On a point of order, Mr. Deputy Speaker. The Bill contains provisions that merit further investigation. Erskine May and Standing Orders explicitly state that public Bills to which the Standing Orders relating to private business apply are subject to certain proceedings that are additional to the normal stages in passing public Bills.
Indeed, the Speaker has defined a hybrid Bill as
"a public Bill that affects a particular private interest in a manner different from the private interests of other persons or bodies of the same category or class."
My experience on the Aircraft and Shipbuilding Industries Act 1977, when I had the pleasure of being the legal adviser to the ship repairers, showed that it was not obvious that the Bill was hybrid. It required a great deal of analysis, which must also take place in this instance. I simply draw attention to the fact that Erskine May says that if, on examination, it appears to the Public Bill Office that Standing Orders relating to private business may apply to a public Bill, it does not necessarily mean that matters will be got right first time. We therefore give notice that we wish, with the leave of the House, to have the matter examined in further detail.
I thank the hon. Gentleman for giving prior notice of his point of order. Mr. Speaker has given the matter careful consideration, but he does not find the Electricity (Miscellaneous Provisions) Bill to be hybrid in any respect. The Bill is an enabling measure that gives the Secretary of State authority to incur expenditure on British Energy, a private sector group that is engaged in nuclear generation, or to acquire a British Energy undertaking. However, it does not require her to do so. The nuclear generating industry to which the Bill applies is a specific class for the purpose of legislation. The other member of the class is British Nuclear Fuels Ltd., a wholly publicly owned company, which is not adversely affected by the provisions of the Bill.
In reaching his conclusion that the Bill is not hybrid, Mr. Speaker has examined the precedents for such Government action under the Rolls-Royce (Purchase) Act 1971, the British Leyland Act 1975 and the Port of London (Financial Assistance) Act 1980.
I beg to move, That the Bill be now read a Second time.
Before we even begin our consideration, we have a fascinating vignette in which Mr. Cash reveals himself 27 years later as the man behind Maxwell-Hyslop.
The Secretary of State came to the House on
British Energy proposed a restructuring plan to return the company to financial viability in the private sector. That was a complex deal, which required the participation of several financial stakeholders. The Government were prepared to play their part in the restructuring by providing financial support for BE's nuclear liabilities. They were prepared to underwrite BE's enhanced arrangements for decommissioning and contribute significantly to the historic spent nuclear fuel liabilities.
However, we were always conscious of the risk that BE would not be able to deliver the deal. It was therefore important that Government were alert to the alternative scenario of the possible failure of the deal and fully prepared for the company to go into administration.
In her statement, the Secretary of State made clear her intention to introduce legislation that would tackle either eventuality: successful restructuring or administration. That is the purpose of the Bill. I want to re-emphasise that throughout our dealings with British Energy our key objectives have been nuclear safety and the security of electricity supplies. It might be helpful if I explain that a little further.
I want to make a little progress.
As hon. Members will be aware, an unplanned business failure of British Energy could have jeopardised those objectives. Nuclear reactors, self-evidently, have their own special safety requirements. One cannot simply shut down a reactor and walk away if one runs out of money. For example, for as long as fuel remains inside, the cooling and safety systems must be operated, and funding is required to ensure that that is possible. Likewise, if BE stations were suddenly forced to stop generating electricity with little advance warning, there would be serious consequences for the security of electricity supplies.
The Minister will recall that as recently as early December he was saying that the energy White Paper would be published early in the new year. Will he concede that, notwithstanding the urgency of the Bill, it would be far better if we had sight of the Government's more general proposals for energy in the White Paper? Can the Minister explain why it has not been published so as to enable the debate to take place in that context?
We had this little exchange during trade and industry questions last month. I do not know why the Tories are so worried about timing—it is not as if they are going anywhere. I said that it would be published early in the new year, and it will be. We had a discussion on Report, in relation to academic institutes, about what was meant by early in the new year.
Hogmanay was late that year. The White Paper will be published at the end of February or the beginning of March—I will not put a precise date on it. Everybody with an interest in these subjects agrees that it is better to get it right than to be pinned down to a specific date. Elements of the British Energy issue also have an impact on the timetable.
There is a pretty general consensus that this contingency legislation is needed, but there has been speculation that it indicates the Government's preference for rejecting some of the performance and innovation unit's recommendations and introducing new nuclear power stations. Will the Minister confirm that the Bill is without any prejudice towards that end and that the Government recognise that such a policy would face widespread opposition?
I congratulate my hon. Friend on getting in early, but I do not recognise the validity of his comments. No such conclusion or interpretation could be extrapolated from what I am about to say.
I return to the Government's policy objective in relation to the Bill and to our dealings with British Energy. It is essential, first, to guarantee nuclear safety and, secondly, to maintain the security of electricity supplies. Failure to act as we did would have jeopardised those two objectives, which remain vital and will continue to be our priorities. As we move forward, we also need to factor in longer-term considerations, especially how to deal with those of British Energy's nuclear liabilities that already exist as a result of previous stations' operations. It is vital that they are dealt with safely and effectively, but we must consider how to do that at the least cost to the taxpayer while ensuring that electricity generation from those stations contributes as much as possible to the nation's needs. All that applies irrespective of whether the restructuring succeeds or fails.
The Minister mentioned security of supply, which is one of the two main reasons underpinning the Government's actions in this regard. Does he not accept that the Office of Gas and Electricity Markets has estimated that over-supply in the UK electricity market is about 22 per cent., which is precisely the figure that British Energy supplies to the electricity market? The security of supply issue cannot be addressed through British Energy alone and he is, at very best, taking a short-term approach in the Bill.
I shall not quibble over the hon. Gentleman's figures, but if there is 22 per cent. overcapacity and 22 per cent. is taken out, that will leave us without much margin. That seems to be a pretty fundamental arithmetic calculation. Of course, many issues relate to security of supply, but I would have thought that there is a pretty broad consensus in the House—irrespective of the history, as this is the reality—that we get about 22 per cent. of capacity from nuclear. Therefore, the idea that we can countenance its withdrawal over a short period, or even the medium term, is not viable.
I know that there are some in the House who would want all those nuclear stations to be shut down tomorrow. I strongly disagree with that view. For one thing, the sudden shutdown of a nuclear reactor is not a practical option. Reactors take many months to defuel and the infrastructure is not set up to allow all those stations to defuel their reactors at once. In practical terms, it would be many years before that process were complete.
Beside that practical point, however, there is an equally important argument on the economic rationality of such a move. Those stations more than cover the additional costs of their operation. To put it another way, continuing to run them generates surplus revenue, which can then be put towards paying for the liabilities that are already incurred and cannot now be avoided. Shutting down those stations and forgoing the financial contribution that they could make towards their liabilities would be economic madness, which is doubtless why it commends itself to the Liberal Democrats.
Secondly, it was recognised that the company would need to sell the north American part of its operations. Since the November statement, it has announced that it has successfully entered into a binding agreement to sell Bruce Power in Canada. That will be subject to a shareholder vote on
The negotiations with the various counter-parties to achieve those three outcomes are in the hands of British Energy and are clearly commercially sensitive matters for that company. The House will therefore fully understand that it would not be appropriate in the circumstances for me to be drawn further on those specific matters today.
My hon. Friend raises an interesting question. Of course, the emissions trading directive is still being negotiated, but, in its current form, it includes electricity generators from the outset of the scheme. I can certainly say today that the Government have no plans to seek an opt-out for the electricity generators.
I know that Members are interested in the wider details of the British Energy case, so I hope that that background information and progress update have been helpful. If I may, I shall discuss the specific provisions of the Bill. Perhaps I should say first that successful implementation of the restructuring plan also depends on receiving formal approval of that plan from the European Commission under the state aid rules and provisions on rescuing and restructuring firms in difficulty. We are preparing that plan, which is due to be submitted to the Commission by
Does the Minister concede that one burden placed on British Energy has been the climate change levy, which, according to some estimates, has cost the company between £80 million and £100 million? Does he agree that since the levy was designed to reduce the emission of carbon dioxide, it is complete nonsense to apply it to the nuclear industry, which does not produce it?
I do not intend to go into wider areas of energy policy. The hon. Gentleman has made his point effectively, and I am sure that it will be noted.
Given the leaks last week to the effect that the Government do not plan a new generation of nuclear generators, if British Energy goes into administration and if the Minister subsequently takes it over, will he seek to prolong the life of existing nuclear generators while the renewables programme gains momentum?
