1st Report - Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators

The government's response

What the committee recommended 55

1. 1
   We were disappointed by the Department for Business and Trade’s limited engagement with our inquiry. Conclusion · paragraph 22
2. 2
   Given the widespread concerns we heard about the accountability of regulators, it is all the... Conclusion · paragraph 23
3. 3
   Some regulators have been given too many statutory duties, objectives and issues to have regard... Conclusion · paragraph 42
4. 4
   It is welcome that the Government is actively considering these issues as part of its... Recommendation · paragraph 43
5. 5
   The Government should undertake similar reviews of the duties of all regulators when they are... Recommendation · paragraph 44

See all 55 recommendations and conclusions

Sources

• 1st Report - Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators ↗The committee's report, parliament.uk
• Government responses to proposals in House of Lords Industry and Regulators Committee report ‘Who Watches the Watchdogs’, 16 May 2024 ↗The government's response, 16 May 2024, parliament.uk

Recommendations and conclusions 55

1. 1
   We were disappointed by the Department for Business and Trade’s limited engagement with our inquiry. Conclusion · paragraph 22 Conclusion (the committee's words)

   We were disappointed by the Department for Business and Trade’s limited engagement with our inquiry. The Department did not provide the Committee with oral ministerial representation, despite ample notice. Its subsequent written submission was brief and, importantly, did not answer the questions in the Committee’s call for evidence in any detail. We are unconvinced by the Department’s explanation that ongoing consultations prevented it from engaging with our inquiry further.
2. 2
   Given the widespread concerns we heard about the accountability of regulators, it is all the... Conclusion · paragraph 23 Conclusion (the committee's words)

   Given the widespread concerns we heard about the accountability of regulators, it is all the more frustrating that the Department acted in a manner which hampered the Committee’s own attempts to hold the Government to account for its important role in this area. We intend to follow up with the Department following their response to this report.
3. 3
   Some regulators have been given too many statutory duties, objectives and issues to have regard... Conclusion · paragraph 42 Conclusion (the committee's words)

   Some regulators have been given too many statutory duties, objectives and issues to have regard to by government and Parliament without a clear sense of priority. In the context of finite resources, this makes it difficult for a regulator to achieve each in turn and increases the potential for tensions and conflict between them. That said, there are cases of good practice, where regulators have been given singular or primary objectives, providing a clearer sense of priorities.
4. 4
   It is welcome that the Government is actively considering these issues as part of its... Recommendation · paragraph 43 Recommendation (the committee's words)

   It is welcome that the Government is actively considering these issues as part of its Smarter Regulation programme and plans to review the duties of each of the economic regulators. In doing so, it should focus their objectives on their core role and avoid overloading them with too many objectives, especially those which they should “consider”, “take account of” or “have regard to”. Where there are political or distributional trade-offs between those objectives that remain, the Government should provide clarity on how regulators should prioritise between them.
5. 5
   The Government should undertake similar reviews of the duties of all regulators when they are... Recommendation · paragraph 44 Recommendation (the committee's words)

   The Government should undertake similar reviews of the duties of all regulators when they are reviewed as part of the Public Bodies Review Programme. These reviews should aim to streamline the duties and objectives of regulators and provide the greatest possible prioritisation in the event of conflicts.
6. 6
   The evidence we received highlighted the value of regulatory independence. Conclusion · paragraph 52 Conclusion (the committee's words)

   The evidence we received highlighted the value of regulatory independence. Independence enables regulators to act flexibly in response to emerging challenges and allows them the freedom to speak truth to power. It also supports business confidence and investment by separating regulatory decisions from preferential political treatment and the electoral cycle.
7. 7
   Many regulators were keen to stress their independence from the Government. Conclusion · paragraph 61 Conclusion (the committee's words)

   Many regulators were keen to stress their independence from the Government. In practice, however, the level of independence of the UK’s regulators varies, and there are concerns in some quarters at the Government’s ability to interfere in some of their operations. Where regulators are insufficiently independent, or perceived as such, it undermines their ability to regulate objectively, free from undue political influence and accountable to the public interest. This results in a loss of trust on the part of both consumers and regulated entities.
8. 8
   There is a trade-off between the operational independence of regulators and the need for governments... Conclusion · paragraph 81 Conclusion (the committee's words)

   There is a trade-off between the operational independence of regulators and the need for governments to provide them with strategic advice, especially in areas where it is difficult to distinguish between regulatory issues and policy issues. In these cases, it is preferable that clarity is provided through statutory duties and objectives, but in the absence of this clarity, the Government can usefully provide input through strategic steers or policy statements.
9. 9
   When setting up new regulators or conducting reviews of existing ones, the Government should state... Recommendation · paragraph 82 Recommendation (the committee's words)

