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What’s wrong with the UK’s regulatory regime and how to fix it
As Chancellor Rachel Reeves meets regulators to discuss growth, investors are urging government to create a regulatory environment that better supports private investment. Writing for Utility Week, GIIA's Jon Phillips explains what needs to change.

Since taking power in mid-2024, the Government has announced a series of measures to encourage private investment in the UK. These include establishing a National Wealth Fund, bolstering the Office for Investment, creating the National Infrastructure and Service Transformation Agency (NISTA), and launching an independent review of water regulation.
Apart from the water review, these measures, for the most part, represent a revamp of the existing government apparatus rather than an intent for far-reaching (and needed) regulatory reform set out by the Prime Minister at the latest International Investment Summit and by the Chancellor in her recent Mansion House speech.
These are all welcome steps, but we believe the Government must go further, as the Prime Minister has recently intimated he will. Regular surveys of members of the Global Infrastructure Investor Association over the last two years have repeatedly confirmed that the biggest barrier to investment in the UK is the unattractiveness of the regulatory regime. This continuing lack of ‘investability’ indicates the need more fundamental regulatory change.
New research by strategic regulatory advisors Fingleton has identified the issues uppermost in investors’ minds, ones that are widely recognised by industry stakeholders as well. The first is the question of whether regulators really are independent of government. Even if independent by design and in law, in reality they cannot escape the political backdrop. In recent years, regulators have been the subject of huge political and media pressure to keep regulated prices down, resulting in reduced investment in our infrastructure.
Second, successive governments have increased regulators’ responsibilities by imposing more and more statutory duties. When Ofwat was established in 1989 it had three primary duties; now it has a further three primary and eight secondary duties. In Ofgem’s case, its duties have since 1986 risen from eight to twenty-one.
In so doing, the role of regulators has evolved far beyond setting periodic price caps and now encompasses a wide range of environmental, economic growth and social factors. This leaves regulators trying to balance ever more competing priorities and making increasingly complex, less technical and more political decisions, along with intervention where it may not be required. At best, this leads to regulatory red tape; at worst, to regulatory overreach that undermines regulated companies' ability to effectively run their businesses.
Thirdly, while governments have asked more of regulators, the strategic steers provided often contain insufficient clarity to assist in decision-making. Indeed, it can be sufficiently broad to accommodate a wide range of regulatory outcomes. This increases investor uncertainty, particularly when decisions aimed at furthering the interests of consumers require a trade-off between allowing for long-term investment and growth, and minimising the impact on consumer bills.
Overall, regulatory processes have become more complex and opaque, materially increasing risk for investors. In addition, broadening of their scope has led to different regulators significantly deviating from one another on similar if not identical issues, particularly around price control decisions and allocation of risk.
For investors, this divergence has had a particularly negative impact on the ‘investability’ of the UK. It undermines expectations of achieving balanced and consistent regulatory outcomes over time and across their investments. Instead, investors perceive complexity and risk, requiring higher returns without which long-term investment becomes increasingly difficult.
So, what should the Government do? Regulators’ duties need to be reviewed and simplified to prioritise economic duties which focus on delivering an efficient and sustainable service to customers over the long run. Such duties could include a requirement to protect consumers, facilitate sustainable growth, encourage long-term investment and promote effective competition.
Another focus should be on creating the right conditions to transition the economy towards net zero. This requires strategic guidance that enables regulators to balance the long-term needs of future generations with the short-term cost impact on current consumers.
When it comes to consistency of approach across regulators, then the most contentious areas of price control determinations, particularly the calculation of the cost of capital, should be determined using a consistent methodology which provides certainty between regulators. If a more consistent methodology across regulators for setting cost of capital can be agreed, that would allow the price control reviews to focus on the most efficient means of delivering for customers and making the necessary investments.
As the Government gears up to publish its first 10-year national infrastructure strategy in the spring, it is important that this strategy clarifies the areas where significant private investment is required, and the potential structural and regulatory changes needed to facilitate it. To provide regulated companies and their investors with greater certainty, there needs to be consensus around a longer-term plan for infrastructure development, created by an independent body, and bought into by the relevant regulators, policy makers and stakeholder groups.
The emerging NISTA could, with the right powers and direction, be perfectly placed to do so. Companies and their regulators should be required to report on how their plans and decisions align to this long-term plan. Government guidance on how regulators should balance their statutory duties needs to complement the approach to infrastructure development.
These recommendations, if enacted consistently, would address many of the regulatory shortcomings identified and help to create greater confidence among investors over the longer term. Government could provide investors with confidence that UK regulators have a clear and well-defined set of duties to follow, and that the UK has a long-term plan for infrastructure development.
This op-ed appeared in Utility Week on Tuesday 14 January, 2025. Subscribers to the publication can find the article here.