Accountability, independence and performance of UK regulators: House of Lords committee report

Approximate read time: 10 minutes

1. House of Lords Industry and Regulators Committee inquiry

In October 2023, the House of Lords Industry and Regulators Committee launched an inquiry into UK regulators, focusing on their accountability, independence and performance.^[1] The committee sought to examine whether regulators that had a statutory role established by Parliament and were organised as public bodies had been given “a clear job to do” and whether their roles and remits were “sufficiently discrete from one another”. The inquiry also sought to identify whether regulators were “appropriately independent” of government, how regulators should be held accountable for their performance, and by whom.

In February 2024, the committee published its report, ‘Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators’. The committee noted that there were “growing concerns” about the functioning of the “three-way relationship” between regulators, the government and Parliament, in particular relating to regulators’ accountability, independence, performance and role.^[2] The report highlighted several issues:

• Some regulators were being “overloaded” and “accumulating objectives” without clear guidance on how they should be prioritised.^[3]
• The perception that the appointment and reappointment of some regulatory leaders reflected their “political loyalties” more than suitability for the role. The committee was also concerned that the government had taken regulatory appointments forward in cases where the relevant select committee had refused to endorse a candidate.^[4]
• Although a number of regulators can raise their own revenues through charges and levies, others depend on the government for funding, The committee noted that those funding decisions “inevitably influence regulators’ ability to carry out their functions independently”. Some regulators also faced a challenge to recruit and retain more specialised staff due to higher rates of pay available in the private sector, and in some cases, at other regulators.^[5]
• Parliamentary scrutiny of regulators tended to be “reactive and piecemeal, rather than systematic and routine”.^[6]

The committee concluded that if the integrity and legitimacy of the UK’s regulators were to be preserved, such concerns had to be addressed.^[7] Therefore, it proposed several recommendations to the government relating to the accountability, duties and independence of regulators. These recommendations included:

• conducting reviews of all regulators’ duties during the government’s public bodies review programme with the aim to “streamline the duties and objectives of regulators” and provide the “greatest possible prioritisation in the event of conflicts”^[8]
• providing guidance for determining policy priorities and granting regulatory boards the authority to seek “explicit guidance” on such decisions^[9]
• giving select committees a “greater role” in scrutinising regulatory appointments and publishing an explanation if the government chooses to make an appointment that has not been endorsed by the relevant select committee^[10]
• considering whether regulators should be granted the power to raise their own revenues^[11]
• assessing whether regulators can recruit and retain necessary staff within their existing funding and pay structures, and, if not, allowing regulators greater discretion to move outside their existing funding and pay scales^[12]
• establishing an independent office for regulatory performance, funded by Parliament, to enhance parliamentary oversight of regulators^[13]

2. Conservative government’s response to the committee’s report

The then Conservative government published its response in May 2024.^[14] Welcoming the committee’s inquiry and call for evidence, the government noted that it “overlapped with the government’s own call for evidence into the regulatory landscape”.^[15] Stating that it recognised “the importance of this issue to stakeholders”, the government reaffirmed its commitment, outlined in its May 2024 white paper ‘Smarter regulation: Delivering a regulatory environment for innovation, investment and growth’, to “ensuring that this landscape delivers a world-class service”.^[16]

The government responded to all of the committee’s recommendations. A summary of some of the responses is as follows:

• Reviews of the duties of regulators: The government’s white paper and response outlined plans to work with economic regulators to gather evidence on the effectiveness of their duties. It also proposed developing a framework to ensure a “consistent approach” to monitoring and evaluating regulators’ statutory duties, particularly in areas where specific problems had been identified.^[17]
• Strategic guidance: The government said it was “essential that regulators operate to clear duties and have clarity on their regulatory remits”.^[18] Alongside creating a framework for monitoring and evaluating regulators, the government aimed to create a “dynamic dialogue” with regulators. This included by providing written strategic guidance that outlined the government’s priorities and the outcomes that regulators should consider.
• Select committee scrutiny: The government highlighted that following pre-appointment scrutiny of regulator leaders, the committee publishes a report. The government’s responses to such reports are also published.^[19] Additionally, the government noted that the pre-appointment scrutiny guidance specifies that a minister must consider the evidence provided by the select committee and provide a written explanation of their decision to the committee chair.
• Revenues and pay scales: Under the public bodies review programme’s efficacy quadrant, which outlines the expectations on the form and function of a public body, reviews are required to examine the commercial models, revenue generation options and resources of public bodies in relation to their existing or proposed functions.^[20] The reviews would also evaluate the financial management, benchmarked costs and workforce of each public body. The government stated that where a reviewer had identified an opportunity for improvement to a public body, it would include a recommendation in its report, with the relevant minister deciding whether to approve or reject the recommendation.
• Accountability: The government reaffirmed its commitment to “creating more transparency and accountability for regulator performance”.^[21] It outlined that there were several options for the legal basis and remit of a body such as the proposed office for regulatory performance. Possible options included a parliamentary body, public body or function of a ministerial department. It noted that it would work with the committee and House authorities to “explore the merits of each option”. In the short term, as set out in the white paper and government response, the government said that it was introducing a growth duty performance framework to improve accountability and transparency in the annual performance of regulators.

3. Labour government’s position

The Labour Party has pledged to create a new regulatory innovation office to streamline approval processes and increase accountability. In October 2023, the Labour Party stated that British businesses and innovators were developing “world-leading” products and services, using technologies such as artificial intelligence. However, these businesses and innovators faced a “mountain of red tape” which meant they could be required to gain approval from up to 11 different regulators.^[22] The party said that this had resulted in businesses facing a “huge delay” in getting decisions on new products and services.

Therefore, the party announced that it would create a new regulatory innovation office tasked with “hold[ing] regulators accountable for these delays”. It would do this by:

• establishing and monitoring targets for regulatory approval timelines, benchmarked against international comparators
• providing strategic guidance on regulatory priorities, drawing on priorities from Labour’s industrial strategy published in September 2023^[23]
• strengthening the Regulatory Horizons Council, which was created in 2019 to advise the government on regulatory reform, with a new requirement for government to respond to its report within a set time period.^[24]

In its plan for financial growth, published in January 2024, the Labour Party outlined that it planned to use the regulatory innovation office to improve accountability and promote innovation in regulation across sectors and promote transparency on regulator performance.^[25] This would include new metrics for the Financial Conduct Authority and Prudential Regulation Authority to “demonstrate progress” on growth and competitiveness.

The commitment to create a regulatory innovation office was included in the Labour Party’s general election manifesto.^[26] However, it did not feature in the King’s Speech on 17 July 2024.^[27]

On 30 July 2024, Feryal Clark, a parliamentary under secretary of state at the Department for Science, Innovation and Technology, responded to a written parliamentary question on the government’s plans to create a regulatory innovation office. She stated that she was working with officials to “define initial areas of focus” for the regulatory innovation office, “whilst developing long term plans to ensure the [regulatory innovation office] can support economic growth through regulatory innovation”. She also noted that further detail on the plans would be announced “in due course”.^[28]

4. Read more

• Matthew Gill et al, ‘Parliament and regulators: How select committees can better hold regulators to account’, Institute for Government, April 2024
• Tevye Markson, ‘Government should create NAO-like watchdog to scrutinise regulators, peers say’, Civil Service World, 12 February 2024
• Maddy Bishop, ‘House of Lords report provides clear direction for regulatory reform’, Institute for Government, 9 February 2024

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Cover image by Jacob Diehl on Unsplash.