   When setting up new regulators or conducting reviews of existing ones, the Government should 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. The Government should then adhere to this delineation. If the Government is not content that a responsibility has been delegated, it should legislate to end this delegation, rather than attempting to influence regulators’ decisions.
10. 10
    The Government’s strategic steers and policy statements to regulators often do not provide adequate clarity... Conclusion · paragraph 83 Conclusion (the committee's words)

    The Government’s strategic steers and policy statements to regulators often do not provide adequate clarity on how to make trade-offs between their objectives, especially in relation to political and distributional issues, such as balancing the affordability of utility bills with the need for future investment. They are often overly detailed and give no sense of priority between different objectives or areas, which does little to provide clarity.
11. 11
    The Government must not duck responsibility by delegating political or distributional decisions to regulators without... Recommendation · paragraph 84 Recommendation (the committee's words)

    The Government must not duck responsibility by delegating political or distributional decisions to regulators without clear objectives or any sense of priority.
12. 12
    The Government should ensure that it provides a strategic steer or policy statement to any... Recommendation · paragraph 85 Recommendation (the committee's words)

    The Government should ensure that it provides a strategic steer or policy statement to any regulator facing political or distributional trade-offs in its duties and objectives. These documents should be clear, concise and provide high-level guidance on how to prioritise between any duties or objectives that may conflict. We see merit in such guidance being issued once a Parliament, while noting the need for there to be flexibility in the face of urgent issues or crises.
13. 13
    Regulators’ boards should be given the power to seek explicit guidance from the Government on... Recommendation · paragraph 86 Recommendation (the committee's words)

    Regulators’ boards should be given the power to seek explicit guidance from the Government on strategic policy direction and distributional choices. The Government should bring forward proposals for a specific mechanism to achieve this.
14. 14
    The independence of regulators can be affected by the process of appointing or re-appointing senior... Conclusion · paragraph 104 Conclusion (the committee's words)

    The independence of regulators can be affected by the process of appointing or re-appointing senior staff and board members. We are concerned at the perception that the appointment and reappointment of some regulatory leaders reflects their political loyalties more than their suitability for the role. Similar concerns apply where senior staff or board members have not been reappointed because of differences with the government of the day.
15. 15
    Given these concerns, it would be desirable for select committees to play a greater role... Conclusion · paragraph 105 Conclusion (the committee's words)

    Given these concerns, it would be desirable for select committees to play a greater role in scrutinising public appointments to regulatory positions. While some regulatory appointments are subject to pre-appointment hearings and scrutiny, this is not the case for all appointments and varies between regulators. It is also concerning that the Government has taken regulatory appointments forward in cases where the relevant select committee has refused to endorse a candidate.
16. 16
    Where a public appointment to the Chair or Chief Executive of a regulator is not... Recommendation · paragraph 106 Recommendation (the committee's words)

    Where a public appointment to the Chair or Chief Executive of a regulator is not currently subject to pre-appointment scrutiny by a select committee, and a select committee requests that pre-appointment scrutiny is extended to it, the Government should grant the request.
17. 17
    Where the Government decides not to reappoint the Chair or Chief Executive of a regulator,... Recommendation · paragraph 107 Recommendation (the committee's words)

    Where the Government decides not to reappoint the Chair or Chief Executive of a regulator, it should publish its explanation for this. Where the Government chooses to appoint a candidate who has not been endorsed by the relevant select committee, it should also publish why it has done so.
18. 18
    It is unacceptable that appointments to regulators’ boards have been beset by delays. Conclusion · paragraph 111 Conclusion (the committee's words)

    It is unacceptable that appointments to regulators’ boards have been beset by delays. This hampers the governance of regulators and makes these positions less attractive due to the length of time it takes to be confirmed.
19. 19
    The Government must make more timely appointments to regulators’ boards. Recommendation · paragraph 112 Recommendation (the committee's words)

    The Government must make more timely appointments to regulators’ boards. In its response to this report, the Government should set out why it believes these delays are taking place and what actions it intends to take to rectify the situation.
20. 20
    The boards of regulators, including their non-executive directors, play a key role in setting their... Recommendation · paragraph 116 Recommendation (the committee's words)

    The boards of regulators, including their non-executive directors, play a key role in setting their strategic direction and holding their executives to account. We therefore welcome that the Competition and Markets Authority conducts regular reviews of the work of its Board, on both an internal and an external basis. Where they do not do so already, regulators should commission and publish independent reviews of the work and governance of their boards every three years.
21. 21
    Some regulators can raise their own revenues through levies and charges. Conclusion · paragraph 129 Conclusion (the committee's words)

