Government Companies as Regulators
| DOI | http://doi.org/10.1111/1468-2230.12414 |
| Author | Terence Daintith |
| Date | 01 May 2019 |
| Published date | 01 May 2019 |
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Modern Law Review
DOI: 10.1111/1468-2230.12414
Government Companies as Regulators
Terence Daintith∗
In 2016 the government established a new sectoral regulator, with power to grant and withdraw
licences, set performance standards, and impose sanctions, not as a statutory authority but in
the form of a company wholly owned by the Secretary of State: the Oil and Gas Author-
ity. This article critically examines this and other uses in the UK of government-owned or
- controlled companies to discharge public regulatory functions, against the background of
current government practice regarding arm’s length public bodies in general and government
companies in particular. It assesses the acceptability of the company form by reference to criteria
of democratic control, independence and accountability of regulatory institutions.
INTRODUCTION: A NEW SECTORAL REGULATOR
In 2014 the UK Government decided that to achieve the highest possible
production from the remaining oil and gas deposits on the United Kingdom
Continental Shelf it needed a new strategy for the sector, involving extensive
additional powers of control over companies operating there, and a new, more
expert and better-resourced arm’s length regulatorto replace the existing system
of Departmental administration.1These ideas were supported by the offshore
oil industry itself and were enacted by the Infrastructure Act 2015 – which
incorporated the principles of the new strategy into the Petroleum Act 19982
– and the Energy Act 2016, which conferred extensive new powers to develop
and enforce the strategy on the new regulator and licensing authority, the Oil
and Gas Authority (OGA).3
OGA was of course not the first sectoral regulator to have been established in
recent years. The Thatcher government’s programme of privatisation of public
utilities produced a number of specialist independent regulators each charged
with the task of controlling the privately-owned monopolies issuing from the
programme. One might have expected the new Authority to be structured, like
∗Professorial Fellow, Institute of Advanced Legal Studies, University of London. I am indebted to
Professor Tony Prosser, and Russell Richardson, General Counsel and Company Secretary, Oil and
Gas Authority, who read an early draft of this article in draft and offered valuable comments; to
Simon Toole, Advisor, Oil and Gas Authority, and officials in the Treasury, Cabinet Office, and the
Department of Business, Energy and Industrial Strategy, who provided essential information; and to
two anonymous reviewers for their helpful suggestions. Responsibility for the text, and any errors it
may contain, remains entirely my own.
1 These were the recommendations of a report it had commissioned from Sir Ian Wood, head of
a major offshore contracting firm: I. Wood, UKCS Maximising Economic Recovery Review: Final
Report (24 February 2014).
2 Petroleum Act 1998, ss 9A-9I.
3 EnergyAct 2016, parts 1 and 2.
C2019 The Authors. The Modern Law Review C2019 The Moder n LawReview Limited. (2019)82(3) MLR 397–424
Published by JohnWiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 101 Station Landing, Medford, MA 02155, USA
Government Companies as Regulators
these regulators, as a statutory authority, constituted by the relevant legislation
and with powers drawn directly from it.4Instead, the government chose to
constitute OGA as a company, with the Secretary of State as sole shareholder.
It was to this company, incorporated in July 2015, that the Energy Act gave new
powers, and transferred existing powers, which arguably give it more control
over its industry than any other UK regulator.5
Anyone who thinks of a company as quintessentially a legal vehicle for
commercial activities may be surprised to find it pressed into service as a
means of regulating such activities in pursuance of public policy. Members of
Parliament were surprised: in the course of an otherwise smooth passage of the
oil and gas sections of the Energy Act, it was remarked that OGA, as a company
limited by shares, was ‘quite an anomaly in the world of regulators,’ and the
Minister was asked why this form had been chosen.6The Minister’s reply,
pointing to the existence of other regulators having the form of companies,7
suggests that there are issues of regulatory design here that go beyond the
specific circumstances attending the creation of the OGA.
Can it be appropriate to use the procedures of incorporation under the
Companies Acts to create regulatory institutions? And can the disciplines of
the Companies Acts, designed as they are to balance the interests of share-
holders, managers and creditors, be appropriate to structure a quite different
set of relationships, those between government, the regulator, and regulated
enterprises?
We can frame these issues in terms of the regulatory literature by asking
whether a regulatory scheme with a company at its centre can satisfy regulatory
desiderata such as those of legislative mandate, independence, accountability,
due process, expertise and efficiency.8The Organisation for Economic Co-
operation and Development, in propounding in 2014 seven principles for the
governance of regulators,9did not consider whether the application of these
principles might be affected by the legal form of the regulator. It made no
specific mention of company-form regulators, though it did seem to assume
that free-standing regulators, not forming part of a Department or a public
service delivery organisation, would have their own ‘statutory foundation.’10
Act 1993. For the background institutional history,see T. Prosser,Law and the Regulators (Oxford:
Clarendon Press, 1997) ch 2.
5 See Energy Act 2016, ss 1, 2 and Sched 1, and the Petroleum (Transferof Functions) Regulations
2016, SI 2016/898.
6 House of Commons, Public Bill Committee – Energy Bill, 26 January 2016, cols 4-5 (Mr
Whitehead).
7 House of Commons, Public Bill Committee – Energy Bill, 26 January 2016, cols 4-5 (Minister
of State, Department of Energy and Climate Change).
8 See R. Baldwin, M. Cave and M. Lodge, Understanding Regulation: Theory, Strategy and Practice
(Oxford: OUP, 2nd ed, 2011) ch 3.
9 These were role clarity; preventing undue influence and maintaining trust; decision-making and
governing body structure; accountability and transparency; engagement; funding; and perfor-
mance evaluation: OECD, The Governance of Regulators (Paris: OECD Publishing, 2014).
10 ibid, 18, 55; see also at 47, citing the UK Better Regulation Taskforce’s definition of an indepen-
dent regulator: ‘A body which has been established by Act of Parliament, but which operates at
arm’s length from government . . . ’.
398 C2019 The Authors. The Modern Law Review C2019 The Moder n LawReview Limited.
(2019) 82(3) MLR 397–424
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