Response to the Consultation on Growth Duty

Economists warn new definition of ‘growth’ could derail economic renewal

• Essential that GDP per capita becomes the core element of the ‘growth duty’ for regulators, the Growth Commission has said.
• Government is seeking to redefine elements of ‘growth’ as part of a review into the growth duty which regulators are currently subject to.
• Changes to the terminology, such as including environmental objectives, could undermine efforts to achieve economic growth at a time when it remains poor.
• Introduction of secondary objectives could also invite spurious legal challenges, stretching regulator resources.

GDP per capita measurement must remain the clear objective for regulators in meeting their duty to support economic growth, the Growth Commission has urged.

Responding to a recent Government consultation which seeks to modify the definitions of the term ‘growth’ in the context of the growth duty currently on regulators, the Growth Commission has warned that any confusion of the terminology which moves away from GDP per capita growth as its core metric, would adversely affect the ability of regulators to meaningfully carry out their duties to consider the impacts on economic growth.
The Government’s recommended changes to the definitions currently suggest conflating economic growth with ‘sustainable growth’. This would mean regulators such as Ofwat, Ofcom and Ofgem, which often already struggle to balance their objectives to support economic growth with their regulatory activities, would have the additional duty to demonstrate their alignment with environmentally sustainable objectives. This would further dilute their ability to consider economic growth effectively in their decision-making, at a time when UK growth remains sluggish and economic growth is already hampered by very high levels of regulation. The Growth Commission’s response instead suggests that environmental objectives can be better pursued using other methods.

The introduction of new and overly subjective but statutory duties relating to sustainable growth would also risk opening the door to spurious legal challenges against regulators on the grounds of the environmental impact of their decisions and activity. Similar cases attempting to overturn Government policy in the courts have already been brought in relation to statutory environmental targets. Challenging these potential cases risks a new drain on public finances when they are already under strain, further stretching the resources of regulators and would distract them from their primary role of regulating in an effective way to support good business activity and economic growth.

Comments

Shanker Singham Co-Chairman of the Growth Commission said:
“Regulators should have a clear responsibility to consider the impact of their actions on economic growth as defined by impact on GDP per capita. It is possible to pursue GDP per capita growth as a duty or responsibility, and to pursue environmental objectives separately, but not to pursue both in the same “growth duty”. Though a worthy cause, conflating the Government’s environmental objectives with economic objectives of regulator activity, will lead to confusion, and could lead to decisions that damage both economic growth and environmental sustainability. It is certainly a step forward to require regulators to consider the impact of their actions on GDP per capita (which we argue is what economic growth means) but there is great danger in falsely conflating environmental and economic growth objectives which can be in tension.”

Notes to Editors

• Government Consultation on Growth Duty Statutory Guidance [Link]
• Government Press Release on Growth Duty [Link]
• The Growth Commission’s Growth Duty Consultation Response [Link]
• What is the Growth Duty?: “Section 108 of the Deregulation Act 2015 establishes that any person exercising a regulatory function must have regard to the desirability of promoting economic growth (the “Growth Duty”). In performing this duty, regulators must consider the importance for the promotion of economic growth of exercising the regulatory function in a way which ensures that regulatory action is taken only when it is needed, and any action taken is proportionate. It applies whenever regulators exercise their specified regulatory functions, from the setting of policy to the individual actions of officers.”
• The Growth Commission’s alternative measurements suggested in the Consultation: The Growth Commission’s economic models show that GDP per capita is increased when trade is open, markets are competitive and property rights are protected. Regulators should consider the impact of their regulation on these areas only in interpreting the growth duty. Regulators already have many other prudential and environmental objectives, but the cost of these cannot be properly evaluated unless the Growth Duty is narrowly circumscribed along the lines of open trade, competitive markets and protected property rights.
• The Growth Commission [Link]: The Growth Commission investigates how low-growth economies can be transformed into high-growth economies. We look at impacts on growth of various factors, including demographics, size of government, tax rates, market distortions, trade policy, competition policy, housing policy and other factors