Post Office is a vital service and is not to be messed about with

Ofcom’s director of strategy, Ian Strawthorne, said they were “doing some thinking about how the Universal Service Obligation needs to evolve to meet changing consumer needs”. A former strategy director for Royal Mail was specific about the kind of changes they are lobbying for.

“The company has to adapt,” he vouchsafed. “In the Highlands and Islands, it costs a lot to deliver to them every day. You could set up a hub where people could collect their post, say three or four times (a week). You could even pay them to do it and everyone would be better off.”

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I’m sure that bold idea, if introduced, would not stop at the Highland Line or the Minch. Along with reducing deliveries in general to five days a week, it is one of the key demands from a profits-hungry company which was privatised against public wishes by he who is now Lord Cameron of Chipping Barnet, in full awareness of the Universal Service Obligation (USO).

Apart from obvious concerns about the dilution of another public service, the role of Ofcom, as regulator, is interesting. Major changes to the USO would represent a highly political hot potato which should not be sub-contracted by ministers to any third party. Yet increasingly, difficult political decisions are made by that route – ie “that is a matter for the regulator”.

In its origins, regulation was offered as a sop in the Thatcher days to privatisation of utilities, supposedly as protection for the consumer. Since then, it has grown arms and legs so that in a whole range of contexts, regulators like Ofcom, Ofgem and Ofwat (in England) make policies which have far-reaching implications beyond the normal understanding of consumer protection.

When Labour came into government in 1997, there was little appetite and even less money for wholesale renationalisation of utilities. Instead, strengthening the powers of regulators to drive the competition and enhance consumer interests became part of the “third way” which, in turn, developed into a convenient means of sub-contracting responsibility.

It sounded fine in theory but depended entirely on the balance of relationships between elected governments and unelected regulators. Over the years, that has continued to move in the wrong direction, away from accountability. Yet huge areas of strategic national interest are involved and should not be entrusted to economic theorists.

The regulation of the energy market was problematic (Image: PA)

I had early experience of how this carried danger when, as Energy Minister, I inherited the newly-minted Ofgem which brought together gas and electricity regulators into a single entity. From the outset, Ofgem was determined to assert its independence from government which had been built into the legislation. Its chief executive took a very ideological view of how the consumer was best served by competition, the more intense the better. In the short term, this drove down the cost of energy, forced “inefficiencies” out of the market and created a plethora of companies anxious to sell exactly the same product to consumers through a bewildering range of marketing devices.

That gave me early warning of the difficulty which arises when the regulator is more ideological than the politicians. It also served notice of how a regulator, while anxious to demonstrate independence from government, may feel less inhibition about being very close to the industry it is regulating. All of that has long-term consequences for policy making, in areas for which ministers should take responsibility.

In the case of Ofgem, I would argue that over the past 20 years, its short-termism and interpretation of consumer interest have contributed significantly to failures in the energy market which have come home to roost in recent times. One of these has been the failure to invest in infrastructure needed to support a transition to renewable generation - a major obligation of government by any standard.

Throughout that period, I witnessed an example of that in the Western Isles where Ofgem repeatedly refused to authorise construction of an interconnector with the mainland to allow renewable power to feed into the national grid. This was on grounds that the investment could not be justified until there was proven demand.

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In former times, such a decision would have been taken politically and strategically, with regard to social and economic factors as well as long-term energy transition. If Ofgem had been around, by its own narrow criteria, Scotland’s hydro electric schemes would never have been built. The fact we are now involved in a massive, unplanned race against time to “re-wire Britain” is a product of political decisiveness having been replaced by regulatory dogma, which also controls pricing structures.

The successful campaign led by Strathclyde Regional Council in the 1990s spared Scotland from the folly of water privatisation. However, we do not have to travel far to witness how Ofwat failed to secure the investment required to prevent sewage discharges on an industrial scale while company profits soared. In areas like the south-west of England, voters cannot hold the regulator to account but they can certainly punish the politicians.

Regulation as an instrument of government is not going to disappear but the lines need to be redrawn according to the guiding principle that regulation should be the servant of policy rather than its master.

Where better to start with the unambiguous adoption of that principle than the Royal Mail? If ministers want to accommodate the financial interests of the people to whom they sold that great public service, then let them have the political courage to say so. Just do not try to hide behind regulators for whom nobody voted.

Brian Wilson is a former Labour Party MP and Energy Minister