Report: Energy and environment regulators not given adequate funding, powers or independence

Image: prospect Union. Pictured: Strikes at Natural England and Environment Agency in Spring 2023

The Lords Industry and Regulators Committee has released a new report this week, concluding that “urgent reform” is needed for the processes under which the UK Government works with regulators such as the Environment Agency, Ofgem and Ofwat.

A headline recommendation is the introduction of a new Office for Regulatory Performance, a regulator to regulate other regulators. But this should only be established in line with broader changes to weed out systemic issues.

One focus of this reform should be funding, the report states. While some regulators use levies and charges to raise revenues, others are either mostly or entirely dependent on Government funding. As funding budgets fluctuate, so too do the regulators’ ability to function well.

A lack of funding is translating, the Committee heard, into a lack of pay and other benefits for staff at some regulators. It heard evidence that regulators are facing high staff turnover and challenges in recruiting and skilled staff, due to higher rates of pay available in the private sector.

This challenge is particularly salient in relation to employees with in-demand skills including environmental qualifications and digital expertise.

Environment Agency (EA) staff notably held the first round of strikes in the regulator’s history last year. Hundreds of staff walked out four times between January and May 2023 in a protest over pay, supported by UNISON.

The Agency had its budget almost halved in the ten years leading up to 2019-20. Efforts have now been made to bring the budget back to 2009-10 levels of £170m, but inflation has not been accounted for.

Another staffing challenge raised by the Lords is Government delays to board appointments. There is some sympathy for this issue being worse during lockdowns and, now, during the pandemic’s fallout, but the report ultimately calls some delays “unacceptable” for how they have hampered regulators’ governance.

Objectives overload

Staffing and budget challenges are not being helped, the Lords Committee has warned, by new objectives placed on regulators. It stated, “some regulators are being overloaded with objectives, without clear guidance on how they should prioritise between them”.

An example flagged here is the new net-zero remit granted to Ofgem through the Energy Act – a policy package that received Royal Assent in October 2023.

The Net-Zero Review called upon this remit to be granted to the energy regulator, but policymakers rejected the suggestion at first before U-turning.

Ofgem has also been foisted with a new growth duty in recent times.

In its written submission to the Lords’ inquiry, Ofgem said it would welcome the opportunity to discuss these new duties and how they fit with other priorities with the Government. This would be particularly timely, Ofgem noted, with ongoing planning reforms in mind.

Objectivity in doubt

The Lords Committee report also urges Government actions to ensure that regulators operate as objective and independent bodies.

It notes that there is a perception that some regulatory leaders have been appointed on account of their political loyalty rather than their experience and capability.

Also flagged are concerns that regulators have been exposed to a greater deal of short-term political interference in recent years, potentially impacting their ability to plan for the long-term.

A general contributing factor is the pandemic, the Lords heard. In the fields of energy and the environment, the sewage scandal and energy price crisis were repeatedly raised.

“We are especially concerned at cases where the Government has failed to resolve political or distributional questions facing regulators, and instead interfered in their day-to-day workings,” said inquiry chair Lord Hollick.

Ofgem has disagreed with this viewpoint and stated that it is working with policymakers so there is “clear, long-term oversight” while the body also “keeps pace with the rapidly changing energy system”.

edie has also reached out to Ofwat and the EA for comments. This article will be updated as and when these comments are received.