The hon. Gentleman has a genuine interest in these matters, but for as long as I have done my present job not a week has gone by in which no one has written nuclear stories saying "yes, no or maybe" about our policy. There is a preoccupation with such stories and I assure the hon. Gentleman that the stories of which he spoke fall into that category.
It is not for me to say whether the life of existing stations would be prolonged; that will be a regulatory matter at the appropriate time, which is some way down the road for all the stations in the British Energy stable. It will be open to the company to seek to prolong those stations' lives, and that will be an economic decision for the company as well as, clearly, a regulatory decision for the nuclear installations inspectorate and the Health and Safety Executive. There is nothing to preclude such an application.
That is not the subject of the Bill. As things stand, the nuclear power stations operated by British Energy have a defined life span. I was responding to the purely hypothetical question of whether it would be open to operators to apply to extend those life spans, as has happened in the past. I merely confirm that that option exists. I know of nothing that could stop it. That does not prejudge the issue in any way, and whatever else that issue may be, it is not a political issue. It has to do, above all, with technical decisions and safety, and it will be judged in those terms at the appropriate time.
I quibble with the reference made by my hon. Friend David Hamilton to millions of pounds being put towards bailing the company out. We are talking today about the precise reasons why what we are doing is being done not in the company's interest, but in the public interest.
Hon. Members are interested in the wider details of the British Energy case, but having given some general background I want to discuss the specific provisions of the Bill.
The Bill will ensure that we are properly prepared for the future in relation to British Energy. It authorises expenditure on the company generally, providing specific statutory authority for the support that we are currently giving and for measures that we may need to take in future. It ensures that we can deliver our part of the solvent restructuring deal, should it succeed. On the other hand, it ensures that we will be prepared if the deal should fail and the company go into administration.
I shall turn to the role of the Bill if the deal succeeds and solvent restructuring is achieved. As part of the deal, the Government have agreed to contribute significantly to British Energy's historic nuclear liabilities. However, British Energy will in turn pay its own way in future. That is an important principle: liabilities that arise from future operations at its stations must be paid for by the company. On top of that, British Energy will make additional contributions to its nuclear liabilities, including £275 million worth of bonds and 65 per cent. of the cash available each year. The more successful the company is, therefore, the more it will contribute.
Order. Before the Minister answers that question, it might be helpful to the House if I said that the provisions of the Bill are very tightly drawn and that we are not debating energy policy in general.
My hon. Friend Joan Ruddock knows very well that waste is the subject of ongoing research, led by the Department for Environment, Food and Rural Affairs. I do not know where British Energy stands now on dry storage. At one time, not long after I came into the House, it certainly supported dry storage, and a number of us were taken to witness the wonders of dry storage in Colorado. British Energy then got a better deal from BNFL and, suddenly, it forgot about dry storage. I do not know if it has come back to the idea of dry storage or not, but clearly the treatment of waste is an important issue. It is essential that we come up with answers, and my hon. Friend's comments on the advantages of dry storage will be noted.
From the taxpayer's point of view, it is important to emphasise that we have made sure that the more successful the company is, the more it will contribute. For this deal to work, the Government need to make a firm commitment now of the support we are prepared to give BE over future years. In order to enable the Government to give that guarantee, the Bill will remove the existing statutory ceiling on payments for nuclear liabilities under schedule 12 to the Electricity Act 1989, a ceiling that is currently set at £1 billion. Removing the limit recognises that, ultimately, the Government have overriding responsibilities for nuclear safety and environmental protection. If the company could not afford its liabilities and were to fail, the Government therefore would have to step in to ensure that they were dealt with properly.
There is not a figure because the amount is not predestined to go over any ceiling, but the existence of the current ceiling is not a natural inhibition. Therefore, we have to have room for manoeuvre in all eventualities. However, that certainly does not imply any figure.
Has the Minister been in touch with the Treasury to ensure that, if the ceiling is taken off, the amount concerned is put into the public accounts? If it is to be a liability, it should be a liability with regard to the public accounts.
The hon. Gentleman will not be surprised to hear that we are in constant touch with the Treasury on these matters.
No. I was emphasising that it is not inherent in making these changes that there is an expectation that figures will rise above their present levels. We need the flexibility to respond to eventualities; that, indeed, is the whole purpose of the Bill.
I must emphasise that, under the solvent restructuring plan that the company has presented to its creditors, we are certainly not writing a blank cheque for British Energy's nuclear liabilities. The Government have a duty to the taxpayer to ensure that there is no potential for the commitment that they would be offering to be exploited at the taxpayers' expense, nor should there be any incentive to run the company's stations in a way that might be inefficient for the country as a whole.
We understand very well the nature of the company's liabilities and we will put appropriate controls in place to safeguard taxpayers' interests and ensure that we only provide the aid necessary to ensure the safe and secure discharge of these liabilities. Changes to decommissioning plans or station operation that would materially increase the nuclear liabilities would need to be authorised by the Government in advance, working in close consultation with the regulators. The planning and contracting of the work necessary to tackle the nuclear liabilities will need to be transparent and provide value for money.
The company will be required to continue to maintain a high standard of operation of its sites and will be liable for any consequences if its actions fall short of that. The new arrangements will also ensure that, while recognising that the company must be given the space to run its stations commercially, due account is taken of the costs of decommissioning in view of taxpayers' exposure.
The Bill will also ensure that the commitment to financial support given by the Government for BE's nuclear liabilities would not cause an immediate, massive tax bill for the company; that would undermine the deal, given the company's cash position, and would be an unforeseen revenue windfall. It would be perverse for us to write out an IOU with one hand and then immediately snatch cash back from the company with the other, tipping it into insolvency.
I want to consider the role of the Bill if the restructuring deal fails. If the deal fails, we expect the board of the company to decide to put it into administration. We anticipate funding the administrator so that we are able to ensure that our key objectives of nuclear safety and security of supply are met. We have been undertaking detailed contingency plans for administration, in discussion with all the key responsible regulatory bodies. Furthermore, we have notified the Chairman of the Public Accounts Committee of the terms of the proposed indemnity that the Government would give the administrator.
BE's nuclear liabilities and the particular financial risks associated with its nuclear operations put it in a special position, and we are not aware of any credible private sector interest in acquiring BE if it were to end up in administration. The Government must thus plan for the eventuality that a private sector buyer will not be found for all the company's power stations. That is why we are preparing for the possible acquisition of BE's nuclear stations by the Government, either through acquiring the nuclear operating companies directly or through buying the assets and business of those companies.
The Bill ensures that we are prepared for either approach, giving the Government the financial authority to make such an acquisition and to finance the continued safe and secure operation of the business. Any acquisition would of course be a commercial arrangement with the administrator of the same kind that a private buyer might make; the Bill gives the Government no special powers in that regard.
My Department is in constant touch with BE, as indeed are the regulatory bodies, and I can give an absolute assurance that in any eventuality the smooth and safe running of the stations will be maintained; it will be our highest priority. However, my hon. Friend's point emphasises the need to introduce legislation and to progress it as expeditiously as possible—exactly as we are trying to do.
My focus is on what the Bill would enable in the immediate future, but I also flag up that bringing nuclear stations back into the public sector would not necessarily rule out future collaboration with the private sector in the longer term. I am sure that many hon. Members will already have noticed that the measure will repeal some old provisions relating to the original privatisation of the electricity industry. Those provisions effectively prevent the Government from acquiring shares in certain privatised electricity companies, thus preventing us from owning the BE operating companies that we want in the current circumstances.
Those provisions may have made sense at the time—to show that the Government had confidence in the privatisation process and that they did not intend to reverse it immediately afterwards. However, such provisions no longer make sense a decade later when the shape of the industry is unrecognisable compared with the immediate post-privatisation period.
The provisions apply only to the original legal entity formed by the industry restructuring, and not to other companies in the same group. That legal entity may no longer exist; even if it does so, it may no longer own its original assets. The provisions will not apply to any companies that have newly entered the electricity market. If nothing else, they are discriminatory and reflect former conditions and the imperatives of our predecessors in government. They are not an accurate reflection of the industry at present.
It is true that repealing the provisions could, in theory, permit the Government to acquire shares in certain other electricity companies where we cannot currently do so, but I stress that we have no intention of doing so in relation to other companies. So there is nothing sinister about repealing the provisions wholesale; we simply want to tidy up old, outdated provisions. Indeed, the rest of part 2 of the Electricity Act 1989, which deals with the initial restructuring, appears to be spent, so the Bill will take a power to remove it.
