Tory MP wants competitive utility markets

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A senior Conservative MP has this week launched a major policy intervention, suggesting radical changes to the utilities regulators.

John Penrose

Penrose had a state-funded education and held positions at J P Morgan, McKinsey, Thompson publishing and Pearson PLC before moving into politics

The document was released on Monday, suggesting that draconian utility regulators like Ofgem and Ofcom should have their responsibilities for the competitive sections of the market taken away.

This should be replaced with a more reactive style of regulation, by the Office of Fair Trading (OFT) and the Competition Commission, which are about to be merged into the Competition & Markets Authority.

This approach works well in other utilities and things we need every day, Penrose claims, such as television, clothes and food.

Penrose says that he high prices and poor service for which utilities are infamous in the UK, is not caused by the fact that they all used to be state-run bureaucracies. It is more to do with the regulation of those industries in an ‘ex ante’ manner.

The Big Regulator model is more expensive, creates slow-moving firms that are less customer-focused, takes economically inefficient and inaccurate decisions and is more prone to capture and lobbying by producers or consumer groups

‘Ex ante’ (‘before the event’) regulation means the rules are laid down in advance, and companies are told how they should behave and perform, rather than being given free reign to do their own thing, allowing market forces to drive customer service up and prices down in a truly competitive market.

The suggestion is that ‘ex ante’ regulators have their powers over the competitive parts of their markets over to the OFT and the Competition Commission.

This will facilitate an ‘ex post’ (after the fact) style of regulation, in which the powers that be can deal with any problems brought to them by the consumer. Penrose calls this the ‘Big Consumer’ model, as opposed to the ‘Big Regulator’ one that controls utilities at the moment.

Penrose said “These ideas could either be picked up by coalition Government Ministers, or they could form part of any Party Manifesto for the next election”

More: Former Minister launches utility market reform proposals – | We Deserve Better – Full Document