Thursday , October 22 2020
Home / Tim Ambler /Ombudsmen yes, regulators no

Ombudsmen yes, regulators no

Summary:
“Regulator genes” suppress the structural genes that create our growth. Regulators have much the same effect on our economy. In 2017, the National Audit Office counted 90 UK regulators, costing us £4bn. p.a.  According to the NAO, “Government’s target [is £10bn.] for the reduction in regulatory costs to business over the period 2015–2020, from an estimated total of around £100 billion each year.” If anyone has seen any sign of that £10bn. do let me know.  Add the barriers to entry created by the regulators and UK competitiveness is seriously undermined.  The 2019 Nanny State Index showed the UK to be the fourth most regulated country in the EU, after three Baltic countries.  Germany, perhaps surprisingly, is the least.  Maybe that explains our relative economic performance.  All

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“Regulator genes” suppress the structural genes that create our growth. Regulators have much the same effect on our economy. In 2017, the National Audit Office counted 90 UK regulators, costing us £4bn. p.a.  According to the NAO, “Government’s target [is £10bn.] for the reduction in regulatory costs to business over the period 2015–2020, from an estimated total of around £100 billion each year.” If anyone has seen any sign of that £10bn. do let me know.  Add the barriers to entry created by the regulators and UK competitiveness is seriously undermined.  The 2019 Nanny State Index showed the UK to be the fourth most regulated country in the EU, after three Baltic countries.  Germany, perhaps surprisingly, is the least.  Maybe that explains our relative economic performance.  

All competitive markets need regulation but they do not need regulators. Consumers are protected by competition, legislation, the media and specialist reviewers such as the Consumers Association.  Also by ombudsmen but we return to that later. The UK led the way with Margaret Thatcher’s privatisations starting with British Telecom in 1984.  Regulators made sense at the time: a state monopoly could not be expected to transition to a competitive market in a single bound. Regulators were created to drive each private monopoly toward a competitive market, providing consumer safeguards, primarily on pricing. When competition was achieved, regulators were supposed to emulate Cheshire cats. Instead, they created all kinds of things to enforce and, like any organisation spending other people’s money, expand their payrolls.  

The dozen largest regulators have, since 2014, formed a trade union, UKRN, that looks for ways to justify their existence.  For example, in January 2020 they trumpeted their invention of “performance scorecards”, a supreme example of teaching grandmother to suck eggs. Businesses have known all about such matters for over 20 years and do not need regulators telling them now.  What was conspicuously absent from UKRN’s annual report was any performance scorecards for itself or its members. It did, however, note the 25% increase in fees for 2019/20 with a further 15% for the following year.  Fat cats yes, Cheshire cats no. 

It is a quis custodiet Ipsos custodes problem: no one is ensuring the regulators do what they were supposed to do, namely take their sectors toward fair competition and measurably improve value for consumers meanwhile. Instead they are loading them up with wasteful compliance and bureaucracy.  Regulators are supposed to be independent of both government and the sectors they deal with. The Cabinet Office, contrariwise, lists key regulators as being part of government: Ofgem, Ofqual, Ofsted and Ofwat are shown as non-ministerial departments whereas Ofcom and the Financial Reporting Council are “other” bodies.  The Financial Conduct Authority (FCA) is not shown at all even though it has a close relationship with HM Treasury. 

Instead, the Cabinet Office should remind the regulators of their independence and their original purpose. This means they should be funded by and report at least annually to parliament – presumably the relevant select committees of the House of Commons who might be equally surprised by the news. The precedent is the National Audit Office which reports to the Public Accounts Commission which in practice means the Public Accounts Committee. As the piper tends to call the tune, it is important that funding and reporting follow the same. The boards of all regulators except the wholly trade and professional ones. such as the General Medical Council, are appointed by ministers.  That cannot do much for their independence and should cease. 

Ombudsmen are similarly supposed to be independent of both government and the sectors they mediate. The above Cabinet Office listing includes seven, two as tribunals, one as an executive non-departmental public body and four as “other” government bodies. According to the Ombudsman Association, there are more than 20. Where a sector has both, financial services for example, their roles overlap.  In that case, the Financial Ombudsman reports to the FCA. There are two key differences: regulators are funded by levies on the businesses in the sector and/or the taxpayer whereas ombudsmen are funded by the fees charged to the companies about whom complaints are being made, assuming the complaints have enough prima facie justification to merit investigation. That puts pressure on businesses to resolve their own complaints and does not cost the taxpayer a penny. The other difference is that a competitive market needs an ombudsman whereas it should not need a regulator. 

The most expensive, and the most unnecessary, regulator is the FCA, né 2013, which cost £589M in 2018/19.  It prides itself on resolving PPI complaints but the Financial Ombudsman dealt with most of those. The body cost another £270M for the year. The FCA had 3.951 staff members, 35% being supervisory, yet most of the major work was contracted out to consultants. 

With the benefit of hindsight, it was always unrealistic to expect regulators to plan for, and commit, hara-kiri. A better solution would be to convert all regulators to ombudsmen or merge the former into the latter where both exist, as in finance, for the same sector. In some sectors, being part of an ombudsman scheme is voluntary.  Where such a scheme exists, it should be compulsory. To remove gender bias and make them more consumer friendly, maybe they should be retitled “ombuddies”. The new or merged bodies should then report progress toward competitive markets in their sectors and future strategy to the relevant Select Committee which would arrange funding and appoint board members.  

We hatched regulators 25 or so years ago; now we should despatch them. 

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Tim Ambler
Tim Ambler (born 1937) is a British organizational theorist, author and academic on the field of Marketing effectiveness. Ambler featured on Marketing's list of the 100 most powerful figures in the industry. He is cited by the Chartered Institute of Marketing as one of the top 50 marketing experts in the world

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