How should regulators balance competition, economic growth and other political priorities?

KEY POINTS

• The Labour government aims to achieve the highest sustained growth in the G7, recognizing the need for increased private sector investment to help deliver this. However, some business leaders express concerns that excessive regulation and competition enforcement could hinder investment.
• Economic regulation aims to address market failures such as market power, externalities and information asymmetries. Since the 1980s, successive governments have delegated much of this economic regulation to expert independent bodies.
• But economists disagree over how much intervention is needed. For example, those following Kenneth Arrow argue that more competition will drive innovation , while those following Joseph Schumpeter emphasize the incentive provided by potential monopoly profits, and there are live debates on how to strike the right balance. In recent years, governments have failed to give clear and consistent policy guidance to regulators on these issues, instead oscillating between pressuring regulators to intervene more and to deregulate. Today, Labour needs business to help drive its growth agenda, while also delivering on its manifesto pledges and seeking to maintain public trust on the economy.
• Regulators have been forced to resolve controversial policy questions without clear guidance or accountability, thereby risking public criticism and accusations of conflicts with government policy. High-profile cases like the Vodafone/3 merger and the FCA’s consumer duty highlight these tensions.
• Suggestions include clearer and more actionable strategic steers from ministers, and stronger parliamentary oversight of regulators.
• Regulators should defend their independence within set policy frameworks, maintain transparency in decision-making, avoid overcorrections, and ensure independence in individual case decisions to balance growth and competition objectives effectively.