Hon. Members should not read anything sinister into that. The reason that we are taking that power is simply a practical matter of timing. As a principle, we want to repeal part 2, but, before we go ahead and do that, we want go through and check every provision thoroughly to see whether any of them needs to be retained in any form. We will do that in due course, but, to avoid holding up the pressing issue of dealing with British Energy, we are taking a power to repeal later on.
I have not tried to address the Government's wider energy policy, since that is not the subject of this debate, as you have pointed out, Mr. Deputy Speaker. I suspect that hon. Members may wish to extend the range of the debate, but I should like to remind them that, as has been said already, there will be a full opportunity to debate the Government's energy policy when the energy White Paper is published in a few weeks' time.
The White Paper will set out our policy on achieving energy reliability, competitive energy prices, our environmental goals and, indeed, our wider social objectives. Of course there will be a statement to the House when the White Paper is published, but I am mindful of the position of British Energy's financial creditors who are considering the restructuring deal that the company has put before them. There has been speculation about how measures to be announced in the White Paper might impact on British Energy, and I thought that it would be helpful to address that.
I should like to make it clear therefore that the energy White Paper will not contain measures that are likely, in the Government's view, to have a material impact on the financial position of British Energy. I should perhaps also emphasise that the restructuring proposals put forward by the company were not in any way predicated on future changes through the White Paper, so the statement I have just made does not affect the viability of those proposals.
British Energy has put forward its restructuring plan, and we wait to see whether it will be able to deliver it. The Government need to be able to play their part in the solvent restructuring if that succeeds, but we need to be equally prepared to act swiftly if it fails and the company goes into administration. The Bill will ensure that we are prepared for either eventuality, and I commend it to the House.
The Minister has attempted in a rather deflated way, compared with his usual parliamentary standards, to present this sow's ear of a Bill as a silk purse.
I first want to pick up on one of his final remarks: that the energy White Paper will have no financial impact on British Energy. That indicates that the Government will not produce any proposal that will assist those electricity generators that do not contribute to climate change, which is a rather remarkable admission by the Government, but we will wait to see exactly what their proposals are. If there will be no advantage in relation to climate change, the energy White Paper will certainly be a sadly missed opportunity.
The Minister cannot disguise the fact that the Bill would be rather better named, the Electricity "we do not have a clue" Bill. The Executive have come to Parliament to ask us to write them a blank cheque, so that they can spend and do whatever they like to get them out of the mess that is much of their own creation. I will ask my right hon. and hon. Friends to decline to sign that cheque, and I hope that all other hon. Members who want to defend the interests of the taxpayer and the consumer will join us.
No, I do not accept any responsibility at all. I was elected to the House in 1997, so I find it rather extraordinary that I should be expected to be responsible. Perhaps I should be responsible for things that happened in the 1920s or 1930s. Just how far back does the hon. Gentleman want me to go? Does he want me to hold him responsible for the activities of the Labour party in the 1980s and its relationship with the Campaign for Nuclear Disarmament? I remind him that the leader of his party was shadow Secretary of State for Energy at about the time that his membership of parliamentary CND somehow lapsed. The hon. Gentleman would do everyone a favour if we made this a contemporary debate rather than an examination of history. I certainly take absolutely no responsibility for the state of affairs that the Government have created.
Does the hon. Gentleman agree that, in large measure, British Energy found itself in difficulties because the pool system was ended? That happened because, when the Conservatives introduced the system, they did not structure it sufficiently well, so the generators were over-charging electricity consumers by vast amounts. The Labour Government sought to change it and introduce the new electricity trading arrangements. The Conservatives got it wrong in the first place, and the Labour Government were protecting consumers, which resulted in part of the difficulties that British Energy faced.
I usually have the utmost respect for Mr. O'Neill, who is Chairman of the Select Committee, but that is an extraordinary set of statements. I happily accept that one of the reasons that British Energy and every other generator of electricity find themselves in difficulty is that a liberalised market is delivering lower prices to consumers. That is one of the aids to assist British manufacturers in comparison to all the other difficulties that this regulating and interfering Government have put in their way. If electricity consumers are enjoying lower prices because of a liberalised market pioneered by the Conservative Government before 1997—a Government whom I did not represent but merely advised—I am happy that the Conservative party should take credit for the benefit to the wider economy.
I do not think that Mr. O'Neill can be allowed to get away with his remarks scot free. The new electricity trading arrangements were brought in with a target to reduce wholesale electricity prices by 10 per cent. The way in which they were introduced led to an overshoot, and a lowering of prices by about 40 per cent. has led British Energy to be uneconomical. That is the only reason for the mess that it is in today.
My hon. Friend has engaged the hon. Member for Ochil in his own way.
Even the Minister's rhetoric cannot disguise the scale of the personal disaster that this Bill represents. It is surprising that when the going gets tough for the Government, the Secretary of State for Trade and Industry has apparently got going. Where has she gone? Why must the Minister present this wretched brief to the House alone? It is a touching feature of the Government that in times of difficulty they conspicuously fail to rally to each others' support, and a sad irony that the identified champion of nuclear power within Labour's ranks has had to come to the House today to propose a measure that will probably sound the death-knell for the future prospects of new nuclear power generation within the private sector.
The future welfare of the Minister's 450 constituents who work at the Hunterston B power station is also at stake. It is ironic that his actions could help to deny the future success of nuclear generation in the private sector. It is also ironic that Labour's former spokesman on citizens' rights and open government is proposing a measure to the House that will obscure completely the true cost of nuclear power. As a result of the Bill, those of us who believe that nuclear power, with its costs and benefits understood, deserves its chance to compete fairly for Britain's future electricity generating capacity will have our position hopelessly undermined. The Minister's rhetoric cannot disguise the fact that the Government's management of energy policy has helped to create this shambles. Nor can he disguise the confusion in his Department that has led to this measure, which will have wretched consequences unless Parliament is prepared to do something about it.
Anyone who has followed the unfolding story of British Energy will be impressed by the consistent reporting of the panic inside the Minister's department. I am not sure whether "headless chickens" or "rabbits in the headlights" is the most appropriate description, but both serve to give a general idea of the atmosphere in which birth was given to this measure.
Let us first examine the policy framework in which the Government have made British Energy operate. I cannot find from the Labour Party a single unequivocal statement on nuclear energy for 25 years. On coming into office they confiscated £2.1 billion of the assets of the electricity industry through the windfall tax. Then in 2000 they passed a statutory instrument that uniquely rated nuclear reactors, ensuring a business rate regime that discriminated against nuclear power stations. Then they introduced that peerless instrument, the climate change levy, a bureaucratic and regulatory nightmare that discriminates against manufacturing and that they also applied to nuclear-generated electricity.
Then there is the Government's role as owners of BNFL. That company is trading technically insolvently to the tune of a billion pounds or three. So the Government's alibi that that company's commercial interests are nothing to do with them would seem somewhat below the expectation that the taxpayer might have of their accepting their responsibilities.
Can the hon. Gentleman tell me how the climate change levy could be applied to nuclear electricity, when it applies to consumption of electricity in the grid, not production?
I shall not give way to the hon. Gentleman. It is a ludicrous proposition. Perhaps the hon. Gentleman will resume his seat rather than insist on continuing with this point to his own embarrassment.
Electricity generated by carbon-free sources, of which nuclear is one, is charged to the climate change levy at the point of consumption in exactly the same way as electricity produced from any other source. If the hon. Gentleman has worked out that that discriminates against carbon-free electricity, I hope that he will give the matter a little more attention.
BNFL, the Government's own company, offered British Energy a deal that first drove it onto the rocks in September and then saw the Secretary of State come to the House on
I have not sought to stop the hon. Gentleman's flow, but what he has said is absolute rubbish. The difficulties of British Energy on the scale that we now know them to have been came to our attention as a result of it becoming clear that the deal between BNFL, a commercial entity in its own right, and British Energy would not be enough to solve British Energy's problems. What was on the table afterwards from BNFL was exactly what was on the table before. Therefore, it is an extremely unfair aspersion to cast on BNFL that it acted in any way irresponsibly in driving British Energy into the difficulties that arose.
I am grateful to the Minister for that clarification. What he has said is that the deal that BNFL is offering British Energy today is exactly the same deal as it offered British Energy in the run-up to
I want to be clear about what the hon. Gentleman has said. He used a slightly pejorative phase, saying that BNFL drove British Energy into the arms of the Government. Is he saying, on behalf of the Tory party, that BNFL had an obligation to offer British Energy a deal which would have prevented it from going into the arms of the Government, irrespective of the impact that that would have had on BNFL and, indeed, the taxpayer? If so, that is a remarkable proposition.