    Some regulators can raise their own revenues through levies and charges. However, others depend on the Government for their funding. Those funding decisions inevitably influence regulators’ ability to carry out their functions independently.
22. 22
    We are concerned that a number of regulators appear not to have sufficient resources to... Conclusion · paragraph 130 Conclusion (the committee's words)

    We are concerned that a number of regulators appear not to have sufficient resources to carry out their existing functions effectively, while others have had their responsibilities extended without an increase in resources to match. Regulators cannot regulate efficiently and effectively without adequate funding, which in turn risks hampering the success of the industries they regulate.
23. 23
    When carrying out Public Body Reviews of each regulator, the Government should publish an assessment... Recommendation Recommendation (the committee's words)

    When carrying out Public Body Reviews of each regulator, the Government should publish an assessment of whether the regulator has the necessary resources to carry out its functions. As part of these reviews, the Government should consider and assess whether there are feasible opportunities for granting regulators the power to raise their own revenues. ( Paragraph 131)
24. 24
    When regulators are given additional responsibilities, they should publish an assessment of the resources necessary... Recommendation · paragraph 132 Recommendation (the committee's words)

    When regulators are given additional responsibilities, they should publish an assessment of the resources necessary to fulfil them and whether they currently have sufficient capacity. If this assessment shows that the regulator does not have the necessary resources or the ability to raise them, the Government should set out how it will ensure adequate resourcing.
25. 25
    While there are many high-quality staff at the UK’s regulators, there are skills gaps in... Conclusion · paragraph 153 Conclusion (the committee's words)

    While there are many high-quality staff at the UK’s regulators, there are skills gaps in some areas, particularly in areas of rapid change such as digital and technological skills. The ability of regulators to understand, manage and, if necessary, enforce against activities in their areas of responsibility will be impaired if they cannot access these skills.
26. 26
    Regulators face a challenge to recruit and retain more specialised staff due to the higher... Conclusion · paragraph 154 Conclusion (the committee's words)

    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, and in some instances at other regulators. Industry secondees may help to address this challenge, but create potential conflicts of interest which must be managed.
27. 27
    When conducting Public Body Reviews of regulators, the Government should assess whether regulators can attract... Recommendation · paragraph 155 Recommendation (the committee's words)

    When conducting Public Body Reviews of regulators, the Government should assess whether regulators can attract the necessary staff within their current funding regimes and payscales. If they are unable to do so, the Government should allow regulators greater discretion to move outside of those payscales.
28. 28
    Where regulators face common issues and struggle to recruit the necessary staff individually, they should... Recommendation · paragraph 156 Recommendation (the committee's words)

    Where regulators face common issues and struggle to recruit the necessary staff individually, they should consider pooling their resources. The Government should consider what measures it could take to facilitate this pooling .
29. 29
    The Committee sees merit in regulators setting up centres of excellence to pool their resources. Conclusion · paragraph 157 Conclusion (the committee's words)

    The Committee sees merit in regulators setting up centres of excellence to pool their resources. Seconding industry staff to centres of excellence could help reduce the potential for conflicts of interest by providing an intermediate step between them and their sector’s regulator.
30. 30
    Regulators exercise substantial and, in some cases, increasing powers on behalf of Parliament and the... Conclusion · paragraph 163 Conclusion (the committee's words)

    Regulators exercise substantial and, in some cases, increasing powers on behalf of Parliament and the public. Yet as a consequence of their independence, they do not face the same democratic checks and balances as ministers. It is therefore essential for the legitimacy of independent regulators that they are held to account for the use of this delegated power.
31. 31
    Regulators should be held to account for aspects of their performance by their sponsoring departments... Conclusion · paragraph 171 Conclusion (the committee's words)

    Regulators should be held to account for aspects of their performance by their sponsoring departments within government. Given the importance of regulatory independence, accountability cannot be left to the Government alone, and Parliament must play a critical role.
32. 32
    The Government can, however, play a role in facilitating parliamentary scrutiny . Recommendation · paragraph 172 Recommendation (the committee's words)

    The Government can, however, play a role in facilitating parliamentary scrutiny . For example, there is currently no comprehensive list of the UK’s regulators, their responsibilities, and their oversight arrangements. To assist Parliament in holding regulators accountable, the Government should establish , publish, and maintain such a list, including timely information on regulators’ public engagement with parliamentary select committees .
33. 33
    Parliamentary scrutiny has made a positive contribution in holding regulators to account. Conclusion · paragraph 192 Conclusion (the committee's words)

