WHAT SHOULD REGULATORS DO?
Assuming that the industry benefits from a regulator, what should the future scope of that regulator’s obligations be?
The Government’s principles for economic regulation include accountability, focus, predictability, coherence, adaptability and efficiency. At the next level down, the Regulator’s code describes the behaviours that regulators should exhibit, and the Regulatory Enforcement and Sanctions Act requires regulators to exercise their functions without imposing or maintaining unnecessary burdens. ORR has a role to enforce safety legislation and consumer legislation (and some competition issues) on the railways.
These principles and obligations will have an impact on the future structure of regulation, by influencing what the industry needs the regulator to do and the competence and powers it will need to fulfil those requirements. They note (among other things) that “economic regulators should have clearly defined, articulated and prioritised statutory responsibilities focused on outcomes rather than specified inputs or tools”, and that regulatory frameworks should:
- “Provide a stable and objective environment enabling all those affected to anticipate the context for future decisions and to make long-term investment decisions with confidence” and:
- “Form a logical part of the Government’s broader policy context, consistent with established priorities.”
So regulators should be given clear and focused output goals derived from government policy, and have the independence to decide how to achieve those goals over an extended period to provide certainty.
CURRENT AND FUTURE DEVELOPMENTS
These principles underlying the structure of the regulator clearly involve a scope fitting with longer-term government policy. That in turn must reflect the current and developing rail industry structure. While ORR’s duties (in Section 4 of the Railways Act 1993) have developed over time with the industry, the current debates around industry structure merit a review of how the regulator will fit into any future structures.
In part, this must reflect questions raised about ORR’s recent exercise of its functions. For example, the Bowe Report called for a review of ORR’s role and responsibilities in respect of enhancements.
However, at a structural level the consideration may be most affected by the reclassification of Network Rail, potential options proposed by the Competition and Markets Authority for on-track competition (March 8 2016), and the proposals in the Shaw Report (March 16 2016), which could ultimately lead to a different delivery structure for Network Rail and perhaps licensing of concessions.
In addition, the European Union is tightening the rules for independence between parties in the Fourth Railway Package, and the ORR is taking over regulation for the whole of the UK - including in Northern Ireland and more directly with ARAF (the French Regulator) in the Channel Tunnel.
At the same time, the duties in the Railways Act (which ORR now synopsises in 22 bullet points), Crossrail Act, Channel Tunnel Rail Link Act and the Regulatory Enforcement and Sanctions Act may be due for review and consolidation, to give a tighter ORR remit.
As the Government’s principles for regulation notes in respect of ‘focus’: “It is therefore essential that the regulator’s priorities are clear. To provide clarity of objectives for the regulator and to help monitor the regulator’s performance, regulators in many sectors have been given a single overarching primary duty, typically to promote the interests of consumers.
“In a complex sector with varying objectives that can conflict, it is important that the regulator’s duties strike the right balance between setting out all relevant issues and considerations, and imposing statutory responsibilities of excessive complexity and scope.”
The Department for Transport began the process of reconsidering the needs of regulation through the launch of its Call for Evidence on Rail Regulation, issued in December 2015. At the time (pre-CMA and Shaw reports), the principal structural focus for review was the reclassification of Network Rail (and the questions in the Call for Evidence strongly focus on this change to NR).
In light of the above purposes for an economic regulator, a strong independent regulator was obviously key when government funding to a semi-private infrastructure manager (Railtrack or early Network Rail) had to be balanced with investment (output) certainty for that company and ultimately the private sector demands of franchised train operators (among others).
However, Network Rail’s reclassification arguably leads to different analyses. NR is now subject to public accounting. It is funded by government debt, not borrowing on the Regulatory Asset Base ‘credit card’. And it operates according to a Memorandum of Understanding with DfT.
