A group of UK Conservative members of Parliament (MPs), including former ministers and a previous chair of the Competition and Markets Authority (CMA), are calling for greater accountability mechanisms as they believe a lack of an oversight of regulators is holding back UK productivity and economic growth.

The report The Purpose of Regulation, launched today by Regulatory Reform Group (RRG), includes a recommendation to form a new cross-parliamentary committee to oversee the performance of regulators and offers a systematic appraisal of the UK’s regulators covering key economic sectors including energy, housing, and financial services.

The report identified several systemic issues which fall into four main categories:

  • a lack of strategic direction to and by the regulators;
  • strained regulatory relationships – both between industry and regulators, and between regulators themselves;
  • incomplete lines of accountability around the objectives set for regulators and the measurement of regulatory performance; and
  • the need to build up greater skills and knowledge within regulators and support them with sufficient resourcing.

Bim Afolami MP, chair of the RRG, said: “Unaccountable regulators are directly hindering the UK’s growth prospects. Regulators have the potential to be key drivers of the government’s long-term ambitions for the UK, not to mention enablers of economic growth, but without adequate oversight from parliament, this potential has been lost. This report is not proposing that regulatory reform holds all the answers to unlocking growth in the UK, but it is certainly a start.”

The RRG is supported by a cross-sectoral Business Advisory Council, chaired by Tracy Blackwell, the chief executive officer of Pension Insurance Corporation (PIC).

Blackwell said in the report: “It is important to stress that our regulatory regime plays a vital role in consumer and systemic protection. Some of our regulators are held up as “gold standard” globally and we would do well to export these standards. But their focus should always be on outcomes, which means the people at the end of their processes and decisions. Where we allow this focus to slide, the decisions taken often end up prioritising institutional goals over consumer outcomes.”

The LDI crisis

Some defined benefit (DB) pension schemes pursued liability-driven investment (LDI) strategies. These strategies used leveraged Gilt funds to simultaneously hedge the interest rate and inflation risk that arises from having long-term liabilities, and to invest in growth assets.

Following the September 2022 mini-budget, Gilt yields rose sharply, causing a significant fall in the value of LDI funds, setting off a chain of events that meant assets could not be sold at fair value, creating an acute liquidity problem.

The Bank of England intervened, staging a £20bn intervention in the market over almost two weeks, to buy time for LDI funds to right themselves. The UK’s financial stability was threatened.

Accounting standards, investment consultants and pension scheme trustees have all been identified as shouldering some of the blame, but regulators have also been found, “to have been slow to recognise the systemic risks” relating to LDI strategies, the report disclosed.

“We need to be smarter about how our regulatory regime can best benefit the economy, communities, households, and individuals across the country. As businesses we really do need to ensure stability and growth across the entire economic cycle,” Blackwell said.

Tracy Blackwell at PIC

“We need to be smarter about how our regulatory regime can best benefit the economy, communities, households, and individuals across the country”

Tracy Blackwell, CEO of Pension Insurance Corporation

The Business Advisory Council aims to complement the work of the parliamentarians in the RRG by identifying common regulatory issues across sectors, providing specific examples of breakdown, but also helping with an overall, systematic appraisal of our regulatory system – where it works well and what can be improved, she added.

Collapse of Carillion

The report has also used the example of the collapse of construction and services giant Carillion Group  in 2018, highlighting issues in how regulators interact with industry, noting that “the regulator-to-regulated relationship is not always collaborative and can be defined by mistrust, deterring innovation and leading to an excessively risk averse culture”

The Department for Business, Energy and Industrial Strategy (BEIS) and the Departmen for Work and Pensions (DWP) committees argued that the collapse of Carillion exposed terrible failures of regulation.

The Carillion Group went into insolvency in January 2018, with an unsustainable level of debt and an £845m write-down in the value of several major long-term construction contracts. Due to the group having billions worth of financial liabilities, thousands of employees’ pensions transferred to the Pension Protection Fund (PPF), the government lifeboat pensions scheme.

MPs at the time argued that regulators failed to protect millions of pension savers, describing the oversight of Carillion and response to the underfunding of Carillion’s pension schemes as “feeble”.

The RRG report concluded that “substantial cultural change” was required. The Pensions Regulator (TPR) itself also stated that its conduct was “insular” and “isolated” from key stakeholders, including government departments and other regulators, ultimately leading to a renewed leadership within the regulator, major calls for a review of several of the auditors involved and billions in legal disputes.

A smarter, and more democratically accountable approach

The RRG is not promoting slash and burn deregulation, but rather a smarter, and more democratically accountable approach to overseeing regulators to deliver better outcomes for British people and the British economy.

The report highlights examples where this has been achieved, arguing for a similar approach to be implemented systematically across the regulatory landscape.

Former secretary of state Robert Buckland said: “It is important to note that this project is by no means an ideological “race to the bottom” in terms of regulation. All we are seeking is a more transparent and proportionate approach to regulation where, crucially, regulators are held accountable against the objectives they are mandated to deliver.”

The report’s primary recommendation of setting up a new cross-parliamentary committee, dedicated to standing scrutiny of the UK’s regulators, would “take a holistic view of the regulatory environment and understand the impact of regulatory performance” instead of duplicating the work of existing select committees.

The report’s other recommendations include:

  • establishing a clear definition of a regulator to enable better scrutiny;
  • a dedicated ‘Office for Regulation’ in the Cabinet Office, tasked with managing and improving regulatory performance;
  • introducing an open, two-way dialogue on regulatory implementation and performance;
  • a new ‘accountability framework’, establishing a standardised set of metrics to measure the performance of the UK’s major economic regulators; and
  • implementing an outcomes-based approach to future regulation.

Andrew Tyrie, former chair of the Treasury Select Committee and ex-chair of the CMA, said: “All of us are now much more vulnerable to rip-offs across regulated industries. Part of the problem – and part of the solution – lies with parliament. Too many decisions – taken by powerful, anonymous quangos, and affecting millions of people – go scarcely scrutinised and inadequately explained. Parliament must now do more, much more, on behalf of the public, to challenge regulators to perform better.”

The RRG’s formation has been welcomed by prime minister Rishi Sunak and will go on to look at sectoral issues which have a bearing on the overarching regulatory system, including how regulators are addressing technological change, and the regulation of cross-cutting industries.

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