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Industry experts give cautious support for Tory proposal to overhaul regulation

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A new proposal to liberalise regulation of energy and water companies has gained approval, albeit cautiously, from industry experts.

Conservative strategist, John Penrose MP has recommended that there should be a move away from constraining companies through licence conditions to punishing miscreants. The move would be cheaper, less troublesome and be empowering for customers.

The soon-to-be-created Competition and Markets Authority would take on responsibility for regulating competitive sections of the industry – to be maximised – in a similar way to consumer goods. Ofgem and Ofwat’s remit would be limited to oversight of “unreformable” network monopolies.

The timing of this seems to point at the Tories lining it up for their next election manifesto, as this has been mentioned on previous occasions. It could also be seen as an attempt to seize back the cost of living agenda from Labour, scrapping Ofgem for a new tougher regulator.

Former regulator Stephen Littlechild said the idea was “well worth considering”. He has been critical of Ofgem’s handling of the retail sector in particular, saying in the present environment “there is a temptation to over-regulate”. Another senior regulatory figure said the notion “is not daft”.

Guy Newey, head of energy at rightwing think-tank Policy Exchange, said the paper has “some really good ideas”. He added: “Efforts to inject more competition into the market are to be welcomed and getting that process invigorated is very important.”

Phil Burns, director of Frontier Economics said however, that changing regulatory powers would not make much difference in this political climate.

“In practice, many so-called regulatory interventions in the energy market today are driven by policy and political pressures,” he said. “Political interventions over customers that do not switch, the number of tariffs and “bamboozled” customers have arguably driven Ofgem to go further in terms of interventionist measures than a competition authority would have seen fit… Against this context, such institutional change would probably have a limited impact on outcomes today.”

 

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