Challenges at the cutting edge

OECD Observer

Regulatory reform, like housework, is usually only noticed when left undone. However, the OECD recently gave the UK government a glowing report on its orderly house.*

According to the report, the UK’s economic turnaround of the last two decades is owed at least in part to its pioneering regulatory reforms, especially those changes that increased competition and strengthened the business sector. The result is today’s flexible labour market with unemployment that is among the lowest in the OECD, a world-class financial services sector, and investment flows that are among the highest in the world.

But some areas still need polishing. According to the OECD, privatisation of the railways went off track partially because of muddled regulation that impeded much-needed investment, and the automotive industry is still the source of considerable trade tensions.

Efforts continue

The Regulatory Reform Act of 2001, for example, addresses the lack of legislative capacity in the UK Parliament, seen as a barrier to changing inefficient laws on the books. Proposed reforms include modernising and simplifying procedures for renewal of business leases, or improving grants and loans arrangements for renewal of private sector housing. It also proposes relaxing the strict rules on closing time for pubs.

The UK has set the European standard for privatisation in the last two decades, particularly in opening up its electricity and gas sectors, and set the pace for reforming the telecoms sector. By privatising British Telecommunications (BT) in 1984, a number of new providers emerged, innovating the market place. But local access services are still dominated by BT. So, while Britain is a fast growing broadband market, it has taken time to get up to speed.

Competition reform has cured several of the market’s ills, but whether it can deal with the UK’s lagging productivity is another question. The 1998 Competition Act is already being supplemented by further reforms, principally to strengthen the institutions that apply the law and the sanctions for infringing it.

The OECD review team commends the government’s use of voluntary codes and agreements, though warns that the UK now faces more complex, “second-generation” issues with brand new challenges at the cutting edge.

*OECD (2002), UK Regulatory Reform, Challenges at the Cutting Edge, can be ordered online at or by using the order form. Visit

©OECD Observer No 235, December 2002

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