Watchdogs (Industry and Regulators Committee Report)

Lord Skidelsky Excerpts

Monday 9th September 2024 Lords Chamber

[Lord Skidelsky (CB)]

My Lords, I was not on the committee and therefore would like to allow myself a few mild criticisms of a very thought-provoking report. I will touch on three aspects of its central problem: “Who watches the watchdogs?”

First, a bit of history might be helpful. In its present form, this challenge was created by the Thatcher reforms of the 1980s, which produced a new dividing line between the state and the private sector. Previously, the Government owned the public utilities and were accountable to Parliament, while the private sector was in the hands of private companies that were in theory accountable to the market. That was the model, anyway, but it was swept away by the reforms of the 1980s. Injected into the private sector by Margaret Thatcher and her successors were some big natural monopolies, which had to be regulated to protect the consumer and the general public, so we got Ofcom, Ofgem, Ofwat and so on. Now there are altogether 90—or is it 200?—regulators. No one seems to know, but a massive quangocracy has arisen and with it the problem to which the report speaks: people can replace their elected representatives but they cannot vote out bad regulators

It would have been helpful had the report given a bit of this history, because that would have helped us to think more clearly about which bits of the economy are best in the private sector and which should be in the public sector. For all its talk of efficiency gains and protecting the consumer, privatisation was a euphemism for the sale of public assets, the main purpose of which was to raise revenue, reduce public debt and thus enable tax cuts. In short, it was a Conservative programme for shrinking the state, dressed up in the clothes of scientific economics. Any historian probably has to take some view of that kind.

One way of tackling the problem of accountability is to rethink the present boundary between private and public, particularly to ask whether it makes sense to keep some of these hybrids, with their layers of regulators, in the private sector at all. The present division is based on no principled red lines. It is directly implicated in the decline in total investment as a share of GDP and the growth of inequality, but that is a matter for another debate. I do not blame the report for taking the world as it is and trying to improve it. I do not think I need to limit myself to that.

My second point is mandate creep, which is something the report pays a lot of attention to. It is the loading of more and more functions on to the regulators, obscuring the character of their remits. As the report rightly says, regulators are increasingly told to “have regard to” or “take account of” or “consider” matters not in their original mandates. The general problem is illustrated by the Bank of England. The Bank of England Act 1998 mandated it to maintain price stability. The Banking Act 2009, and then the Financial Services Act 2012, added a macroprudential remit. On top of that, in 2021, there was a mandate to facilitate the transition to net zero. Here we have a clear example of mandate creep.

In 2021, when I was on the Economic Affairs Committee, I strongly agreed with the noble Lord, Lord King of Lothbury, that the new net-zero mandate would set up a conflict with the Bank’s primary objective of maintaining price and financial stability. Not surprisingly, Bank officials welcomed this increased degree of ambiguity, which allows them to interpret their mandate as they see fit. What exactly is it that they are to be held accountable for?

My final point is on transparency. Telling the truth to power? Not if your prose is so obscure that the truth disappears in a forest of impenetrable jargon. I am rather disappointed that the report is heavily sprinkled with acronyms, which are probably unknown to any but specialists. So-called transparency mechanisms, such as publishing board agendas, minutes, annual reports and strategic business plans, are not transparent to what used to be called “the man on the Clapham omnibus”—and not even to some parliamentarians. It is a fault that is very hard to cure. Clear reporting in very plain English should be a remit given to all regulators.