A Short Guide to Regulation July 2015 Overview About Current and Overview of Regulation future challenges key regulators | About this guide This Short Guide summarises what | Contact details Regulation does, how much it costs, recent and planned changes and what to look out for across its main business areas and services. If you would like to know more about the National Audit SURVEY Office’s (NAO’s) work on Regulation, please contact: Joe Perkins Director of Regulation, Competition and Consumers [email protected] 020 7798 7522 If you are interested in the National Audit Office’s work and The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General support for Parliament more widely, please contact: (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 810 people. The C&AG Adrian Jenner certifies the accounts of all government departments and many other Director of Parliamentary Relations public sector bodies. He has statutory authority to examine and report [email protected] to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our 020 7798 7461 studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice For full iPad interactivity, please view this PDF help government improve public services, and our work led to Interactive in iBooks or GoodReader audited savings of £1.15 billion in 2014. © National Audit Office Design & Production by NAO Communications – DP Ref: 10714-001 Overview About Current and Overview of Regulation future challenges key regulators Key facts NET BURDEN 70% £2.2 billion per year of businesses included The estimated reduction SURVEY in the 2014 Business Perceptions in the net burden on businesses of Overview Survey thought the purpose of regulations within the scope of the of Regulation regulation was clear, and 61% better regulation framework by the thought it was fair and proportionate. government. This was validated by Appendix the Regulatory Policy Committee. 1,562 £15.5 billion The number of incidents The amount of investment investigated by the Food allowed by the price control Ofgem Standards Agency in 2013. set in 2012 for the National Grid These ranged from labelling 2013–2021. issues to food contamination and quality. £3.3 billion £44 billion The expected savings per year The amount 18 licensed water to business after the introduction companies will be able to invest in of a regulatory change in the improving services after Ofwat’s price indexation of pensions. review for 2015–2020. 37% The number of businesses that thought government and local government knew enough about business to regulate in the 2014 Business Perceptions Survey. Overview About Current and Overview of Regulation future challenges key regulators This guide provides background to the regulatory landscape and examines Key facts Figure 1: Regulators included in the guide some key regulators. There are more than 70 regulatory bodies in the UK; they cover a wide Overview range of areas from education, health care and charities to transport, of Regulation communications and media, utilities and the environment. We have focused Civil Aviation Office of Rail Authority and Road on nine to provide a snapshot (Figure 1). The financial services bodies Appendix (CAA) (ORR) are not included as they have a separate overview: Financial Services: Regulation, redress and advice overview 2014. Six of the nine are independent economic regulators. Their roles and The Office responsibilities are varied, ranging from protecting consumers and looking Monitor of Gas and at wider impacts such as environment and safety to promoting competition Electricity Markets (Ofgem) where this is appropriate. The Office of Communications (Ofcom), the Civil Aviation Authority (CAA), the Office of Rail and Road (ORR), Monitor, the Water Services Regulation Authority (Ofwat) and the Office of Gas and The Water Electricity Markets (Ofgem) all have powers to apply aspects of competition The Office of Services Regulation law in their regulated sectors, concurrently with the Competition and Communications (Ofcom) Authority Markets Authority (CMA). (Ofwat) Five of the regulators who are covered in this guide are members of the UK Regulators Network (UKRN), while Monitor participates in the network and its projects as appropriate. The CMA has observer status as it is not Food Competition and Standards an economic regulator. This network aims to encourage shared approaches Markets Authority Agency by regulators in the interests of consumers and the economy. (CMA) (FSA) Health and Safety Executive (HSE) Economic regulators Other regulators Overview About Current and Overview of Regulation future challenges key regulators About Regulation Why regulate, what are its objectives? 1/5 Regulation is used to protect and benefit people, businesses and the Regulation has different objectives across many different aspects environment and to support economic growth. Where regulation fails the of society. Figure 3 provides some examples. taxpayer can incur significant liabilities, such as the banking bail-out. Figure 3: Some examples of objectives of regulation Independent regulators use regulation alongside other tools to achieve beneficial outcomes in the sectors they regulate. Regulation of: Business Workforce/People Products/Interactions Regulation is also one of the primary ways the government can achieve its objectives (Figure 2). Figure 2: Ways of achieving policy objectives To ensure consistent To protect rights, safety To protect consumers and language and rules and citizenship businesses when buying/ Policy objective of commerce selling goods and services Public services Places and processes Finance Ways to achieve it Regulation Alternatives Paying Redistribution To maintain standards To ensure safety, public To ensure stability Using primary or Using Paying for Using tax and in education, health health and environmental and integrity and to secondary powers non-statutory delivery through welfare to and social care standards are met protect consumers to force the powers or the purchase of redistribute behaviour change other measures goods, services resources needed to achieve to deliver the and staff time Capital infrastructure Specific markets Economy policy objectives behaviour change needed to achieve policy objectives To ensure efficient To control prices and To ensure competition investment, and that maintain certain service safety and planning standards in industries standards are met and services which are monopolistic Overview About Current and Overview of Regulation future challenges key regulators About Regulation What is regulated and how is it done? 2/5 Types of regulation vary from economic to health, safety Figure 4: Regulation in the markets and environmental regulation. Regulation also covers a range of markets from private markets to taxpayer-funded Consumer law Regulated for quality, conduct ‘mixed markets’ (Figure 4). and some user choice and investment efficiency The increase in market-driven solutions and ‘mixed markets’ for the delivery of taxpayer-funded services means effective Private markets Private markets Mixed markets Government State services competition and regulatory frameworks have become for key services for public interaction with services markets increasingly important. The CMA study into competition in the higher education market provides an example of regulatory Prices Customers Taxpayer- Tenderers for State provision and competition oversight of mixed markets. decided by charged for funded taxpayer-funded of services market forces services services services or eg police, For regulators, the nature of the market helps determine eg domestic eg utilities; eg aspects of projects military, judiciary the approach to regulation (Figure 5). products financial services healthcare, eg waste social care, collection or For example, Ofgem sets price controls for monopoly networks education IT contracts where competition would be impractical and inefficient. These price controls are a means to incentivise monopoly providers to deliver efficiently, with a focus on providing good value for Figure 5: Examples of approaches to regulation consumers. In areas where competition is established, such as Increasing competition and market power retail markets, Ofgem defines the rules for competitive markets and ensures high standards of service for consumers, backed Price controls Pricing rules Supervision by effective market monitoring and the sanction of enforcement Price caps Tariffs Monitoring action where companies fail to deliver. • • • • Revenue caps • Access pricing rules • Engagement with firms and consumers eg gas and electricity distribution eg NHS services, postal services eg gas and electricity retail sectors Overview About Current and Overview of Regulation future challenges key regulators About Regulation What about the burden of regulation? 3/5 Good value for money consists of achieving the benefits Figure 6: Examples of benefits and costs of regulation of regulation while reducing the costs of regulations and their management (Figure 6), although not all benefits of Benefits Costs regulation are easily quantifiable. Address unwanted Costs of compliance Over-regulating or badly designed or implemented regulations negative effects can stifle competition