Report

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

Think tank: Social Market Foundation

Author(s): Stuart Hudson

December 16, 2024

This report from UK think tank the Social Market Foundation explores whether there is a trade-off and, if so, how the tensions can be resolved.

Some business leaders fear competition policy and regulation are jeopardising the government’s economic growth mission. Former CMA Strategy Director and Downing Street Special Adviser Stuart Hudson explores whether there is a trade-off and, if so, how the tensions can be resolved.

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.

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.

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.