The Minister said that BNFL is offering British Energy precisely the same deal as before, and I just want him to tell the House that that is correct. If so, the issue does not arise. But if BNFL, as a Government-owned company, has now offered a different deal as part of the rescue package that the Government are presenting to the House in association with the Bill, that is quite a different question.
This point is not one of party dispute but of knowledge or interpretation of the facts. As I understand it, and it may benefit the House if the hon. Gentleman confirms that this is his understanding, in September we became increasingly aware of the difficulties that British Energy was having. It made several calls on BNFL, and on each occasion it upped the request for a cut in prices. When it came to what most people would have regarded as BNFL's final offer, British Energy said, "We are sorry, but we need even more." At that point BNFL said, "If we offered more, we would be putting ourselves into a difficult financial position and we would be in the arms of the Government." As I understand it—
Order. I understand that this is an important point and obviously the House is anxious to have it cleared up, but the hon. Gentleman will be seeking to catch my eye later.
BNFL is already in the Government's hands, and that is the point. I, like anyone else who is not on the Government Benches, have not been privy to the negotiations between BNFL and British Energy. The issue is whether the proposed contract between them is materially different from the one that drove British Energy on to the rocks—it was the final wave that washed it ashore—because the Government are the owner of BNFL and can influence its decisions, which have wider ramifications for the taxpayer.
Will the hon. Gentleman let me make a little progress before I give way?
The Government's rationale for their actions is accompanied by the constant refrain, which was repeated by the Minister this afternoon, that they are acting to secure the electricity supply of the United Kingdom and to ensure its safety. They have said that so often that it is even possible that they have convinced themselves that it is true—a Goebbels-like quality of self-delusion. Any examination of the issues of safety and of security of supply shows those explanations to be nonsense, but of course we heard them again this afternoon and they sound good. One should never underestimate the attraction of what sounds good for this glib and superficial Government.
British Energy has demolished the Government's explanation. In response to the legal challenge by Greenpeace and Ecotricity that the aid was unlawful, both British Energy and the Government entered a defence, and they contradicted each other. The Government said:
"The grant of the loan to British Energy was not unlawful given that it had to be granted as a matter of urgent necessity in the face of unacceptable risks to public safety and security of supply."
British Energy said:
"The claim herein for judicial review is wholly misconceived since it depends on a false hidden premise which the Claim Form does not even seek to substantiate.
The premise is that, if the S of S had not extended the Financial Assistance to BE, then the amount of electricity generated by the nuclear generating stations presently in BE's ownership would have been materially reduced and that, if the relief sought herein were granted, the amount of such electricity would be materially reduced, even perhaps through cessation of generation as a result of permanent closure of the stations. That premise is demonstrably false, irrespective of the person or persons in whose ownership and under whose control the stations are operated; and this is true not only of BE's eight nuclear generating stations but also of its non-nuclear station at Eggborough, the output from which is used to enable the output from the nuclear stations to be more profitably marketed. While the Claimants' Additional Material for Claim Form is profuse in its citation of abstract legal propositions, the Claimants appear never to have addressed their minds to the practical application of those propositions to the actual and unusual circumstances of the present case concerning, as it does, nuclear electricity generating facilities".
So there we have it: British Energy's attested opinion that the Department of Trade and Industry has never addressed its mind to the practical application of its propositions. Tempted as one might be to accept that, I give credit to DTI officials and, indeed, Ministers that that is not the case. The explanation is that the DTI's spin doctors would like us to believe that there is a danger to security of supply, but it is not true. There never has been any danger to security of supply. In administration, with a loan, in Government ownership or, indeed, in any conceivable circumstances, as the Minister repeated in detail, the stations will continue to generate electricity. Relieved of their liability, it is now accepted by the Government that power stations and their staff will continue to generate power and cash, making it nonsensical for anyone to switch them off, even this Government, with their reckless disregard for the taxpayers' interest.
There is a final nail in the coffin of the security of supply argument. We could switch off all British Energy's contribution to the grid and, on current figures, it could still supply the market on the coldest day of the year. The Minister made it clear that the margin might be a little tight, but there would still be a margin, provided by a combination of power supply through the interconnector to France, demand management and the 10 per cent. margin available by lowering voltage at peak demand. Prices would also rise, but supply would continue. As has been made clear, however, there was never a prospect of Britain being in that dramatic position. The Secretary of State even contributed to rubbishing her own explanation by saying in her statement:
"but whatever happens, nuclear power stations will continue to generate electricity and will continue to employ staff."
So if it is economic madness, as the Minister told us, why has it been the basis of the explanation for the Government's actions?
Let us consider the safety case. Is anyone suggesting that plants would be abandoned by their staff? Is the Minister suggesting that his constituents would walk away from Hunterston or that the on-site arrangements for nuclear installation inspection would suddenly come to an end? No, of course not. The fact that a board of directors in East Kilbride is replaced by an administrator makes no practical difference to the running of any asset. Heysham 2 and Sizewell B are not going to leak or explode because there has been a change of personality in charge of the finances.
Does the hon. Gentleman absolve the board of British Energy from all blame? Did it not spend £500 million on Eggborough? Did it not sell SWALEC when other people were concentrating on the consumer? Did it not pay SWALEC many thousands of pounds in special dividends? Should it not, too, be criticised?
Quite. I could not agree more. The commercial strategy of British Energy has been sadly flawed. The hon. Gentleman mentions SWALEC. British Energy purchased SWALEC for £100 million and sold it for £200 million. On the face of it that might appear a satisfactory arrangement. We need to draw attention to the fact, however, that it bought SWALEC with an obligation to buy power at a highly inflated price from another generator, which appears in its accounts as an onerous contract with a liability of £200 million. The board of British Energy has made numerous mistakes. Indeed, I could go on citing them, but I do not want to make this debate an examination of why British Energy is responsible for its predicament. [Interruption.] I have never said that it was not responsible, but the Government are also responsible and it is my job to hold them to account. It is not my job to hold the board of British Energy to account. I am not a shareholder or bondholder in British Energy. The Government are inviting the taxpayer to take on an unlimited liability and the House to give them unlimited freedom of action in the Bill.
May I try to help the hon. Gentleman? Only a few minutes ago, he said that BNFL drove British Energy into the arms of the Government. In light of what he has just said, he may wish to withdraw that comment and accept that it would have been grossly irresponsible of BNFL to have given a blank cheque to British Energy, something that he appeared to endorse a few minutes ago.
That is not the case at all. I was making the point that negotiations with BNFL were the straw that broke the camel's back. That was the final event that drove British Energy to seek a Government loan—that is exactly what the Minister told the Select Committee and is not a matter of dispute.
As for safety, the only issue that the Government have had to cope with was a bureaucratic one—how to transfer the necessary licence to operate nuclear power stations from British Energy to a potential administrator. It is not as if the Government have not had time to think about the matter. The Minister told the Select Committee that
"certainly from June or probably earlier through the summer, we were monitoring what was going on at British Energy because clearly the market was an impact on it which could lead to the difficulties which eventually manifested themselves."
That even had a name in the Department—Project BLUE.
Thank you, Mr. Deputy Speaker.
In her statement in November, the Secretary of State said:
"We have therefore prepared detailed contingency plans for administration, in discussion with all the key . . . regulatory bodies, to ensure that whatever happens, nuclear safety and security of supply will be maintained."—[Hansard, 28 November 2002; Vol. 395, c. 489-90.]
The Government's overt explanation for their policy and the Bill is therefore demolished in their own words and those of British Energy.
The hon. Gentleman has placed a heavy emphasis on administration and has talked about management being handed over to the administrator. I do not want to get into a debate about the meaning of administration, but can he tell the House which third party in the wide world would be interested in taking over the running of those sites?
The hon. Gentleman is prejudging the next part of my speech—I shall address that issue shortly.
There is a new factor in the British Energy drama—no one seems to have considered from 1996 onwards the fact that British Energy could indeed go bust and what, in the circumstances, would happen to its nuclear liabilities. There is a ring-fenced fund for decommissioning which partly addresses those costs, but as the taxpayer is now painfully finding out, there is the large matter of back-end fuel costs, liability for which dwarfs the scale of decommissioning costs. The Government's answer is to attempt a rescue, thus putting off a decision about renationalisation or administration. We believe that that is the wrong strategy. If the Government are trying to operate in the taxpayer's interests, they are going about it in an odd way, presumably taking on a £2.1 billion liability and none of the assets. As the Minister explained in response to the hon. Member for Ochil, who wanted to know what the taxpayer got for his £2.1 billion:
"The taxpayer specifically from that will have the peace of mind of the safe management of nuclear liabilities."
