Thursday, February 28, 2013

Scotland - Thoughts in response to the proposals by the Scottish government for post-independence regulatory structures

The Scottish Government has launched a document [green paper?] on Economic and Competition Regulation in an Independent Scotland. It suggests that the small size of Scotland and economies of scope justify either a combined single competition authority and all-sector regulator or a competition authority and an all-sector regulator. All sectors here exclude broadcasting and financial services, to be considered separately.

Such radical changes in the short period from October 2014 to March 2016 seem to increase the risks in the transition towards separate Scottish markets for telecoms, post, electricity, gas and rail.

In theory the structure of the competition authority and regulatory bodies in a (potentially) independent Scotland offers a wide range of options. There are all sorts of examples from other countries that might be copied and many which must be avoided.

In reality there are severe constraints.

The Openreach agreement between BT and OFCOM was made under competition law powers and, unless someone wants to open a can of unpleasant and complex worms, it is something an independent Scotland would be stuck with for several years. Thus a future Scottish telecoms regulator must have competition law powers, either in the same mould as OFCOM with sector competition law powers or a combined competition authority and telecommunications regulator. Therefore the proposal of a separate competition authority and multi-sector regulator appears to be unworkable in the medium-term.

The EU acquis communitaire requires (this is non-negotiable, it was settled years ago) that there must be a designated regulator and that it must be independent and subject to a national system of appeals. In effect, that means it must be Scottish, it cannot be outsourced to the English, the Irish, the Indians or whoever is cheapest.

Integration of regulators sounds like it might save money. However, if a body covered competition, telecoms, broadcasting, energy, rail and posts, it would have to have to work with policy directions from a number of government departments and with a number of parliamentary oversight committees. Moreover, it would have to participate in one European regulatory network for each of these topics. Thus it would need to have a figurehead (e.g., commissioner) for each of these functions.

Any changes from the present UK regulatory model would be viewed with suspicion by operators, trying to work out if they would be better off or worse off. Uncertainty in this would be likely to have a chilling effect on investment.

For example, moving to an integrated competition/telecoms regulator suggests that all problems are seen as competition law, rather than regulation. That would change quite significantly the expectation of the outcomes of regulatory processes.

Especially given the very rapid timescale, from a referendum in October 2014 to independence in March 2016, with an intervening UK general election, the simplest option would be roll-over UK laws, replicate the UK institutions, with new names to avoid confusion, waiting to conduct reviews after a couple of years.

It is proposed to replicate in Scotland the Competition Appeal Tribunal or take cases directly to the Court of Session. The former seems much the better option.

There is an entirely different set of considerations about how to improve structures and processes should the referendum conclude that Scotland remains in the UK for the foreseeable future.

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