

“Scrutiny of regulators’ performance raises the question of how this is measured, including through quantitative metrics. These must be used carefully, as not all aspects of performance can be easily measured, and using the wrong metrics can create perverse incentives. Metrics should focus on outcomes rather than processes, and, to avoid regulators “marking their own homework”, the metrics that regulators adopt should also be subject to scrutiny.”

The Committee also said that publishing large volumes of information, as some regulators do, is not the same as effective transparency and that this approach could “actively hinder scrutiny by burying key information, or by presenting it in inaccessible formats.

“We also note that regulators have limited incentives to highlight their own performance failures where they are not required to do so”, the report says.

Lord Hollick - "report raises concerns about functioning of the three-way relationship between regulators, Government, and Parliament"

Lord Hollick, Chair of the Inquiry commented:

“Our report raises concerns about the functioning of the three-way relationship between the regulators, the Government, and Parliament, particularly the role and performance of regulators, their independence, and their accountability. We are especially concerned at cases where the Government has failed to resolve political or distributional questions facing regulators, and instead interfered in their day-to-day workings.

“Independent regulators must have the confidence to tell the Government and the public about the serious problems facing their sector and be able to set out proposals to meet them with clarity, efficiency and transparency.

“Ministers and Departments responsible for specific regulators should be subject to scrutiny alongside these regulators. We were therefore disappointed by the limited engagement in our inquiry by the Department for Business and Trade, particularly when transparency and accountability to Parliament were a central theme of our work. The Department did not provide the Committee with oral ministerial representation, despite ample notice, and its written submission was brief and lacked detail.

“If the integrity and legitimacy of the UK’s regulatory system is to be preserved, the findings and recommendations in our report must be addressed by the Government, regulators and Parliament.”

Click here to download the report in full