As no one was proposing to manage those liabilities dangerously, that peace of mind may not represent the best value for the taxpayer. It is commonly accepted that in the final analysis the Government cannot escape responsibility for dangerous radioactive waste. The most disturbing feature of the saga for those of us who want nuclear power to have an economic future is that British Energy does not seem to be making adequate provision, if indeed any, for back-end fuel costs. The assumption that that will be funded by future operating profits when the company is in fact making a loss is not one that the insurer of final resort—the taxpayer—will find acceptable. I have been unable to identify anyone who has raised that matter until now. The taxpayer's representatives should have identified that threat at an earlier stage. All of us in the House, whether serving on the Select Committee, the Public Accounts Committee or any other body, should accept that perhaps we are responsible.
The fund for the decommissioning of nuclear power stations was set up at the time of privatisation with an endowment to start it rolling. It was intended to build up over the lifetime of the power stations until, at the end of their life, it was sufficient to cover the costs. If the House were to take the hon. Gentleman's advice and decline to give the Bill a Second Reading, and British Energy were then to go bust, would not the money that the Government are proposing to loan under the Bill become a grant to cover the cost of decommissioning, which would have to start straight away?
I do not know whether it has escaped the hon. Gentleman's attention, but that is precisely what the Government are proposing anyway. They are proposing to give British Energy between £150 million and £200 million a year, and to merge the decommissioning fund with the fund for back-end nuclear liabilities. The decommissioning fund has been ring-fenced to date, and has had a cash stream of about £20 million a year. Sadly, the fund that the Government are proposing to take over has diminished since the company made its reports. It stood at £411 million in April, but I now understand that it is closer to £300 million. I am afraid that that has more to do with the Government's wider mismanagement of the economy, as I understand that the fund is largely invested in equities. The adage "Sell in May and go away" would have been advice well taken on
This issue must be dealt with in a clear and transparent way. The interests of the taxpayer must be protected, and future investors in nuclear energy need to know how the liabilities will be costed so that they have confidence to invest following this debacle. Without that clarity, or a proper framework for energy policy, there will be no new investment from the private sector. When the Conservative party publishes its energy proposals, it will propose a scheme to address that.
In the meantime, the Government's cack-handed rescue scheme, which has been cooked up with British Energy, will not deliver such results. Thus, the Bill is not necessary; indeed, it is an obstacle. The Government have so far endorsed British Energy's proposal, but I suspect that they will be somewhat bewildered by the complexity of the financial arrangements proposed.
I am listening to the hon. Gentleman's argument with great interest. He has certainly done much to demolish the security of supply argument. However, he has not yet addressed what should have happened in the light of British Energy's fortunes. Surely there are only two options: one is that proposed by the Government; and the other is full renationalisation—the only way to safeguard taxpayers' interests in the company and ensure security of supply for as long as we decide to have nuclear energy. The hon. Gentleman mentioned administration, but has not yet said what that option would entail.
I am getting there, if the hon. Gentleman will allow me.
The beneficiaries of the Government's rescue scheme are the bondholders and the existing management of the company. Even Robin Jeffrey continues to defend his position, and there are suggestions today that British Energy is being invited to fund the price of his silence in order to prevent him embarrassing the Government. I hope that the Minister will make it clear in his winding-up speech that the Government have nothing to fear from Robin Jeffrey being completely free to speak his mind.
Why delay? I say now that I do not think that anybody should be suppressed in that way. If Robin Jeffrey has anything to say, I would be very pleased to hear it, and I think that the public should hear it.
As for the taxpayer, there is only one factor in favour of the Government's rescue. Had the company gone into administration in September, the Canadian assets—Bruce Power, which was valued at £600 million—would have reverted to the landlord, the Ontario Government. The one significant benefit of the Government's support is that that clause cannot be invoked. Yet, one ludicrous product of the Government's aid to British Energy and the current plan is the deliberate destruction of the value of the north American assets of the company. As a condition of the loan, the Government are forcing British Energy to conduct a fire sale of its north American assets by
What about the costs? BNFL, a Government-owned company, has accepted a chunk of British Energy's price risk, which it may or may not have been prepared to do in early September. What will that cost the taxpayer? If bondholders and shareholders accept the deal, it will be because it is in their interest to do so, yet surely the value that they derive can be only at the expense of the taxpayer. If the company had gone into administration, the Government would have been left with the liabilities that they have already accepted explicitly. Those liabilities were always with them implicitly, although as I said, no one seems to have established that.
However, the administrator would be able to refloat the company on the basis of the cash-generating assets, which have a significant positive value. The taxpayer would have the first charge over receipts from such a sale, and we would have had a nuclear generator—and we can still have a nuclear generator—fully in the private sector, with an opportunity for a transparent and sustainable method of internalising the costs of its environmental pollution. That would have been the best way forward, and it still is. It would be a market solution, and it would be fair to all concerned.
I am grateful to the hon. Gentleman. I have not read that report. However, the point that he makes is that the size of the liability was understood. It seems that no one made provision for what would happen if British Energy, as a privatised company, went bankrupt, and what would happen to those liabilities. I will go away and read the Select Committee report in order to establish whether the hon. Gentleman and his colleagues on the Committee were prescient enough to identify the issue at that stage, in which case the then Government should have made clear what would happen in those circumstances. I am happy to accept that. We shall have to wait and see whether that warning was given at the time.
My hon. Friend the shadow Attorney-General has raised the possibility of hybridity, and the Deputy Speaker has given his ruling on that. If the Bill is not technically hybrid, it would certainly appear to be unfair to other generators of electricity. A significant number of them have made known their concerns.
We are invited to support a circumscribed and crippled entity that will never have the chance of proving the future worth of nuclear energy. What incentive will there be for effective financial performance if 65 per cent. of its cash has to go to the Government, even after it has paid its taxes, business rate, climate change levy and so on? The beast that the Government are proposing in the Bill will never fly.
What sort of message do the Bill and the attendant rescue send to the rest of the electricity industry and the market? Its effect on the market is documented. The reaction to the Government's announcement that they proposed to extend their loan to British Energy on
Government interventions in the market have a price. Future investors will levy a premium on the risk:reward ratio to cover for political risk. The price will be paid by future consumers. If the Government are not prepared to let the market work, we will all pay the price, both as consumers and as taxpayers. Nationalisation is wholly unnecessary.
We must spare a thought for the employees of British Energy, many of whom have backed their employer by purchasing their own shares in the company. I am very sorry for them. The company's commercial strategy has been at best unlucky and at worst incompetent. It has certainly not been blessed with significant foresight in an increasingly difficult market. What it should also know is that the Government bear a share of responsibility for its plight. There was no framework for nuclear policy, no unequivocal statement about the merits of the industry, a shocking inability to come to timely decisions about policy on future waste disposal, the windfall tax, the climate change levy and disproportionate business rates, all of which combined with a market in considerable surplus.
We want nuclear power to have a fair chance to play a role in the future electricity generation of the United Kingdom. I want that power to be economic, its environmental costs and benefits having been taken into account in the market. The Bill will not achieve that. It is as sorry a day for the Minister as for the industry, the taxpayer and the consumer. We can do them all a favour and throw the Bill out.
Order. Before I call the next speaker, I should tell the House that Mr. Speaker has placed a 15-minute limit on all Back-Bench speeches. That applies from now on.
I welcome the Bill and believe that it is prudent of the Government to get the powers that they are seeking.
Those of us who know British Energy feel sad that it has come to this pass. In its history as a privatised company, its record was extremely good for many years in respect of its technical responsibilities. Its reduced its costs considerably, operated within the increasingly tight requirements of the nuclear installations inspectorate and had a nuclear safety record as good as any in the world. While British Energy was technically sound, however, it was at best commercially unlucky and at worst downright incompetent. It was unlucky in so far as it was unsuccessful in failing to secure the London Electricity purchase in the teeth of opposition from Electricité de France, because the French Government were prepared to extend their pockets far beyond what the market considered a reasonable price. I do not think that EDF has made a great deal of money out of what happened.
