What regulation should look like

With the NIC issuing a call for evidence on the future regulation of energy and water, business lobby group London First have submitted their view of the present and future regulatory situation.

London First has recently submitted evidence to the National Infrastructure Commission’s (NIC’s) call for evidence on the future of regulation in the energy, water and digital industries. Here are the five key takeaways from our submission:

1. Regulatory regimes need to account for specific needs.

Not all cities and regions are the same, and recognising that will benefit the whole of the UK. London is the UK’s fastest growing region, which means there is greater demand from businesses and residents in the capital. And regulation needs to keep up.

The capital also faces a variety of other challenges, including:

• London is facing the greatest projected increases in drought and flooding risk, according to the NIC.
• The electricity distribution network operated by UK Power Networks has the greatest demand from electric vehicles in the UK.
• The additional expense of maintaining an ageing and overcrowded network of pipes, ducts and utilities below London’s streets.
• Specific planning-related challenges for the roll out of digital infrastructure, which arise from a fragmented borough system and often complicated property ownership structures.
  

2. Utilities are suffering from political and regulatory risk

The UK has a global reputation for reliable and stable regulatory systems, but this is potentially at risk. In the water sector, for example, Moody’s recently concluded that there is “continuing regulatory, political and public pressure on the industry”.

Regulatory risk is being driven by the Labour party’s intention to pursue renationalisation and, to a lesser extent, current political pressures on regulators to lower bills above all other considerations. Earlier this month, London First warned against renationalisation in a piece for London-based newspaper City AM, highlighting the broader risks to the environment for investors in London. The article also pointed out that 7.67 million UK pension pots stand to lose out from Labour’s plans to renationalise industries below market value. You can find more details on the Global Infrastructure Investor Association’s website.

3. Regulation needs to promote more future-proofing

Consumers need to be confident that there is relentless efficiency pressure on utilities to strip out unnecessary costs. But if this comes at the expense of long-term investment in utilities, it could erode the resilience of water and energy networks. This could restrict London’s ability to be a pioneering city for innovations such as electric cars and lead to knock-on consequences in areas such as housing delivery. For instance, failure to invest ahead of need in utilities infrastructure at the Vauxhall Nine Elms Battersea site led to costly retrofitting of electricity and drainage infrastructure.

It could also be costly for consumers. The NIC estimates that emergency measures relating to water shortages would be around twice as expensive compared with building resilience. This highlights the importance of treating positively the case for new infrastructure (such as the proposed reservoir at Abingdon) as well as appropriate incentives to reduce demand. Moreover, it supports the case for Thames Water’s recently submitted business plan, which will boost efficiency, plough billions of pounds into improving the resilience of water infrastructure, and cut prices for consumers.

4. Planning barriers to digital infrastructure deployment are a particular issue for London

The UK’s coverage for full fibre currently stands at just 5 per cent and the NIC has set out an ambitious target to increase this to 100 per cent by 2033. Yet there continue to be several planning-related barriers to digital deployment across the UK. Issues include problems associated with negotiating wayleaves for access to land and obtaining permission from local authorities to conduct streetworks. These are particular problems in the capital, making London an expensive place to roll out digital infrastructure. By way of example, BT Openreach claims that in the City of London alone, it has been unable to connect 7,500 tenants to ultrafast broadband due to a failure to agree a wayleave with landlords.

5. London First will…

…continue making the case for long-term investment in London’s infrastructure, working with developers, infrastructure operators, the GLA, regulators and the NIC. This includes establishing a new working group to promote a shared vision for businesses and local authorities on the opportunities from world-class digital infrastructure.