Regulating for Growth: how will the UK’s regulatory landscape change?

What’s new about Labour’s approach? 

Governments asking regulators to consider economic growth is not new but this Government’s political focus on regulators is. Regulators already have a statutory obligation to consider growth.  Alongside a regulator’s core duties, since 2017, more than 50 regulators have been subject to the “Growth Duty” which compels them to “have regard to the desirability of promoting economic growth” when taking certain decisions.  In practice, this means both that regulators should consider drivers of economic growth in their decision-making and also behave in a way that supports growth by, for example, providing an efficient and consistent service to those they regulate. In 2024 the previous Government extended the scope of the “Growth Duty” to include the major sectoral regulators (Ofcom, Ofwat and Ofgem) and asked all regulators to report on their performance against the duty. The Growth Duty is not the sole policy lever that past governments have used to focus regulators’ minds on growth. Deregulation has been popular; the Coalition Government’s “One-in, Two-Out” approach to regulation and “Business Impact Target” both aimed to reduce the costs to business of regulation and “cut red tape” (the effectiveness  of the target is questionable: during the 2017-2019 parliament, the Government aimed to reduce regulatory costs when in fact they rose by £7.8bn and the target was subsequently scrapped in 2023). More recently, the previous Government’s “Smarter Regulation” framework set out a series of reforms to simplify UK regulation in areas inherited from the EU. Despite past policy efforts, the Labour Government is clearly not satisfied that policy has been effective and that regulators are doing enough to consider growth. Labour’s approach to regulating for growth is distinct. Rather than reach for new policies or frameworks, they are instead using public, political pressure on the regulators as the vehicle for change. This pressure is borne out in the Government’s continued media focus on regulators and most clearly demonstrated in the unprecedented replacement of the CMA chair, with the Department for Business and Trade explaining the change  as “a bid to boost growth and support the economy”. 

How can regulators prioritise growth? 

Regulators already act in a difficult policy environment, often having to navigate between competing and expanding priorities. Ofgem and Ofwat, for example, may have to make a policy decision that chooses between the competing objectives of investing to support environmental sustainability and keeping consumer energy and water bills low albeit these may not always be in conflict. The Government has now added extra pressure to consider growth in that decision. This problem of prioritising competing regulatory functions is exacerbated by patchy Parliamentary scrutiny accountability structures. A House of Lords Industry and Regulators Committee inquiry published in February 2024 described Parliamentary scrutiny of regulators as “reactive and piecemeal, rather than systemic and routine”. Scrutiny is too often concerned with specific decisions, rather than providing the useful challenge function of questioning how regulators prioritise between objectives and set plans. For business, it is precisely that transparency on prioritisation and long-term plans that is best for informing decision-making. What the House of Lords describes as a “growing vacuum in regulatory accountability” may leave regulators more open to the political pressure described above and eager to show immediate action on growth when exercising their regulatory functions. In turn, businesses will have to be more aware of the political environment in which the regulator is operating and aware of the risk of short-term changes. 

How will regulatory oversight change?  

While businesses may therefore be familiar with past efforts to regulate for growth, the political involvement in the current debate will present a changed regulatory landscape with new risks and opportunities to consider. Reeves’ push for regulatory change may not always succeed (for example, regulators may want to more strongly asset independence in the face of pressure) but where it does, the government’s focus on growth suggests regulators will be: 

1. Politically-aware: Regulators are, and need to be seen to be, independent. Nevertheless, the Government’s rhetoric has brought regulators into a more political environment where the extent of the arm’s length relationship will be questioned. Sponsor departments or relevant Parliamentary scrutiny committee will be increasingly alive to the need for their regulatory supervision to reflect the political growth priority and be engaging regulators accordingly – and businesses should therefore ensure that these political stakeholders are on-side and activated on key issues. 
2. Focussed on deregulation: Government views removing the barriers to doing business as the quickest way regulators can support growth. The Government has already committed to relaxing the rules on pension scheme surplus funds to increase investment and will want to hear from business about how similar administrative rules might get in the way of growth. Regulators will be open to receiving ideas about easements that have a clear economic case as to why the benefits of growth outweigh the risks of change, and this presents a distinct opportunity for business to identify specific proposals for deregulation. 
3. Considerate of economic evidence : Regulators will be more attuned to how growth should factor into decision-making and seeking an evidence base for how any positive (rather than deregulatory) action they do take can support growth. Growth Duty guidance sets out seven, non-exhaustive drivers of economic growth and regulators will welcome evidence framed around the relevant drivers. Businesses should be robust with regulators where their   proposals deliver longer-term, sustainable growth but may not appear to deliver immediate short-term gain. 
4. Collaborative: Growth is supported both through the actual decisions regulators take and how they take them. Regulators will seek greater collaboration on shared issues or emerging technologies. For example, in May 2024 the ICO and Ofcom published a joint statement on issues arising from the Online Safety Act, looking to align their engagement and action in a few core areas related to the Act. Regulators speaking with a single voice should give businesses more certainty in cross-cutting areas of regulation or on issues that currently fall between regulatory gaps.  Businesses can take advantage of that by building close, collaborative relationships through insight and support for regulatory policymaking. Business should now evaluate the key regulatory drivers for their growth, and the opportunities to develop and build the evidence base for change. Our integrated legal, policy and political capability allows us to design, advocate for and deliver policy and legislative solutions in complex regulatory environments.