Prof. John Muellbauer has recently shown that the regulatory wedge in the UK between house prices and the construction cost of new homes is currently at the highest level of the period covered by his data, and the highest in the G7.
Letters and Notes
The Australian state of Victoria will be implementing a new water pricing framework for the
next regulatory price review in 2018. The framework will apply to 16 of the State’s urban
water businesses and Southern Rural Water.
In May 2016, the Essential Services Commission (ESC), Victoria’s economic regulator,
released a position paper setting out a proposed, new pricing approach and invited
submissions on its proposal.3 Based on feedback received through this consultation process,
the ESC released a final report in October 2016 that sets out the water pricing framework and
approach that is to be implemented from 2018.4
Privatisation and untoward consequences in water services: the regulator’s role
Utilities were privatised:-
to enable them to finance investment outside public expenditure controls,
to improve choice for customers through greater competition, and
to harness private enterprise to increase efficiency through incentive regulation.
A regulator (Ofwat) was appointed, independent of Ministers, with statutory duties to secure
that regulated companies carry out their legal duties, and can finance them, and to protect
customers from abuse of monopoly power.
The Office of Fair Trading’s (OFT) 14 March 2014 report on higher education found that England’s higher education sector is largely “working well”, but it scratched at the surface of the problems that are facing the higher education market.
The OFT launched a call for evidence in October 2013 to examine whether students are able to make informed choices as a driver for competition in higher education; whether students are treated fairly; whether there was any evidence of anti-competitive behaviour between higher education institutions; and whether the regulatory environment protects students and facilitates entry, innovation and managed exit by higher education institutions.
In his thought provoking note Applying behavioural economics at the Regulatory Conduct
Authority, 2 Stephen Littlechild has drawn attention to an important set of questions about the
use of behavioural economics in regulation. The Regulatory Conduct Authority of the paper’s
title is an imaginary agency that made a brief, Brigadoon-like appearance on 1 April 2014. Its
hypothetical purpose is to make use of behavioural economics in regulating other regulators.
At the 2013 Beesley Lecture on climate change policy, David Kennedy, Chief Executive of
the Climate Change Commission (CCC), discussed the role of the Commission in providing
support for promising but not-yet-economic technologies. The last CCC budget report identified these technologies as: wind power (especially off-shore wind), tidal range, geothermal, solar and potentially CCS (carbon capture and storage). As described by David Kennedy, current CCC and government policy is to provide support for
these technologies until they can float off into commercial operation without government
support. But, what happens if they don’t successfully graduate? Who will pull the plug? When,
how and on what basis?
The extent to which firms face price-elastic demands for their products is important in the application of competition law and in judgments made as to whether they have significant market power. In the context of the airport industry1, assessing price-elasticities is complicated by the fact that one major type of consumer of airport services, the air passenger, is not charged directly for use of terminals and airside infrastructure2. Instead, the airport derives its revenues from charges to airlines and from the supply of non-aeronautical services. The charges to airlines then become one of many input costs that the airlines recoup from passenger fares, and this intermediation has significant implications for the demand analysis.
At the final Beesley lecture of this year’s series, on reducing the costs of lowering carbon emissions, an old chestnut of an economic argument was raised, to the effect that UK shale gas production, even if it starts to happen in the relatively near future, “will not affect UK prices for many years to come because it will not be marginal supply for a long time yet.”
The context here is an interesting one: the main thesis of the lecture was that current policies of providing subsidies to favoured technologies had foreclosing or excluding effect on alternative approaches to decarbonisation, and that part of the exclusionary effect occurred by way of attempts to prevent the development of lines of analysis and reasoning that threatened the privileged policy narratives.
The Energy Bill, currently on its passage through Parliament following its inclusion in the Queen’s Speech, proposes a number of important changes to the UK energy market. Although the Bill contains several elements, its focus, notwithstanding its title, is on electricity rather than on other parts of the energy market. Within this narrower purview, electricity market reform (EMR) takes centre stage. In its introduction to this part of the Bill the Department of Energy and Climate Change (DECC) explains that the reforms are being put in place to attract £110 billion of investment which it claims is needed to replace generating capacity and upgrade the grid. Two key elements of EMR are the introduction of a system of contracts to support new nuclear and other lower carbon generation (the so-called contracts for differences, CfDs) and the development of a ‘Capacity Market’.2 It is with this latter element, the Capacity Market, that this paper is concerned.
Capture is an ever present risk to the benefits of independent sectoral regulation. The primary mode of capture may shift over time. Political ‘capture’, or undue influence, is a key current threat.
Conventionally, ‘capture’ is the tendency for regulators to take decisions that are biased in favour of the interests of the industry they regulate rather than the customers or wider society on whose behalf they regulate.