Reforms for Ofgem and Ofwat laid out

Ofwat and Ofgem will be responsible for ensuring economic growth in their respective sectors, under proposals outlined by government.

If passed, it would mean Ofwat and Ofgem would have to ensure that all decisions made do not impede economic growth within water and energy sectors.

The reforms would see the Growth Duty implemented into both regulatory frameworks as well as that of Ofcom, bringing the three economic regulators inline with 40 other bodies as part of wider reforms by government to tighten up regulation.

Presently, non-economic regulators are bound to consider the Growth Duty as part of their functions. It means they look at economic growth when exercising their regulatory functions and to take action “only when it is needed, and any action taken is proportionate”, the consultation document states.

The Earl of Minto, minister for regulatory reform, said: “It is right that we look at all levers to improve our focus on delivering a strongly growing economy, and those that already form part of our regulatory framework have an important part to play.”

Combined, the energy, water and communications sectors account for around 13% of total private sector investment and around 4% of the UK’s gross domestic product (GDP).

However, investment challenges to efficiently deliver the infrastructure needs are well-known for utilities.

A consultation document released as part of the proposal adds: “It is through efficiency that it is possible to minimise bills for current consumers, bills for future consumers and protect the environment and consumers. Applying the Growth Duty to these regulators would help create an efficient system delivered through good growth-focused regulation.”

For Ofwat, the reform would explore “whether extending the growth duty would facilitate even more pro-growth activity.”

For Ofgem, it similarly said the consultation was looking to build on work done to encourage innovation in areas such as electric vehicles, storage and flexibility services.

Secretary of state for trade and business, Kemi Badenoch, in May said the reform was under consideration as part of government’s policy on ‘Smarter regulation to grow the economy’. This focuses on the role of regulators in supporting an economy that attracts businesses, supports innovators and provides better outcomes for households and consumers.

The consultation looks at whether the regulators should be included in the scope of the growth duty, what guidance would be necessary to implement it, how a regulator’s action might change as a result and how it would interact with existing statutory duties.

It will also consider costs to businesses and regulators that could arise as well as benefits.

The consultation will run until 17 August and is part of ongoing work exploring how regulators can foster growth.