    Parliamentary scrutiny has made a positive contribution in holding regulators to account. However, there is a perception in some quarters, with which the Committee concurs, that this scrutiny has tended to be ad hoc and in response to events rather than routine and systematic.
34. 34
    Regulatory performance is a complex area, and Parliament’s committees do not currently have the time... Conclusion · paragraph 193 Conclusion (the committee's words)

    Regulatory performance is a complex area, and Parliament’s committees do not currently have the time or resources to routinely monitor the performance of around 90 regulators. Although it is for parliamentary committees to decide how they spend their time, we are nonetheless concerned that this situation has led to a lacuna in scrutiny.
35. 35
    There is some merit in the idea, expressed by several witnesses, of a new joint... Conclusion · paragraph 194 Conclusion (the committee's words)

    There is some merit in the idea, expressed by several witnesses, of a new joint committee to scrutinise all regulators. However, it is not clear to us that a new committee would avoid the constraints that have hindered other committees, including this Committee, from undertaking systematic and routine scrutiny of all regulators. To perform such a major undertaking adequately, any new committee would need access to significant additional resources and expertise, well beyond that of a typical parliamentary committee.
36. 36
    We note that existing mechanisms for parliamentary scrutiny can be flexible. Conclusion · paragraph 195 Conclusion (the committee's words)

    We note that existing mechanisms for parliamentary scrutiny can be flexible. For example, in an innovative use of investigative parliamentary scrutiny, the Treasury Committee embedded its Specialist Advisers into a regulator to investigate its work on two occasions in 2011 and 2013. We draw this potential precedent to the attention of other parliamentary committees, so that they can consider exploring it further.
37. 37
    We welcome the recent establishment of the House of Lords Financial Services Regulation Committee, which... Conclusion · paragraph 196 Conclusion (the committee's words)

    We welcome the recent establishment of the House of Lords Financial Services Regulation Committee, which we anticipate will strengthen parliamentary scrutiny of the financial services regulators.
38. 38
    The National Audit Office plays an important and valuable role in scrutinising regulators’ use of... Conclusion · paragraph 204 Conclusion (the committee's words)

    The National Audit Office plays an important and valuable role in scrutinising regulators’ use of public money. However, its remit focuses on value for money, across the whole of government. Therefore, we do not believe that expanding the NAO’s remit to include regular and systematic scrutiny of overall regulatory performance is the way forward. As well as having significant resource implications, it would risk complicating the clarity of the NAO’s current role.
39. 39
    We welcome the work of the National Infrastructure Commission in examining the work of the... Conclusion · paragraph 210 Conclusion (the committee's words)

    We welcome the work of the National Infrastructure Commission in examining the work of the utilities regulators. We agree with the Commission’s assessment that they would not be the appropriate body, either in terms of remit or of resources, to conduct systematic and wide-ranging scrutiny of the regulators they work with.
40. 40
    The expertise of the National Infrastructure Commission should be put to further use by Parliament... Recommendation · paragraph 211 Recommendation (the committee's words)

    The expertise of the National Infrastructure Commission should be put to further use by Parliament in its scrutiny of the utilities regulators. To that end , we call on the Government to place the Commission on a statutory footing, with the ability to examine government policy outside of its National Infrastructure Assessments. This would enhance the Commission’s ability to report independently on long-term infrastructure challenges, including where these are the result of insufficient investment and maintenance.
41. 41
    The size and complexity of the UK’s regulatory landscape, and the limited resources available to... Conclusion · paragraph 221 Conclusion (the committee's words)

    The size and complexity of the UK’s regulatory landscape, and the limited resources available to Parliament, have led to an accountability gap, particularly as far as routine and systematic scrutiny of regulators is concerned. Several of our witnesses called for the creation of a new body to address this gap.
42. 42
    The Government should create an independent statutory body analogous to the National Audit Office to... Recommendation · paragraph 222 Recommendation (the committee's words)

    The Government should create an independent statutory body analogous to the National Audit Office to advise and support Parliament and its select committees in holding regulators to account for their performance in a routine and systematic manner. We suggest that this body could be named the ‘Office for Regulatory Performance’.
43. 43
    As in the case of the National Audit Office, such a body should be accountable... Conclusion · paragraph 223 Conclusion (the committee's words)

    As in the case of the National Audit Office, such a body should be accountable to Parliament, rather than the Government. Its remit will need to be designed carefully so that it complements, rather than conflicts, with existing parliamentary scrutiny of regulators. It would need specialist, experienced staff to aid Parliament in conducting effective scrutiny.
44. 44
    We envisage that the new body would be funded from Parliament’s budget, like the National... Recommendation · paragraph 224 Recommendation (the committee's words)

