Call for curbs on watchdogs: Adam Smith Institute wants rethink of regulatory system

REGULATION of the privatised utilities is confused, unaccountable, secretive and ruled by personality cults, according to a report by the Adam Smith Institute, the right-wing think-tank.

The report also attacks the regulatory regimes for being too interfering and calls for a radical rethink of how the system is run.

The report, But who will regulate the regulators, urges greater transparency in the regulation of gas, water, electricity, telecommunications and airports. It says that one of the worst features of UK regulation is that regulators do not have to justify decisions when changing price controls or other terms of the companies' licences.

According to the institute: 'This cop- out makes the regulators virtually unaccountable. It leaves the utilities completely unable to know what is in the mind of the regulator so that they can plan sensibly for the future.' As a result, the report says that policy must be guessed at from nods and winks rather than clear rules.

It warns that unless regulation is scaled back and gives way instead to more competition, the power of the regulators could be used by a future government in effect to renationalise the utilities. The report states that the 'enormous and unchecked' power of the watchdogs has led to regulation of activities where it is not justified.

One case cited is that of the shopping facilities at some airports, which are subject to rate-of-return regulation by the Civil Aviation Authority although they compete with high streets in the UK and abroad.

The report also argues that the discretionary nature of regulation leads to too-frequent intervention in the workings of the industries by the individual watchdogs.

The result, it alleges, is often arguments between the utilities and the regulators, the outcome of which can depend on the personalities involved and their skills at managing the media rather than on rational debate. However, at the other extreme, the report notes that some regulators can be accused of being personally too weak to take on the power of the companies they oversee.

According to Eamonn Butler of the Adam Smith Institute, one of the most necessary changes is to reduce the 'personality cult' that is inherent in the UK system of regulation.

'The regulators simply have far too much power at their fingertips for the system to work in such a fickle way,' he said.

He added that after 10 years of UK experience with regulation, the Government should examine where it has succeeded or failed and should consider adjusting the framework or abandoning it completely. Dr Butler said policy makers need to be much clearer about what they want to achieve post-privatisation. Politicians have to ask themselves some very fundamental questions about the very purpose of regulation and what it is supposed to achieve, he said.