Watchdogs (Industry and Regulators Committee Report)

Baroness Jones of Whitchurch Excerpts

Monday 9th September 2024 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Science, Innovation and Technology (Baroness Jones of Whitchurch) (Lab)]

My Lords, I am very pleased to respond on behalf of the Government. I thank my noble friend Lord Hollick for tabling today’s Motion and congratulate him on the report of the Industry and Regulators Committee. As others have said, the report is a fine swansong for his very able period as chair of the committee. I am also grateful to other members of the committee and other speakers for their insights and remarks on this important topic. I am grateful to the noble Lord, Lord Skidelsky, for giving us a very short but important history lesson. It is important that we remember the context which started this whole process, through the natural monopolies that were created and the forced need for external oversight. What a journey we have been on from those days to where we have got to today, with all the complications of regulation that we are now confronting.

This Government welcome views on how we best improve the performance and accountability of UK regulators and the frameworks to which they operate. This will support our ambition to build a pro-innovation, pro-worker, pro-wealth creation economy. I am therefore grateful to the committee for conducting its inquiry and producing this report, which focused on concerns about the functioning of the relationship between regulators, government and Parliament and made recommendations spanning issues across the regulatory landscape. I have heard messages from noble Lords today which echo many of the issues in the report: for example, the need for a review of regulator duties, with a view to streamlining duties and objectives and providing clear priorities; the need for strategic steers in how regulators handle any political and distributional trade-offs in implementing their duties; more attention to the skills and resource needs of regulators in the context of what they are being asked to achieve; the need for measures to support accountability, including a definitive list of UK regulators; and a greater emphasis on performance reporting from regulators, with metrics linked to outcomes.

As the noble Lord, Lord Johnson, quite rightly identified, a formal government response was published in May 2024 as a supplementary document to the White Paper, Smarter Regulation: Delivering a Regulatory Environment for Innovation, Investment and Growth. This response proposed a number of non-statutory reforms to the regulatory landscape and worked towards addressing some of the recommendations in the committee’s report. However, I have to say that the response was written some time ago, and since then a new Government have been formed, so I think it is important to say that we will need to consider afresh our approach to all these issues.

I should also say that I know that noble Lords will want to press me on the specifics of our reform agenda, but I hope they will understand that, at this stage, I am able only to outline a direction of travel; we are still working on a lot of the detail. However, what I can say is that the Government are determined to kick-start economic growth, working with industry and businesses to deliver economic opportunity. This of course needs to be supported by the right regulatory frameworks that foster competition, innovation and investment. Central to this will be a focus on ensuring high-quality regulation, both in terms of improving existing regulations and, where the bar is met, delivery of any new regulations necessary to support the Government’s missions.

In addition to the interest from the committee and the comments we have heard today, noble Lords will know that there have also been numerous well-researched publications on regulatory reform led by a number of think tanks, including Progressive Britain. They too have set out concerns and recommendations on the performance and accountability of independent regulators. All of this is invaluable work in shaping the Government’s next steps. It goes without saying that regulators play a crucial role across almost all sectors of the economy, including the oversight of essential services and infrastructure; medicines and healthcare products; workplace safety; and the environment and financial services. Their work is seen and felt by consumers, businesses and the environment—by everyone. It is only right that we continue to evaluate how our regulators are functioning and drive improvement where needed to support our economic growth mission.

In response to the noble Baroness, Lady Finn, and the noble Lord, Lord Clement-Jones, the Government of course have a critical role to play in setting that strategic direction and the outcomes that they want to see regulators deliver, so issuing strategic guidance in a consistent way is key to that delivery.

The noble Lord, Lord Clement-Jones, and others asked about publishing a list of the UK regulators, with their responsibilities and their oversight. The White Paper proposed that a register be published, and we are considering how to take that proposal forward.

The noble Lord, Lord Clement-Jones, the noble Baroness, Lady Finn, and others asked about getting the best possible people on boards. Many of these are regulated by the Commissioner for Public Appointments, but we are determined to reduce delays and improve those processes. I think we could all identify with the experience of the noble Lord, Lord Teverson, when he illustrated the problems that he encountered.

The noble Lords, Lord Hunt of Wirral and Lord Johnson of Lainston, asked about and emphasised the growth agenda. The Government recognise the importance of well-performing and accountable regulators in our mission to kick-start economic growth. This is reflected in our plans to launch a new industrial strategy to build a more resilient economy, while ensuring that we have the right regulatory environment to go for growth at every opportunity. Regulators reporting on their performance will continue to play an important part, and the Government will set out their overall plans on performance to help deliver that growth agenda in due course.

A number of noble Lords, including my noble friend Lord Hollick, stressed the importance of independence. The Government recognise the important role of regulatory independence, particularly in technical areas where outcomes depend on long-term decisions that sit outside of traditional political cycles. We know this is valued by businesses, investors and wider stakeholders. At the same time, we know that regulators differ in their degree of operational and policy independence, and that there is a role for government in providing that strategic direction and ensuring that regulators operate to the right duties. As noble Lords have argued, we must be alive to mission creep, and ensure that regulators’ duties are focused on what matters to business and to citizens.

We are alive to the importance of these issues for all stakeholders. Indeed, the Department for Business and Trade’s call for evidence, which has been referred to, and which ran from October 2023 to January 2024, has informed our understanding of these regulatory issues and the specific concerns of industry. The call for evidence received over 200 responses from a diverse range of voices, including businesses, consumers and industry groups, academia and regulators themselves. Respondents recognised the many positives in the UK regulatory system, that it is broadly well-structured and that it is well-regarded internationally.

