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Ewan Sutherland: Regulation and Devolution

The Smith Commission is examining devolution of further powers to the Scottish Parliament, beyond those of the Scotland Act 2012. One topic it needs to consider is coordination between a devolved government and the United Kingdom and Scottish regulatory authorities, especially where these relate to economic growth.

An issue which has largely been ignored in previous discussions is how to combine the asymmetric devolution with the regulatory state. There have been parallel but different developments over recent decades of assemblies in Belfast, Cardiff and Edinburgh, and of independent authorities that regulate competition and markets, and a variety of sectors. These now need to be aligned and combined, with proper systems for oversight and review, a task of no small complexity. The mechanisms also need to comply with commitments on open government, open data and better regulation.

The rise of the regulatory state

The House of Lords reported on the rise of the regulatory state, with important distinctions between:

·         Policy, made by ministers, parliaments and assemblies;

·         Regulation, undertaken by independent authorities, using techno-economic tools, subject to appeals on all decisions and oversight by parliament; and

·         Provision by regulated commercial firms.

The principal bodies regulating United Kingdom markets include:

·         Advertising Standards Authority (ASA);

·         Competition and Markets Authority (CMA);

·         Gambling Commission;

·         Office of Communications (OFCOM); and

·         Office of Gas and Electricity Markets (OFGEM).

They are embedded in global and, especially, European Union networks with their counterparts, with whom they share in the development of best practice. They also work with a number of bodies in the four nations, such as consumer groups and providers of alternative dispute resolution (ADR). Consequently, it is sometimes difficult to pin down where particular measures originated and who should be held accountable.

Self-evidently, a regulatory authority cannot be responsible to more than one parliament for the same functions. It would be unreasonable and irrational to ask regulators to respond to conflicting political directions, those must be resolved at a “higher” level.

The only existing mechanism for such policy coordination is the Joint Ministerial Committee (JMC), in which Belfast, Cardiff, Edinburgh and London are represented. However, the operation of the JMCs has been kept well hidden. To be democratic and transparent, their papers and minutes would need to be published and ministers would need to be held accountable to their respective parliaments. Ideally, JMC meetings should be webcast, but that might be asking too much in the first instance. It would also be important to involve local authorities and communities, businesses and the voluntary sector.

One possibility would be for the JMC to hold a public consultation on draft directions it proposed to give to a regulatory authority.

Approximation to independence

Sinn Fein has called for telecommunications to be devolved to the Northern Ireland Assembly.

This raises the question of the benefits to be gained by moving sector regulation to the four nations, against the costs of replicating regulatory authorities and splitting the single United Kingdom market. Given that most political parties are signed up to the completion of the European Union single market, further divisions might appear counter-productive.

The question is one of evaluating the costs of achieving the political requirements (e.g., boosting rural provision) using the existing United Kingdom toolkit (e.g., using licensing conditions and state aid) as against splitting the markets. There is the complication of having to remain compliant with the European Union directives, which requires any devolved regulatory regime to be quite complex and, consequently, to incur considerable initial costs.

Problems of complexity

Water regulation has been devolved to the Northern Ireland Assembly and the Scottish Parliament, which together with England and Wales means three complex systems of ownership, economic and water quality regulation. On initial examination it looks overly complex and expensive, yet there is no mechanism to review the systems to determine whether they might be made more effective, for example, by sharing certain functions.

The United Kingdom might ask the OECD to conduct a peer review, which could examine the effectiveness of regulation of one or all economic sectors. Alternatively, it could create a ‘federal’ body similar to the Australian Productivity Commission to conduct such reviews.

The Scottish Government argued that it wanted to retain state ownership of the Royal Mail. Given European Union directives on mail and parcel services, and regulation by OFCOM, the benefits of state ownership would be ideological, the retention of any profits and the ability to direct it to undertake specific services. Whether these outweigh the costs of splitting the United Kingdom single market and the associated system of prices, would require careful evaluation. It would also be necessary to comply with Art. 86 TFEU.

A different problem arises from the state aid funds provided by HM Treasury to boost broadband provision in rural areas, where markets were not forecast to deliver services. It assigned the funds to bodies that were specifically excluded from involvement in telecommunications. The money spent in England by local authorities has been reviewed by the National Audit Office and the Public Accounts Committee, while a separate audit is underway of the work of the Welsh Government. There do not appear to have been audits in Northern Ireland or Scotland.  Again, this looks messy and in need of streamlining, but lacks a single entity to oversee the process, with a means to combine sector regulation and state aid.

Public consultations

In the development of the regulatory state, the processes used by regulators have become more complex, in part because of their use of formal consultations, supported by impact assessments.

While the principal market players have learned to engage with OECD, European Union and United Kingdom institutions on policy, with individual regulatory authorities and their European Union networks on techno-economic issues, and to take appeals to the Competition Appeal Tribunal (CAT), this does not seem to be true of trade associations and non-governmental organisations in Scotland.

Capacity building may be needed to ensure that views from Scotland, from its local authorities, communities, businesses and the voluntary sector are properly heard in the consultations by the various regulators and multi-stakeholder bodies (e.g., Broadband Stakeholders Group (BSG)). It is important for those in Scotland interested in one or more of the regulated sectors to be able to see all of the processes, from local to global, and, should they wish to, express their views to MPs, MEPs, Scottish or United Kingdom governments and the European Commission and Parliament.

Part of the solution would be to create regional multi-stakeholder forums within Scotland (e.g., the islands) to bring together the various parties.

There is also a need for further research capacity in Scotland on the regulated sectors and competition policy.


The failure to integrate the regulatory and the devolved states is not easily remedied, especially as it requires coordination mechanism spanning all aspects of the United Kingdom systems and reaching out to the European Union and beyond.

The Smith Commission will need to devise mechanisms that can deliver transparency, avoiding buck passing in order to support economic growth.

Ewan Sutherland is a Research Associate at the University of Witwatersrand Link Centre, South Africa

The issues for telecommunications regulation are set out in a wider and more theoretical framework in a paper given at ECPR regulatory governance conference earlier this year.

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