    We envisage that the new body would be funded from Parliament’s budget, like the National Audit Office. The Government should ensure a commensurate increase in Parliament’s budget to properly fund the new scrutiny body.
45. 45
    The new body should publish its reports, providing useful insight to Parliament, the Government and... Recommendation · paragraph 225 Recommendation (the committee's words)

    The new body should publish its reports, providing useful insight to Parliament, the Government and the public. These reports should become a key element in committee scrutiny of the performance of regulators, in a similar fashion to the Public Accounts Committee’s use of the reports of the National Audit Office.
46. 46
    The transparency of regulators varies. Conclusion · paragraph 237 Conclusion (the committee's words)

    The transparency of regulators varies. Publishing large volumes of information, as some regulators do, is not the same as effective transparency. In fact, this approach can 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.
47. 47
    Effective scrutiny depends on information being both available and accessible. Recommendation · paragraph 238 Recommendation (the committee's words)

    Effective scrutiny depends on information being both available and accessible. Regulators should review how they publish and present performance information. In doing so, they should ensure performance information is presented in a prominent and accessible way, and in clear, succinct and simple language that the public and parliamentarians can understand. These publications should explain how regulators have complied with their objectives, including matters they are required to ‘have regard to’. Where relevant, they should also include information on the enforcement action regulators take ( or choose not to take) against non-compliance, and an assessment of the effectiveness of this.
48. 48
    Producing quantitative metrics that accurately measure regulatory performance is challenging, and there is a risk... Conclusion · paragraph 253 Conclusion (the committee's words)

    Producing quantitative metrics that accurately measure regulatory performance is challenging, and there is a risk that an undue focus on metrics can create perverse incentives. Nevertheless, if used in the right way, metrics can play an important role in aiding scrutiny of regulators’ performance against their objectives.
49. 49
    Regulators should use metrics that are focused on outcomes measured against regulatory objectives. Conclusion · paragraph 254 Conclusion (the committee's words)

    Regulators should use metrics that are focused on outcomes measured against regulatory objectives. Quantitative metrics should be used alongside qualitative assessment, particularly where objectives or activities cannot be measured numerically. Where relevant, regulatory performance metrics should be designed with consumer interests at their heart.
50. 50
    Leaving the designation of metrics solely to the regulators themselves risks allowing them to mark... Conclusion · paragraph 255 Conclusion (the committee's words)

    Leaving the designation of metrics solely to the regulators themselves risks allowing them to mark their own homework. To counteract this tendency, there will need to be additional scrutiny of the metrics used by regulators, preferably through the new ‘Office for Regulatory Performance’ we have recommended earlier in this report.
51. 51
    The relationship between regulators and those they regulate needs to be finely balanced, as the... Conclusion · paragraph 268 Conclusion (the committee's words)

    The relationship between regulators and those they regulate needs to be finely balanced, as the danger of regulatory capture is ever present. However, there must be an open and frank dialogue between regulators and those they regulate, providing clarity for industry on regulatory requirements and giving regulators a better picture of developments in their sectors.
52. 52
    Where they do not do so already and where resources allow, regulators should survey those... Conclusion · paragraph 269 Conclusion (the committee's words)

    Where they do not do so already and where resources allow, regulators should survey those they regulate, ideally annually. Summaries of the results of these surveys should be made public.
53. 53
    The difference in resources between individual consumers and businesses has the potential to distort the... Conclusion · paragraph 281 Conclusion (the committee's words)

    The difference in resources between individual consumers and businesses has the potential to distort the feedback and representations that regulators receive. In some areas, this potential gap is at least partially remedied by statutory provision for independent consumer advocacy, as seen in the water, postal and energy sectors. We are concerned that some sectors, such as telecommunications, are not represented by statutory consumer advocates, limiting the resources consumer bodies have to act in these areas.
54. 54
    As part of any Public Bodies Reviews of regulators, the Government should consider and explain... Recommendation · paragraph 282 Recommendation (the committee's words)

    As part of any Public Bodies Reviews of regulators, the Government should consider and explain how consumers are represented in each regulator’s decision-making. Where there is no statutory provision for independent consumer advocacy in sectors that have a substantial retail element, the Government should establish or designate a statutory consumer advocate or explain why it has chosen not to do so.
55. 55
    We heard that labour market regulators should more formally integrate the voice of workers into... Recommendation · paragraph 288 Recommendation (the committee's words)

    We heard that labour market regulators should more formally integrate the voice of workers into their decision-making, specifically through tripartite governance structures. The Government should set out its views on this proposal in response to this report.