Government should create NAO-like watchdog to scrutinise regulators, peers say

Committee calls for new body to watch over UK's regulators
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By Tevye Markson

12 Feb 2024

A new watchdog should be set up to scrutinise the UK's regulators, peers have argued in a new report.

The body would be accountable to Parliament and inform select committee scrutiny in a similar way to the National Audit Office, the report argues.

The House of Lords Industry and Regulators Committee calls on the government to give parliament the resources needed to create the new body in a report which says the size and complexity of the UK’s regulatory landscape, and the limited resources available to parliament, have led to an accountability gap. This is particularly acute in terms of “routine and systematic scrutiny of regulators”, they argue.

The report – 'Who watches the watchdogs?' – says a watcher of the watchdogs is needed to plug this gap in regulatory accountability. It also calls for regulators to be given more clarity on the objectives they should prioritise. 

The new independent statutory body – which the peers suggest could be called the "Office for Regulatory Performance" – would advise and support parliament and its committees in holding regulators to account, the committee said.

This would complement the existing system of parliament scrutiny from parliamentary committees, the report added.

The peers said the current system, where watchdogs are scrutinised by parliament and its select committees, “plays a crucial role in holding regulators and their performance to account”. But they argued a lack of resources and the large number of regulators – there are currently around 90 – “means that too often scrutiny is reactive to publicity rather than systematic or timely”.

The office would publish reports, which would become a key tool in parliamentary committee’s scrutiny of the performance of regulators, much like the Public Accounts Committee’s use of the reports of the National Audit Office.

Like the NAO, the body would be funded from the parliament’s budget, which would need to be enlarged, the report states. The committee said this would be “money well spent…given the fundamental importance of effective and regular public accountability”.

The peers said several of the witnesses it spoke to in evidence-gathering for the report had suggested the idea, including Julia Black, professor of law at the London School of Economics, former Treasury select committe chair Andrew Tyrie who has also served as chair of the Competition and Markets Authority; and the Institute for Government.

PAC chair Meg Hillier was less keen on the reform proposal, however. She told the committee that the “danger” of creating the body would be that other parts of the system might “think it is not their job to look at regulators”.

The report made clear that scrutinising the ministers and departments that are responsible for specific regulators is "an important piece of the accountability puzzle", and committee chair Clive Hollick criticised the Department for Business and Trade for its "limited engagement" in the inquiry, including the failure to provide a minister as a witness at oral hearings. 

The committee also raised concern that some regulators are being “overloaded” with objectives without clear guidance on which priorities require more immediate attention. It said the government must provide more clarity on the objectives that regulators should pursue, and how they should prioritise them.

Responding to the report, Prospect general secretary Mike Clancy said regulators are facing “an ever-growing list of responsibilities without the additional funding to enforce them effectively”.

“Poor levels of pay have led to a recruitment and retention crisis, with the industries being regulated able to poach the most experienced staff and hobble regulators with a lack of institutional memory and skillset,” he added. “The government must urgently take action to ensure our regulators are properly funded and sufficiently independent to meet their obligations.”

In October, the department announced a regulator review "to cut red tape and bureaucracy", which ran for 12 weeks until mid-January. 

A Department for Business and Trade spokesperson said: “We have set up the Smarter Regulation Programme to strip away the unnecessary red tape that has built up over years, to unlock our potential and drive innovation and growth.  

“Regulation should be a last resort which is why we deploy alternatives wherever beneficial and ensure that our regulators work well for UK businesses.”    

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