If British Energy had had flexibility and had become a broad-based energy company instead of being almost entirely a generator, we might not have had this debate. Certainly, as has been suggested, the SWALEC deal was probably ill judged initially. The details that have been released, to which Mr. Blunt referred, show that it was a pig in a poke and that the directors should have been called to account, although it was difficult for that to happen given that they were making plenty of money and passing it on as dividends. Everybody was happy in the best of all possible worlds—or so it seemed. Perhaps because those involved had burned their figures on SWALEC or were frightened off by the London Electricity failure, the company chose not to go anywhere else. It could have taken other opportunities, in the shape of Yorkshire Electricity for one, that would have given it not only a far broader basis as an energy company but the financial support necessary to take on the difficulties that subsequently arose.
Nothing in the work of the Environment Agency or the nuclear installations inspectorate caused the company undue problems. The reason above all else why little concern was given to the possibility of financial failure is that it takes a particular sort of incompetence not only for a company to run a utility at a loss, but for it to fail to recognise that it is working in a rigged market and that it is only a matter of time before the super profits and high share prices that that market offers will change.
That is what the hon. Member for Reigate has been incapable of appreciating in all his previous incarnations. The pool system operated brilliantly for the generators and their shareholders, but not in the interests of British industry or the other players.
The nuclear industry, which was privatised on the back of assets that had just been completed, was in a privileged position. We had one of our most illuminating exchanges in the Select Committee on the valuation of assets when we considered the reasons for the extent to which Sizewell was being written down. A previous permanent secretary at the Treasury, who was then in Barclays de Zoute Wedd and the chairman of the bank responsible for the flotation, used a striking metaphor. He said, "A nuclear power station is a bit like a motor car. Once you've built it and sold it on, like the car leaving the forecourt, it immediately loses a lot of money." The knock-down price of the original sale was suited to the purposes of the privatisation.
Nuclear power is difficult and dangerous to produce. It can be produced safely, but only with great difficulty. Sadly, those who had the skills and the capability to do that were not the same sort of people as those who were brought in to look after the commercial side of the company. That was the greatest problem. When Robin Jeffrey returned from America, and there was a clear-out on the board, his ambition was to generate even more nuclear energy. He wanted either replacement or additional build. Frankly, he took his eye off the ball.
Matters were clearly drifting in the summer. That was followed by a crass move whereby Robin Jeffrey said that the company had the ability to call on additional financial support. The humblest mortgage payer knows that one can always get additional financial backing, provided that one can at best service the loan. As we marched through September, servicing the loan became increasingly difficult for the company. When BNFL was asked to reduce some of its prices, it wanted to ascertain whether a deal with some of the Magnox stations was possible.
I appreciated Mr. Speaker's earlier intervention when my question went on too long, for which I apologise. I was trying to make the point that BNFL was asked to go the extra mile, which it travelled. It was subsequently asked to go even further. At that point, it would have prejudiced its position and been in the Government's arms. As far as I understand matters, BNFL's financial circumstances have not changed in the past six or four months to the extent that it could make a much better offer than that on the table when it made its final deal.
The current room for manoeuvre comprises the three options that we have discussed today: administration, limping along or nationalisation.
I want simply to establish the facts. The hon. Gentleman points out that BNFL could go only so far at the beginning of September. Has it now gone further as part of the Government's package? That would have an impact on the taxpayer.
I am not privy to BNFL's secrets. As a close observer of its fortunes, and those of the nuclear industry, I simply say that if it went further without material improvement in its financial circumstances, that would spell danger for the company. That is as much as I am competent to say.
I fully agree with my hon. Friend that BNFL should not take any steps that would put it in difficulty. Will he say to the hundreds of BNFL workers in my constituency that he supports them in delivering the goods to British Energy and that he hopes that they will continue to do so in the foreseeable future? Thousands of jobs are at risk. If we were to take the course suggested by Mr. Blunt, those people would be out of work fairly quickly.
My hon. Friend may be over-egging the pudding a wee bit. BNFL is in a strong position in so far as it is a virtual monopoly as far as the United Kingdom is concerned. The French company will not necessarily step in with a lower bid. BNFL has made step changes and radical improvements. We must recognise, however, that the deals that were struck at the time of privatisation were commercially unrealistic. When Robin Jeffrey returned from the United States, he asked the apparently reasonable question, "Why can't I get my nuclear reprocessing done in Britain for the same sort of prices I pay in north America?" In fact, that is not to compare like with like—different circumstances apply—but it was a question that had to be asked. He got a reply of sorts, but it was not as good as he thought that it could have been.
As with many privatisations, several people in those companies thought that they had died and gone to heaven. They were offered shares at ridiculously cheap prices and bought them through long-term schemes, often to the exclusion of any other form of savings. Those poor souls are now seeing their savings going down the drain. Over the years, when shares in British Gas and other privatisations fell, many hon. Members received letters from constituents asking what the Government could do about it. The fact is that there is nothing that the Government can do about it. That happened when I was an energy spokesman for the Opposition and privatisations took place under the writ of the Tories; it happens whenever such fluctuations occur. In this instance, it is little short of a disaster for many people. For that reason, if for no other, proper provision must be made through legislation such as this Bill. Many of the shareholders and bondholders are small savers, and to dismiss them in the manner of the hon. Member for Reigate is callous. He said that it is in their interests to get a deal. Of course it is—sometimes those savings are all that they have.
As my hon. Friend Mr. Brown said, a trade sale is not a realistic proposition. What worries me about nationalisation is that nobody in the civil service is qualified to run British Energy. There are better managers out there who could run the business, but I am not sure that we could lure them to Victoria street.
If, in the end, taxpayer's money has to be put up, there must be a means of protecting it. If the company can work its way out of its present difficulties and get itself into a position whereby, as my hon. Friend the Minister suggested, loans can be considered, its fortunes will begin to change. It is important that the business is kept running and that revenues keep coming in. It is much better to keep the power stations going than to have them lying idle while they still have to be cared for and protected. It is not a simple choice. If we discarded just 21 per cent., we would be down to about the lower limit. That is the technical economics of the madhouse. It might work in a wind-driven Wales, in some future independent state that will never arrive, but it will not happen in the United Kingdom, where many people—certainly those in Scotland—depend for half their electricity on the output of two nuclear power stations. I certainly would not want my constituents to go to bed with electricity or power reduced simply to meet the needs of fanatical so-called environmentalists or supposedly hard-nosed business people.
The fact is that nuclear energy in this country will be required for some considerable time and it would be wrong even to discount the possibility of life extensions for existing stations, because the life of a nuclear power station is a guesstimate at the best of times. It could be cut down the way—I admit that if it were technically wrong to run stations they should be closed—but if they are technically capable of being run and their costs have largely been met, that is perhaps one of the better ways to ensure that the public get some return on the loans and assistance. My hon. Friend the Minister seeks to acquire powers for that, but the proviso, of course, is that the European Union can act.
There is a matter that we have not discussed, and I hope that my hon. Friend the Minister makes this point when he replies to the debate: we still have to get the underwriting for the deal from the Commission. I believe that there is still some way to go there. We are discussing a minor milestone in the long journey ahead before we clear up British Energy's problems, but I welcome tonight's debate as a meaningful first step along that road.
I take the point that the Government acted wisely, prudently and in a measured fashion. There was no panic in the Department at that time, and it is wrong and demeaning to officials and Ministers to suggest that. The problem is difficult and it will not be solved overnight, but the Bill is a useful first step on the way to a solution and I welcome it.
"we have hit the jackpot . . . we have the greatest break-through of all time."—[Hansard, 25 May 1965; Vol. 713, c. 237-8.]
With those words, he introduced the advanced gas-cooled reactor programme, which is the basis of British Energy's portfolio. What Fred Lee did not anticipate, and what we know with hindsight, is that the first of those would take 17 years to build, be 500 per cent. over budget and 20 per cent. below specification. Unfortunately, a lot has flowed from that.
I was brought up in a stern, non-conformist tradition, so I am not sure what the gambling term is for the opposite of a jackpot, but the Government and their predecessors have hit it. That issue is worth pursuing before getting into the substance of the arguments, because, as Mr. Clapham hinted, the package, which is incorporated in the Bill and will lead to the lifting of the ceiling on the Government's commitments to £2.5 billion, comes on top of a lot of other liabilities that the taxpayer is being required to assume.
A couple of years ago, the late Mike Sadnicki put to the Environment Sub-Committee a paper in which he bravely attempted to calculate that sum. He came up with a figure of about £55 billion—that was £20 billion at current prices, after discounting—which was a conservative estimate of the liabilities that would fall to the taxpayer. Those are liabilities to which we propose to add.