However, they also set out some specific concerns that are helpful to the committee’s understanding of these issues. These points have been reiterated today—for example, the difficulty that businesses and others face in understanding the different roles and remits of the different regulatory bodies and how they interact with government; the accumulation of regulatory duties over time, which can dilute regulatory purpose and give rise to trade-offs which are implied rather than explicitly addressed; and the need for effective strategic steers from government to regulators on how to handle those trade-offs in their duties, particularly for decisions that verge on the political, such as normative and distributional issues.

This Government are determined to further understand and tackle these issues head-on. This includes pro-actively engaging with regulators to understand the issues they face and identify where the greater scope for improvement lies. This will also include identifying areas where the costs of regulation, particularly when viewed in the round, may be too high and burdensome for businesses. This includes both how regulations are designed, as well as how they are implemented.

In response to my noble friend Lady Taylor, we absolutely understand the need for regulators to have those clear duties and objectives, particularly in the light of the piecemeal accumulation of duties which has occurred to date.

We will take a mission-driven approach to improving the UK regulatory regime. This means improving existing regulations and working actively with regulators to support their performance and accountability, the frameworks that they operate to, and, crucially, the candour with which they explain their decisions. It means ensuring there is a shared understanding of objectives, and working with regulators to ensure that they have a skilled and capable workforce, alongside an efficient appointments process for independent boards.

The noble Baroness, Lady Kidron, quite rightly raised the issue of raising skills, particularly in technology and AI. I absolutely understand and concur with her concerns. As part of this work, we want world-leading regulatory structures in driving technology and innovation, with, for example, a clear understanding of the potential role that artificial intelligence can play.

In that regard, I agree with my noble friend Lord Chandos and the noble Lord, Lord Holmes, that AI has a huge role to play, but we have to get the regulation right. So, as per our manifesto, we will introduce binding regulation on the handful of companies developing the most powerful AI models.

More broadly, we are acutely aware of the need to support innovative businesses working in a fast-growing, fast-changing field such as AI and quantum computing, so that they can navigate the regulatory landscape effectively. This will be the principal focus of the regulatory innovation office, led by the Department for Science, Innovation and Technology. This was a key manifesto commitment, and we are pressing ahead to deliver on it over the coming weeks and months.

A number of noble Lords, including my noble friends Lord Hollick and Lord Berkeley and the noble Lord, Lord Holmes, questioned the role of the regulatory innovation office. It is important to clarify its future role. It is part of the overall solution but will not be the independent statutory oversight body recommended by the committee. As part of the Government’s mission-driven vision for regulatory reform, the activities of the regulatory innovation office will sit alongside wider cross-cutting work on improving regulatory performance and accountability led by the Department for Business and Trade, and it will work closely to deliver on the Government’s priorities with the Department for Science, Innovation and Technology.

A number of noble Lords, including the noble Lord, Lord Cromwell, raised the interests of stakeholders. We are acutely aware of the importance that stakeholders place on understanding roles and responsibilities across government, with clear points of contact to address their regulatory concerns. I reassure the House that the Government will take a joined-up approach to regulatory reform across departments and will clearly communicate this to stakeholders.

More broadly, we are in the process of developing a clear regulatory reform agenda that addresses all the issues I have outlined in my speech and which noble Lords have highlighted today. This agenda will be set out in more detail in due course. However, we are clear that these reforms must have a real, lasting and positive impact on business and everyone who interacts with the regulatory system and UK regulators. It is important that we get this right and deliver the high-quality reforms that are needed. This will be the best way to support the growth mission and deliver the right outcomes for individuals, households, businesses and the environment.

A number of noble Lords illustrated the failures of regulation in a number of different sectors, and Ofwat, as has been well discussed, is a good case in point. My noble friend Lord Hollick described it as arising from a catastrophic underinvestment, and the noble Baroness, Lady Jones, well illustrated how the regulator lost its way in maintaining water quality standards. She also rightly mentioned the need to listen to wider voices when we are putting forward the direction for regulators. The Water (Special Measures) Bill will deliver our manifesto commitment by putting water companies under tough special measures by strengthening regulation. Similarly, as my noble friend Lady Taylor illustrated, the Office for Students was given too many conflicting spheres which prevented it fulfilling its effectiveness. We would not want to repeat that issue in the future.

Before I turn to other points made in this debate, I acknowledge the Grenfell report that was published this week and take this moment to honour those who lost their lives and the many who were injured and extend my deepest sympathy to the bereaved and to the broader Grenfell community affected by this tragic event. I echo the sentiments expressed by the Prime Minister, who apologised on behalf of the state in a Statement to the House of Commons on 4 September. There is no doubt that it represents, in part, a failure of regulations at that time. This Government are committed to carefully considering the inquiry’s findings and recommendations to ensure that a tragedy like this can never happen again. There will of course be opportunities for more in-depth debate on the inquiry’s report in due course.

Turning back to the context of this debate, I hope that I have picked up most of the points that have been made. I would be happy to meet with the noble Lord, Lord Ashcombe, to discuss the UK captive regime and perhaps could recommend HMT Ministers joining that discussion as well. If I have missed other noble Lords’ questions, I will write to them.

I noted the report’s remarks on the previous Government’s engagement, or perhaps lack of engagement, with the committee, and I reassure your Lordships that this Government look forward to engaging in a bipartisan fashion with the committee and in a very positive way with noble Lords as we take this vital work forward. I personally have a huge respect for the work of the committee and look forward to working with it in future.

In conclusion, I believe we are broadly on the same page, not only in the report but in this debate, and I hope that in due course noble Lords will see the full evidence of the seriousness with which we are taking these issues and our determination to modernise the regulatory landscape to achieve better outcomes. I therefore commend this report to noble Lords.