In pursuit of a more growth-friendly regulatory landscape 

• Economic growth in the UK has been in short supply and the fiscal position is tight, so it is no surprise that policymakers are seeking more growth-friendly regulation. 
• Five sector-specific ‘pro-innovation reviews’ of regulation in emerging technologies have highlighted the need for greater speed, predictability, proportionality, and transparency in regulators’ activities. 

Many of these challenges reflect recurring flaws in regulatory frameworks, examined in Common problems with regulation in competitive markets.

• Businesses have also pointed to shortfalls in funding and staff capacity slowing the pace of regulatory approvals for new products and services. 
• The regulators’ ‘growth duty’ will be extended to Ofcom, Ofgem and Ofwat. And the Government is consulting on updated guidance for its role across all regulators. 
• This provides businesses with greater leverage to influence regulatory policy, and places greater weight on credible evidence of its economic impact. 

For insight into how regulatory scrutiny and intervention can reshape investment and engagement strategies, see In pursuit of a more growth-friendly regulatory landscape.

• The Department for Business and Trade is also consulting more widely on regulation in the water, energy and telecoms sectors, with the aim of encouraging capital investment. The proposals are still at an early stage and are only likely to be taken forward by the next Government.  

Supporting economic growth 

Economic growth has been in short supply in the UK for many years now. And the fiscal space for governments to boost growth has become ever more constrained, with significant risks around the medium-term fiscal outlook. That’s thanks both to the legacy of this century’s financial, Covid and energy crises, and to the prospect of major future costs – from an ageing society to the need to invest in net zero, not to mention the inevitability of future crises. 

It should therefore come as no surprise that the Government is looking to boost growth with every policy lever it has. This focus is sure to continue after next year’s General Election. 

Reviewing the regulatory landscape 

Chancellor Jeremy Hunt used last year’s Autumn Statement to ask the then Chief Scientific Advisor, Sir Patrick Vallance, “to bring together the best minds to advise how the UK can better regulate emerging technologies, enabling their rapid and safe introduction”. This led to reviews of digital technologies, life sciences, green industries, creative industries, and advanced manufacturing that have all now reported. The Government has accepted all of these reviews’ recommendations—albeit sometimes only ‘in principle’ rather than via immediate practical steps, and, reflecting fiscal realities, with some calls for additional funding deferred until after the current Spending Review period (that runs to March 2025). 

Pro-innovation reviews of regulation in emerging technologies 

The five sector-specific reviews and a follow-up cross-cutting report highlight the need for greater speed, predictability, proportionality, and transparency in regulators’ activities. Businesses have also told the reviews that delays due to shortfalls in funding and staff capacity are slowing the pace at which new products and services can be brought to market. 

In addition, businesses have cited infrastructure gaps and planning delays as factors holding back growth in these key sectors—both perennial concerns in cross-country assessments of the UK’s weak productivity performance. Planning and infrastructure were particularly prominent in the review of green industries, which stated that “if the policy position is to support these technologies [i.e. onshore wind and solar farms], then planning reform would be necessary to speed up implementation.”  

The regulators’ growth duty 

In the Budget in March, Chancellor Hunt went further, asking Vallance’s successor, Dame Angela McLean, to review the broad regulators’ growth duty, which requires regulators to have regard to the “desirability of promoting economic growth” in the discharge of their functions, to address concerns that regulators were not doing enough to prioritise growth alongside the delivery of their core functions. She also reviewed the associated statutory guidance – the framework under which regulators should: (i) only regulate where necessary; (ii) regulate at minimum cost to economic growth when they do so; and (iii) take only proportionate action when policing non-compliance. 

Dame Angela McLean’s review was published alongside the Autumn Statement. The Government has accepted her recommendations, and confirmed its intention to bring Ofwat, Ofgem and Ofcom within the scope of the growth duty. It has launched a further consultation on refreshing the statutory guidance on how the growth duty must be applied. This includes proposals for adding statutory reporting requirements, given McLean’s finding that “there is currently no systematic reporting or monitoring of how well the Growth Duty is implemented, which calls into question its effectiveness.” It also defines ‘growth’ for the growth duty as “sustainable economic growth”, which would usefully align it with the focus on ‘potential output growth’ in the OBR’s new supply-side framework. But the proposal for regulators to adopt a framework based on long lists of prescriptive ‘drivers of growth’ and ‘behaviours of smarter regulation’ looks cumbersome if it is to be the basis for additional reporting by regulators – whether on a statutory or a voluntary basis. A more focused, more quantitative reporting framework might deliver greater accountability and would also allow the Government to report on the overall impact of regulation, and the effect of the growth duty in reducing its economic costs. 

Wider reform of telecoms, energy and water regulation 

The Government kicked off a wider-ranging consultation on the economic regulation of the energy, water and telecoms sectors to foster long-term strategic thinking in regulatory decisions, with the aim of encouraging capital investment. This covers a lot of ground, and in many areas – such as reform of regulators’ duties and improving the effectiveness of strategic policy statements – there is little evidence of a clear policy preference. Partly that reflects a relatively open consultation process, but it also suggests a lack of political commitment to meaningful change within the current Government. Aside from the growth duty extension, we are still not at the point of substantial economic regulatory reform despite several years of debate. 

What does this all mean for business? 

• First, both main political parties are acutely aware that raising economic growth would make the fiscal position less challenging, thereby boosting the chances of achieving their policy objectives – that should give business greater leverage to influence policy development so that it supports growth.  
• Second, we are entering a period of opportunity to exert that influence in pursuit of a more growth-friendly regulatory environment as the statutory guidance on the regulators’ growth duty is refreshed. The supply-side growth framework recently set out by the OBR, which heavily influences the formation of growth-supporting Budget policies, provides useful framing for engagement with regulators and Government – this is one way that economic growth features in the Chancellor’s Budget deliberations. 
• And third, the ultimate decisions on key elements of the smarter regulation framework – such as the monitoring of the new growth duty reporting, and the reforms to economic regulation – are more likely to be taken by the next Government than the current one. This means there is value for stakeholders in responding to what are fairly open consultation processes and also to engaging directly with Labour on these issues.  

This blog was written by Specialist Partner Andy King and Director Rohan Sakhrani. Andy leads Flint’s economic modelling and analysis offer, having spent 10 years at the UK’s Office for Budget Responsibility, and before that held senior roles at HM Treasury. Rohan supports clients on competition, regulation and policy issues across sectors including water, energy, telecoms, technology and financial services. For more information on the topics discussed in this blog, contact us.