The government should widen the utility regulators’ toolkit beyond price controls, the CBI has told Rishi Sunak.
In its submission to the chancellor of the exchequer ahead of the Budget on 3 March, the business body says the use of price controls “can lead to underinvestment and may not deliver price stability for consumers in the longer term”.
It adds: “To deliver the transformative investment required, regulators must explore better alternatives in achieving desired long-term infrastructure needs.
“The current regulatory system has also focused too much on short-term price outcomes for consumers rather than the quality of outcomes and long-term investment. Evidence shows that regulatory actions focused on the short-term can result in underinvestment and negative consumer outcomes, for example the energy price cap.”
The submission says the government should launch a call for evidence on how these tools can be broadened.
The CBI also calls for the National Infrastructure Commission to be given a new role to oversee the performance of the economic regulators, like Ofgem and Ofwat, in delivering strategic goals for the UK economy including the transition to net zero.
It says: “No single department or parliamentary body currently has holistic oversight of the UK’s economic regulators which creates a disjointed regulatory landscape for firms to navigate.”
It says that the economic regulators must have a “clear remit” to support net zero, innovation and levelling up the performance of regional economies.
In its submission, the CBI also urges the government to introduce a variant of the Contracts for Difference (CfD) auction to incentivise hydrogen production.
It suggests that payments through the auction process would comprise two elements: one that varies depending on the cost of producing hydrogen and another that is fixed to cover capital expenditure.
In the auctions, the CBI proposes different pots for green hydrogen, produced using electrolysis and blue hydrogen, which is derived from natural gas.
The CBI urges ministers to ensure the successful delivery of the Green Homes Grant low carbon homes scheme, which is currently bedevilled by delays, by making it easier for small businesses to access the scheme effectively.
Allied to this, the submission calls for clarity on the next steps for its programmes to decarbonise public buildings and social housing.
And it calls on the government to publish a “comprehensive” strategy for rolling out its plans for national charging infrastructure for electric vehicles and extending the 0 per cent company car tax rate on zero-emission vehicles to loans taken out by employees.