Watchdogs (Industry and Regulators Committee Report)

Lord Kerr of Kinlochard Excerpts

Monday 9th September 2024 Lords Chamber

[Lord Kerr of Kinlochard (CB)]

I was lucky enough to serve on the economic committee when the noble Lord, Lord Hollick, was chairing it, so the quality of the report and the skill with which he introduced it tonight came as no surprise to me. I shall pick up what it says about transparency and accountability and draw on two examples to illustrate the point made very powerfully in the report at paragraphs 83 and 85.

I shall begin with Ofwat, about which the noble Baroness, Lady Jones, has spoken so eloquently. The Government have said they are reviewing regulation of the water sector. Because of the financial crisis at Thames Water, there is now a Water (Special Measures) Bill before the House. However, I wonder whether the Government will also review Ofwat’s announcement only a week after the election, clearly made with pride, that it had knocked £16 billion off the water companies’ investment plans for the next five years. The noble Lord, Lord Hollick, referred—correctly, in my view—to catastrophic underinvestment in the sector. It does not sound as if the water regulator agrees. Perhaps the Minister could tell us whether the decision announced a week after the election stands. It seems a little odd, given the national revulsion against polluted rivers and beaches. One wonders whether the regulator was not perhaps operating under an injunction from the previous Government to give paramount priority to keeping prices down. We do not know whether that is the case because all such injunctions are not necessarily public. Like the committee, I think that is wrong.

I have the same concern about Ofgem, the energy regulator, about which I know rather more because throughout the Cameron, May and Johnson years I was on the board of a company running extensive electricity networks. Ofgem cut back its investment plans in every one of the years that I was on the board, by over £1 billion in some years—it was not just us; our competitors fared no better—although everyone agreed that on present plans the national electricity grid would be quite inadequate to meet future demand. Think data centres, road transport, rail transport, domestic heating and net zero. The biggest problem is not generation but distribution.

I do not know whether the Government, anxious to keep today’s prices down, were urging Ofgem not to take a long view, or whether—although this is a little implausible—they were simply looking the other way, passively allowing Ofgem to forget about tomorrow. However, we should have known and the country should have known. The report by the noble Lord, Lord Hollick, is spot on when it says at paragraph 83:

“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 … The Government must not duck responsibility by delegating political or distributional decisions to regulators without clear objectives or any sense of priority”.


I agree with that; it has to be right.

Ofgem says on its website:

“We are a non-ministerial government department and an independent National Regulatory Authority”.


Is there not a contradiction there? How independent can a government department be? It continues:

“Our role is to protect consumers now and in the future by working to deliver a greener, fairer energy system”—


not a clearer, fairer and adequate energy system. Must protecting consumers now mean curtailing tomorrow’s consumption? I do not think so. Clearly there is a balance to be struck but, equally clearly, striking it is a political decision that should be public—announced to Parliament and accountable to Parliament. He who pays the piper calls the tune, but he must not pretend that it was the piper alone who picked it.

Also, Mrs Badenoch really should not have refused to give evidence to the committee.