Returning to the jackpot analogy, when a gambler is losing money, there is always an instinct to stay at the table. I sense that, in a way, that is what the Government are trying to do. The recurrent theme that comes through their arguments on the financial case—we shall come to the wider arguments later—is that it is cheaper to stay at the table and keep British Energy in solvent restructuring than for it to go into administration, and cheaper to keep production going than to close it down.
This is a technically complex area and I do not in any sense claim to be an expert on it, but all the figures on the financing aspect that I have seen suggest that both propositions are wrong in fact. The Minister shakes his head, and he may be right. None of us has a definitive answer. However, before the Bill proceeds through Parliament under the Government's hurried programme, can we have an independent financial assessment? I do not know who could make that assessment in the space of a few weeks, but perhaps the National Audit Office or the Select Committee on Trade and Industry, under the chairmanship of Mr. O'Neill, could do it. Is administration really more expensive than solvent restructuring? Is keeping production going cheaper than stopping it? We might at least agree on issues of fact before we debate issues of principle.
Does the hon. Gentleman agree that we need an independent assessment of one of the Minister's arguments? He said that it is better to give British Energy a loan so that it can continue to pay money into the public nuclear liability contingency fund. Should that argument not be open to scrutiny? An independent assessment would be useful.
That is part of what I propose. I shall return to the details of the financial arrangements.
I have spoken on trade and industry and energy for two and a half years, in which time there has been a long succession of Conservative spokesmen. Although I have rather lost track of who they all are, until today I could almost rely on the fact that they would put up a robust defence of private nuclear power and of putting more money into it. I listened carefully to Mr. Blunt, and something has changed. I do not know whether there has been a rebranding exercise or whether the hon. Gentleman has been allowed to use his initiative and has come up with a sensible statement on many key issues. Much to my surprise, I found myself agreeing with much of what he said.
On the other hand, I profoundly disagreed with the Minister and the Government's case, and my colleagues and I will vote against the Bill. Temperamentally, my instinct is to find common ground and to try to identify areas in which we start from the same point. On nuclear safety, the Minister was absolutely right to say that safety must be guaranteed. That is obvious: nuclear power stations cannot have small accidents—any accident is a potential catastrophe. We entirely share that starting point.
The problem with the Minister's argument is that the only risk that he identified is that of a sudden—his word—shutdown of all capacity in the industry. No one has ever suggested that. No one is promoting it or thinks it remotely feasible. If the matter went into administration, the administrator would almost certainly keep the power stations running. So long as they cover their interest charges, that would be in the economic interest. We certainly do not advocate a sudden shutdown.
We know from experience in the United Kingdom, quite apart from that overseas, that nuclear power stations can be shut down. Torness, on the east coast of Scotland, is shut down at present.
It has had a prolonged period of disruption and interruption of production, as the hon. Lady knows. Stations can also be shut down permanently and decommissioned. That process is beginning in the UK with Windscale, Dounreay and so on. Safety can be guaranteed in that environment. Provided that any contraction is orderly and managed, there is no reason why there should be a safety problem.
The hon. Gentleman appears to suggest that he has moved on to making the safety case from making the financial case. The two are in fact indissolubly linked. Does he accept that if we moved toward closure of a plant, we would bring forward substantial decommissioning costs for which no contribution has been made during the life of the plant? One reason why British Energy's average cost of production went up was that Torness was shut. Even temporarily shutting down a plant results in a dramatic rise in the industry's overall costs.
The hon. Gentleman is logically right, but the sums involved in the argument are often not true. The Government, and, I suspect, the hon. Gentleman, use the magic figure of £5 billion for the decommissioning costs that would be brought forward. When one actually looks into decommissioning costs—I am sure that the hon. Gentleman knows this because he is very knowledgeable about the industry—only a small part of the costs, in the order of £600 million, must be incurred in the near future to stabilise the core of the reactor. The remaining present value of the decommissioning process is £300 million. The cost that would have to be brought forward is therefore less than £1 billion, not the £5 billion suggested by the Government and hinted at by Dr. Ladyman in his intervention. Mr. Lansley is right to say that there is a link between safety and costs, but the figures often put before us as the estimated cost to the taxpayer of a reduction in, or phasing out of, production are wildly exaggerated.
Safety is the first issue; the second is security of supply. The Minister is right to say that no one wants an environment in which substantial numbers of people risk being disconnected from the electricity supply. That is common ground, and we do not argue that people should be put at that risk. The Government's problem is not with us—I am no expert at calculating spare capacity—but with their own regulator, who consistently points out that there is a very large margin of spare capacity. According to the statement that he sent us a couple of days ago, it is 22 per cent. at the very least. That is considerably in excess of the capacity of British Energy, even on a crude aggregate basis.
The regulator also pointed out that a large amount of capacity has been agreed commercially—consensus has been reached—but cannot be brought forward because of low prices in the industry. There is a basic paradox at the heart of the Government's argument. If there were less capacity in the nuclear industry—if some of it were withdrawn—the price would rise. That would enable nuclear power to operate more profitably; it would also enable other investment to come into the industry. The regulator has never suggested—indeed, he has gone out of his way to suggest the opposite—that security of supply would be threatened as a result of British Energy's going into administration or of capacity being withdrawn.
The third issue has to do with competitors. It is partly a legal issue, and it would be neither useful nor appropriate for us to comment on the legal ruling that will come from the Greenpeace case or on judgments from the European Commission. There is, however, a serious problem in that the Government are favouring one company over others through the Bill and through bailing out that company. It is important to have some sense of the damage being done to British Energy's competitors.
One small part of the market is combined heat and power, which has lost about 75 per cent. of capacity. Powergen has had to write down about 90 per cent. of its investment in the industry. CHP is receiving no compensation or help from the Government—nor are renewable energy and other producers. The Government will have to explain to the European Commission why British Energy is being helped while other operators are not. Moreover, it is not just being helped temporarily, but being given permanent, ongoing help. As I understand the European competition rules, the Government will have great difficulty in getting that through.
The hon. Gentleman chooses to forget that renewable energy is receiving a lot of financial support. Like combined heat and power, it has been exempted from the climate change levy. CHP is also a dual fuel, so that if gas rises in price, as it has done, people stop using it and go for coal or other forms of generation. All that results from the working of the market, which the hon. Gentleman vaunts, and has precious little to do with the Government's policy of favouring or not favouring British Energy. The Government have favoured other forms of energy in other ways.
The hon. Gentleman's specific points are right, but he knows that renewables and combined heat and power have been disproportionately hit at a time when we are talking about helping a particular sector to continue to operate as before.
Let me turn to the core of the Bill; the argument about financing on which there is some common ground. A lot of the problems have arisen from the way in which the privatised company operated. It is said that the privatised company was just unlucky because of the new electricity trading arrangements and the way in which the auction system works. However, as I recall, British Energy never objected to NETA. I was involved in the Utilities Bill 2000 and the associated legislation. A variety of lobbies petitioned us about the problems that NETA might cause. British Energy never said a word and was entirely optimistic that it could compete in the market.
In the meantime, the company made some severe commercial misjudgments. Quite apart from passing up the opportunity for diversification that the other power companies took, it bought a power station for £50 million that is now worth £6 million. There was a succession of such judgments, including a special dividend of £48 million when the company was losing money. The whole ethos of the company is summarised by the manner in which Mr. Jeffrey is leaving it. The company is virtually bankrupt, but he is being paid off with £300,000 compensation, plus a £150,000 a year pension. He now says that that is not enough. Almost single-handedly, that gentleman is making the case for the Company Directors' Performance and Compensation Bill that Mr. Norman will be proposing on Friday. It also speaks volumes about the way in which British Energy has been run. There is some common ground on that.
I accept also that, since September when the crisis emerged, the Government have accepted that there must be burden-sharing. The private investors will take a big hit, even as a result of the Bill. As I understand it, the creditors will lose roughly two thirds of their assets. There is a hard-headed question—if the Government are acting on behalf of the taxpayer—as to why any wealth should be left in the company.
I welcome the acceptance that we are now debating—in a way that we could not three months ago—the pros and cons of administration. I raised it when the crisis broke and was accused by one or two Labour Members of being wildly irresponsible: "How could the hon. Gentleman possibly talk about administration? It is sheer lunacy." It is now in the Bill and accepted as a practical and, I would say, probable option.
