The newly published National Infrastructure Plan 2010 ('NIP') has been heralded as the first ever infrastructure plan for the UK. It follows the government's pledge in the emergency Budget in June to publish a plan in autumn 2010. The NIP focuses on the UK's economic infrastructure in energy, transport, digital communications, floodwater, waste management and science, outlining the challenges facing UK infrastructure and the investment that is needed to underpin sustainable growth in the UK.
The government recognises that a significant part of the investment needed is in sectors with independent economic regulation, such as energy and water (regulated by Ofgem and Ofwat). While, generally, only networks (essentially pipes and wires) are price regulated, all investment in these regulated sectors is considered to be affected by the regulators' strategy and approach.
The government underlines its commitment to retaining the independence of the economic regulators and the consistency, certainty and credibility of the existing regime (and further credits the existing regime with supporting the delivery of significantly higher levels of investment compared to that delivered in the period prior to privatisation). It is, however, keen to review whether the existing regime remains fit to respond to the future investment challenge.
To that end, Infrastructure UK (the newly established body which sits within HM Treasury and advises government on the UK's long-term infrastructure needs) has identified a number of issues with the UK's economic regulation regime, including that:
- regulators have multiple duties (including wider environmental and social objectives) and it is not always clear how these should be balanced;
- regulators have been given insufficient clarity in relation to the long-term strategic direction of the sector by government. In turn, regulators, themselves, have given regulated companies limited clarity on the regulatory outputs against which they are required to deliver; and
- there is insufficient dialogue taking place between regulators (with regulators engaging between themselves only on a limited, informal basis).
In order to address these issues, there are a number of initiatives underway. As previously announced, a review of the roles and functions of both Ofgem and Ofwat is ongoing and should be completed by summer 2011. Another key issue is for the Department for Business, Innovation and Skills, together with Infrastructure UK, to publish a common set of principles for economic regulation by the end of 2010. The government also intends to report, by summer 2011, on whether further cross-sectoral action is required.
In parallel, the initial phase of the OFT's stock-take exercise, which is mapping ownership and control across the UK economic infrastructure sectors, is ongoing and is due to be completed shortly (autumn 2010).
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