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Our Take: Major regulators are now required to play their part in attracting investment

Our Policy and Public Affairs Manager Nick Elliott has written an article on the crucial changes needed following the Growth Duty extending to include Ofcom, Ofgem, and Ofwat, and our perspective on the path forward

Earlier this week, the Growth Duty statutory instrument was extended to encompass Ofcom, Ofgem and Ofwat. As stated by the Department for Business & Trade (DBT) this means that “Ofcom, Ofgem and Ofwat are [now] required to have regard to the desirability of promoting economic growth, alongside their delivery of protections and wider remit as set out in relevant legislation”. This is undeniably a positive step towards enhancing the UK's regulatory regime, ensuring it is equipped to support the substantial investment programme needed across sectors in the coming decades.

Additionally, a DBT white paper has been published, announcing 23 reforms to the system.  Lord Johnson, Minister for Investment and Regulatory Reform said, these reforms will “help regulators to provide companies with the service they need to innovate and attract investment, minimising burdens and support economic growth across the whole of the UK’s economy”. GIIA sees this as an opportune moment to review these reforms and their alignment with what investors and advisors to the sector have been calling for.

Key GIIA Ask: Regulators should not operate in a policy vacuum. The government must increase scrutiny on regulators to ensure they adhere to the growth duty, and balance the need to foster investment in their sector with their other responsibilities.

Government’s Reform: The white paper outlines several key measures aimed at enhancing regulatory scrutiny and ensuring compliance with the growth duty. Notably, the government will publish annual data from regulators on their performance in fulfilling the requirement. Ministers will also correspond with regulators if concerns arise regarding adherence to growth duty principles. Additionally, a new framework will be introduced to ensure consistent monitoring and evaluation of the regulator’s statutory duties. Finally, the government has announced the establishment of a new "Regulator’s Council," chaired by DBT Ministers, tasked with evaluating progress in implementing the growth duty.

Our take: More scrutiny for the regulator. While these reforms are a positive step towards enhancing regulatory scrutiny and ensuring sufficient government oversight of regulators, only time will tell if they are robust enough to ensure that investment is adequately prioritised under the guidance.

Key GIIA Ask: The duties of Ofgem, Ofwat, and Ofcom must undergo review to ensure they are well-suited for the record levels of investment required in the coming decades.

Government’s Reform: The white paper outlines plans for a comprehensive review of the duties of Ofwat, Ofcom, and Ofgem to ensure alignment with investment needs. These reviews will be led by the respective sponsor departments for each regulator.

Our take: More attention to the importance of attracting investment. This announcement is encouraging, indicating government recognition that the current duties of regulators may not fully support attracting essential investment in regulated sectors. Since these reviews will be led by the sponsor departments, we anticipate differing approaches based on each department's appreciation of investment. All eyes will be on the Department for Environment, Food and Rural Affairs (Defra) to see if they will scrutinise Ofwat's duties to ensure alignment with the record £96 billion investment package committed by companies over the 2025-2030 period.

Key GIIA Ask: The appeals regime across regulated sectors lacks consistency and requires simplification to reduce the administrative burden on businesses. Additionally, standardising the methodology of weighted average cost of capital (WACC) calculation across regulators is essential, as the current lack of uniformity poses inherent challenges and instability for investors, thereby increasing the need to utilise the appeals regime.

Government’s Reform: The white paper introduces a plan to establish a "dispute resolution pilot programme" aimed at alleviating administrative burdens in resolving disputes with regulators. Additionally, the government expects regulators to consolidate their appeals procedures in a single accessible location, presented in plain language to enhance clarity for businesses.

Our take: Slightly more focus on simplifying the appeals regime. Whilst these reforms are commendable in their efforts to enhance the clarity of appeals mechanisms and alleviate administrative burdens, the absence of reforms aimed at fostering consistency among regulators is concerning. Specifically, if regulators persist in operating varied appeals regimes and methodologies for calculating WACC, investors may be discouraged from investing across regulated sectors due to the heightened regulatory risk stemming from the lack of uniformity.

In summary, whilst the reforms outlined in the government's white paper are a positive step forward, there remains significant work ahead which should be top of as we head into a summer election. Although the UK's regulatory regime has historically been seen as a gold standard amongst developed economies, recent trends of regulators shirking their responsibility to promote investment in favour of keeping bills low is worrying. In our biannual survey of infrastructure investor sentiment, the UK currently ranks as one of the least attractive developed markets to invest in, with an "unattractive regulatory regime" cited as the primary deterrent. Future lawmakers should prioritise action to prevent investor disillusionment and uphold the country's reputation for balanced regulation.

Written by Nick Elliott, Policy & Public Affairs Manager, GIIA.