Draft Economic Growth (Regulatory Functions) (Amendment) Order 2024 Draft Growth Duty: Statutory Guidance Refresh

Rushanara Ali Excerpts

Tuesday 23rd April 2024 General Committees

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Paisley.

I thank the Minister for introducing the draft proposals, which will cover three of the UK’s regulators, Ofwat, Ofgem and Ofcom. As the Minister set out, the regulations we are considering concern the growth duty under section 108 of the Deregulation Act 2015, which requires particular regulators to consider how best to promote economic growth as they exercise their core functions. We recently saw the growth duty expanded to the financial services regulators, the Financial Conduct Authority and the Prudential Regulation Authority, as part of the Financial Services and Markets Act 2023, and there are now more than 50 regulators bound by the growth duty.

This draft legislation will see the growth duty expanded to Ofgem, Ofwat and Ofcom, and will therefore mean that those regulators will also have to consider how their functions can promote economic growth. I would be grateful if the Minister could set out some of the lessons learned from the experience of the regulators that already have the growth duty built into their objectives.

Labour recognises the importance of the water, energy and communications sectors to our economy and the vital role that the three regulators under discussion play in shaping those sectors. We agree in principle with the need for those regulators to formally recognise their role in contributing to economic growth where viable. However, as I am sure many colleagues will agree—the Minister has already alluded to this point—such a move has the potential to create frictions or opposing and competing demands on regulators as they carry out their core regulatory functions. We must make sure that we strive for sustainable economic growth that is forward looking, inclusive and based on strong and secure foundations.

As the Minister will be aware, where the competitiveness duty was introduced in the regulation of financial services, there were extensive discussions, which as members of the Treasury Committee he and I were a part of, about making sure that the regulator’s primary objective of stability did not conflict with that of competitiveness. Much work has been done and lessons have been learned about how to make sure those things happen appropriately and do not cause confusion within the regulatory system, as well as out there in the market.

I am sure it has not escaped Members’ attention that, of the three regulators under consideration, Ofwat is already under significant scrutiny and pressure. Last year saw the highest number of sewage discharges on record. There will, rightly, be public concern that additional duties, while welcome, should not create an additional set of pressures that are hard to deliver on. I hope the Minister can shed more light today on how the regulators can fulfil existing duties as well as the new duty.

After 14 years of this Government being in power, the sewage scandal has resulted in waters and open spaces across the country being polluted with filthy raw sewage. Not one English river is classified as being in a healthy condition. None meet good chemical standards and few meet good ecological standards. Environment Agency data shows that sewage has been dumped every 2.5 minutes since 2016. Not only have the Government allowed the water companies to dump sewage and neglect our vital water infrastructure, some of the companies responsible have been rewarded, through allowing shareholders to receive dividends and water bosses to pocket bonuses. I know this is not the Minister’s direct responsibility, but I hope he will take note of the public concerns about the need for strict regulation to make sure standards are met and people do not suffer the consequences of neglect.

Given the pressures on Ofwat, can the Minister tell us how confident he is that it has the appropriate resources to not only fulfil its current duties but also respond to the growth duty? Does it and the other regulators have the expertise within their institutions to be able to focus on the growth duty? If we want the growth duty to be effective and successful, it is important that the people within those institutions are able to work with the industry and with Government to make sure that it is meaningful.

The economic impact assessment estimated that the familiarisation costs of the growth duty would have some resource implications. Will the Minister make those resource implications clear? Can they be met within existing budgets or are additional resources needed? Will they be provided?

I also seek assurances from the Minister that the regulator’s core consumer and environmental responsibilities will not be jeopardised by this move. I am assured by some of the points that he has already made, but could he say more about precisely how his Department and other relevant Departments will work with the regulators to make sure that they have a clear understanding of the need to meet their respective commitments and obligations?

Understandably, many respondents to the Government’s consultation shared concerns, with 25% opposing the changes. To that end, while we welcome the Government updating the statutory guidance, as the Minister has referred to, to clarify how the growth duty should fit within the regulators’ existing obligations, it would be helpful to have more information on precisely how that will be done. Given the delicacy and importance of regulators’ roles in policing their various sectors, how do the Government intend to closely monitor the impact of these changes in a timely manner?

As an example related to Ofcom, could the Minister imagine a situation where the expanded growth mandate could result in the green light being given to a takeover that could compromise our national security and a free and fair media, or lead to one provider dominating the media landscape? He will be aware of examples where foreign Governments have sought to buy stakes in our media, and so on. Are there provisions in place that cover those concerns and that he is comfortable with? If not, what further steps can be made to reassure the public that the growth duty, while welcome, necessary and helpful, needs to be applied appropriately to protect our free media and national interest?

We on the Labour Benches recognise the importance of a long-term plan to grow the UK economy, particularly after such a long period of sluggish growth. That is why we have made securing the highest sustained growth in the G7 the central mission of a future Labour Government. However, it seems that this has only recently come to the fore for the Government. Why have the three regulators been added on now, rather than at the time the growth duty was introduced? There may be very good reasons. It would be helpful to understand better. Is it because the Government wanted to do further preparatory work with the regulators before introducing the growth duty? Were those regulators considered earlier on, when the others were first introduced?

In summary, we support this instrument, but urge the Government to meticulously monitor its impact and effectiveness in delivering long-term growth, and to ensure that the safeguards are in place to make sure that the regulators fulfil their primary objectives, although those are not framed in the same way. Is there a differentiation between primary and secondary objectives, as was the case for the example I mentioned earlier, or are they parallel objectives? Are there issues about competing demands on the regulators?

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[Rushanara Ali]

I asked the Minister about the primary and secondary objectives, and whether he sees any parallels in how these changes are thought of—I know this is about having due

“regard to the desirability of promoting economic growth”.

Does he think there is a parallel with the way that the competitive duty has been applied?

There is a potential tension to be managed in how regulators think about the importance of sector regulation and the Government imperative to promote growth. When regulatory officials think about our priorities, they might err on one side or the other, and that tension could be a problem. Does he feel that more work is needed to emphasise how the measures are applied, so that consumers do not suffer while we try to promote growth?

We need to do these things in tandem, so that we do not end up with a false economy, where damage is done to the economy through protections and standards that then cost the taxpayer a significant amount. That would leave us in the worst of all worlds, and is surely something that all different parties want to avoid.

[Kevin Hollinrake]

I do not disagree with anything the hon. Lady says. This is a parallel objective, not one that should replace the current objectives. It is a consideration for regulators. It is about not just obviating the risk, but looking at other factors. Investment is hugely important for our consumers and our citizens. This draft order is not about one thing or the other—for example, it will not replace the environmental duties of Ofwat. Indeed, the Environment Agency, which has had this duty since 2017, has issued about £150 million in fines to 60 different companies, so this is not about backing off on environmental protections. The hon. Lady raises an important point, however, and we have committed to reviewing how these measures will affect the general regulatory regime to ensure that there are no unintended consequences, although we do not feel that there will be, as long as the right balance is struck.

Of course, regulation must be used only where absolutely necessary, and must be implemented in a way that provides the right foundations for our economy to thrive. The purpose of the duty is to ensure that the specified regulators give appropriate consideration to the potential impact of their activities and decisions on economic growth, alongside their consideration of other statutory duties. It does not create a hierarchy over existing protections.

With that, I believe I have addressed all the questions posed by right hon. and hon. Members, and look forward to the Committee’s support and commendation of the order.