The Oxford Review of Economic Policy describes regulatory capture as a form of corruption of authority that occurs when a political entity, policymaker, or regulator is co-opted to serve the commercial, ideological, or political interests of a minor constituency, such as a particular geographic area, industry, profession, or ideological group.
Over the past two decades Regulatory Capture has become so embedded within government that any reforming zeal on the part of the Labour party is likely to run into a wall of resistance. Regulatory Capture is the phenomenon whereby the industry being regulated dominates the regulator and sets the agenda in its own favour, akin to the lunatics taking over the asylum.
It has long existed in some measure; but the process of capture was given a dose of steroids in 2014 when the Conservative government introduced a new departmental code stipulating that regulators should “avoid imposing unnecessary burdens” on business and consider how regulators could best “enable economic growth”.
Clause 1 of the code states Regulators should carry out their activities in a way that supports those they regulate to comply and grow. Every regulator now has to abide by a government-mandated “growth duty” as defined in the Deregulation Act 2015.
CUE ABUSE
Whatever the good intentions of the code it was inevitable that industries and their lobbyists would seek to exploit it. They very probably had a hand in writing the code.
The 2015 Act was “refreshed” as recently as May 2024 when the Department for Business & Trade identified fines, and the negative publicity that stems from companies breaking the rules, as particular threats to growth. Dwell on that for a moment and think about the water companies.
There are numerous examples where the regulator plays to the tune of the regulated. Take energy, for instance. The pricing mechanism used by Ofgem is designed to protect the energy companies far more than it is to help the consumer.
In the house building industry important new building standards have repeatedly been postponed for no reason other than the building industry did not like the extra cost burden. Never mind what the standards were intended to achieve or cumulative cost to the nation of non-implementation.
The Environment tends to be a major casualty of regulatory capture. Within Defra – the ministry that funds the Environment Agency (EA) – the balance of power is tilted firmly towards agriculture and seemingly towards the agro-chemicals lobby.
The neoliberal dream of unfettered markets and light touch regulation, as promoted by Blair, Brown, Cameron and Truss, would appear to be doing as much harm as it ever did good.