Regulatory Reform in Britain

Regulatory reform in Britain John Kay and John Vickers Major sectors of the British economy are currently undergoing far-reaching regulatory reform. Deregulation (removal of barriers to competition) and the introduction of new methods of regulation are occurring, notably in financial services, some of the professions, and in utility industries, such as telecommunications, gas and electricity. This paper gives an economic assessment of these developments. The authors examine the root causes of market failure that call for regulation–externalities, monopoly, and information problems – and the pros and cons of various regulatory responses. A broad distinction is drawn between structural regulation – the determination of which firms or types of firms can engage in which activities – and conduct regulation – the control of how firms behave in their chosen activities. Recent examples of deregulation plus re-regulation in Britain are seen in part as a shift from structural to conduct regulation. The relative merits of the two modes of regulation are complex to assess, but it is argued that some recent regulatory reforms are placing undue reliance on conduct regulation. As well as assessing individual industries, the authors draw general conclusions about the desirability of regulatory solutions that make full use of market forces.