Simply arguing about administration versus solvent restructuring is only the tip of the iceberg. There are a lot of subsidiary issues that, somehow or other—in a day's debate in Committee and in the House of Lords—need to be addressed. If the company went into administration, there would be a variety of options. The administrator could keep running British Energy for a long time, provided that it covers its basic costs. The company could be nationalised—one of the options that has been raised. It could be sold, though that seems improbable. It could be taken into a public interest company, with a view to an orderly and gradual closure. Those are all enormously important options that we have not even begun to consider. If we are to consider the Bill properly, we must look at all of them.
On financing, I accept that there is some common ground, although there are some fundamental differences. I hope that, through an examination of the accounts or in other ways, we shall get some answers to these problems—about the relative costs of keeping British Energy in solvent restructuring or putting it into administration, or the partial closure of plants. First, what is the cost of the Government's proposals? There is the Government assistance per se: the £650 million loan, the ceiling of which was increased, under EU proposals, to about £1.15 billion. The Bill mentions £2.5 billion, of which only £350 million has been drawn so far. Potentially a very large sum of money that has not been disbursed will be disbursed if the Bill is passed, in the form of aid to the company.
In addition, we have the new contracts of BNFL—a public sector company—amounting to an additional £150 million to £200 million a year. We have the back-end liabilities commitment of £150 million to £250 million a year. We are talking about a total taxpayer commitment of about £4.8 billion over the next 10 years; it could be £6 billion. It would be useful to know, at the very least, the order of magnitude about which we are talking. Very large sums are being committed under the Bill.
If the option of administration were to be chosen, the taxpayer would lose the private company's contribution to decommissioning. Although it is technically complex, we should reflect on that subject. It is agreed that the private company will pay 65 per cent. of net cash flow, after interest payments, into the decommissioning fund. On the assumptions that are being made in the plan, £100 million a year would go from the private company into decommissioning. That is why the Government want to retain the company as a private operation.
However, the assumptions that lie behind that are wildly optimistic. It is assumed, for example, that the company can make a £1.50 margin per megawatt-hour on its operations, while operating at much higher levels of efficiency than before. It is assumed that the plants will be able to operate at maximum efficiency, without the kind of disruption that we have had in at least two reactors recently. It is assumed that there will be income from the American subsidiaries, which are being sold off. The assumptions are wildly optimistic and have no basis in reality. If the money is not forthcoming, there is no reason to continue to expose the taxpayer to the continued liabilities through the subsidy.
The more radical option that we should look at is not just administration, but the possibility that at least some, if not all, of the reactors should be taken out of production before the end of their natural lives. There are various time horizons for that, but let us at least look at the options. The Government have always argued that that would be financially disastrous because of the £5 billion of liabilities. I hope that, in my answer to the hon. Member for South Cambridgeshire, I answered that point. But the figures that would confront the Government, were they to go for premature closure, are far lower than have been bandied about in the past. Given that there is doubt about them, let us at least have an open, honest and independent inspection by the National Audit Office, or somebody else, to validate the figures.
I have detected no reference from the hon. Gentleman to British Energy's intention in the solvent restructuring deal to issue £700 million of new debt, £275 million of which would go into the liabilities fund. By extension, that is capitalisation for the operation and a contribution to meeting liabilities that would not be available in the event of either administration or nationalisation.
I thought that I acknowledged that when I said that the creditors would lose two thirds of their investment, which would happen if they took shares in return for bonds in those circumstances. I am happy to argue these points with the hon. Gentleman at greater length. There may be an element in the calculation that I have missed; but I do not think so.
The hon. Gentleman mentioned the investors. As someone who does not gamble very often, I take the view that people who buy shares are gamblers; a loss as well as a profit can be made. I do not have much sympathy for anyone who buys shares—even an elderly person—and then cries about not making a profit. When we talk about discussing energy requirements, we should be talking about the cost to Britain and to the taxpayer.
I think that the hon. Gentleman makes two points. As regards the interests of investors, many of the shareholders are sophisticated investors and have no reason to complain about the loss that they will suffer. However, I do not gloat over that. After all, there are nuclear energy shares in our pension funds, so everybody loses. We have to accept that there is no shareholder value left, but I take no pride or joy in saying that.
The hon. Gentleman's second point leads me to the conclusion that I was about to draw: we need to consider the wider energy picture. There is obviously a link between this debate and the larger debate that we shall hold on the White Paper.
I was about to make a concession. Although many of the Government's arguments are weak, we need to think seriously about the carbon dioxide issue. I wholly accept that my approach would mean higher CO2 emissions, at least in the short term. I accept that that is part of the price we have to pay for a sensible and honest restructuring of the nuclear power industry. However, in taking that approach, I am in fairly good company: organisations such as Greenpeace and Friends of the Earth take the same view. Like me, they would argue that, whatever happens in the next two to four years, it is much more important that we are on the right trajectory for the development of renewables, energy conservation and energy efficiency. It is important that all those elements are in place.
If that overall approach were adopted, it would be possible to see a future in which we had less reliance on carbon emissions and nuclear power. However, the process will be difficult. I look forward to debating these matters again in the context of the White Paper.
I am not entirely sure what I have heard from the Opposition spokesmen. Dr. Cable, who spoke for the Liberal Democrats, was at least honest when he said that no shareholder value remained in British Energy, but Mr. Blunt was less honest. The implication of his solution was that British Energy could be closed without tackling the problem of shareholder value.
If we adopted the hon. Gentleman's solution—thereby eradicating shareholder value—the Conservatives would be the first to say that as the Government had engineered a situation in which shareholders had lost all their money they should step in with compensation. Have we all forgotten the Conservatives' comments about Railtrack and the problems in the rail industry? If the hon. Gentleman really believes that British Energy can be put into the hands of administrators and continue to be run while maintaining shareholder value, he is setting out a bizarre contradiction.
It is the hon. Gentleman's statements that are bizarre. I ask only that the market should operate. Of course shareholders will be bottom of the administrator's list. If any value remains, there will be a distribution to existing shareholders, but the taxpayer will have a prior charge—as indeed will the bond holders, the trade and other creditors, and possibly even Robin Jeffery with his settlement terms. If the Government intervene in the market, however, there will be a price to be paid.
The hon. Gentleman says that the market should operate, but the consequence of its operating as he suggests will be that no shareholder value will be left, and the Conservatives would shout the loudest that the Government had brought that about. Another consequence of his suggestion is that, ultimately, the operation of nuclear power would be run down—in that he finds common cause with the Liberal Democrats. There might be a debate about how quickly that rundown would take place. The hon. Member for Twickenham said that he knew of no one who had suggested that it should be shut down immediately, although that is exactly what Greenpeace proposes. However, at least he was honest enough to admit that the consequence of shutting down the nuclear power industry, if we do not agree to the Bill, would be an increase in carbon emissions. That would have a significant impact on our ability to meet our Kyoto obligations and would certainly mean that we would contribute to greenhouse gas emissions for a long time to come.
The hon. Member for Twickenham did not point out that the Government's figures show that between 12,000 and 24,000 people die prematurely each year as a result of carbon burning. If we do the maths, we realise that nuclear power, which currently generates a quarter of our electricity without burning carbon, saves between 2,000 and 4,000 lives in the United Kingdom each year. If we decide willy-nilly to adopt a proposal that would run down nuclear power and increase carbon emissions, we shall not only contribute to greenhouse gases but we shall also add to the number of people who die every year.
I agree with my hon. Friend's accurate comments about CO2 and about share prices. Does he agree that if the proposals of Mr. Blunt were adopted and no financial assistance were given not only would British Energy collapse but thousands of jobs would be lost, including 2,000 at Springfields near Preston in my constituency?
The hon. Gentleman appears to have missed the central part of the contribution of my hon. Friend Dr. Cable: if nuclear capacity is taken out of the system, it will provide a platform on which other technologies can flourish. They will provide employment, but there will be a reduction in carbon dioxide emissions. The hon. Gentleman is doing some very special pleading on behalf of a dying industry.
The hon. Gentleman should be careful about what he says. The technologies whose cause he usually espouses in this place are based on renewable energy and are several times more expensive than nuclear power. Unless we distort the market there will be no future for those technologies. I challenge Members to provide the House with the name of any serious engineer or other expert who believes that the target of 20 per cent. production of renewable energy by 2020 is a practical possibility. Most of the experts do not even believe that the Government's target of 10 per cent. by 2010 is possible.
Even if we put all the resources of Government behind renewables, and even assuming that we maintain the renewables obligation that is part of the existing marketplace distortion, which we all seem perfectly happy to accept, no expert believes that 20 per cent. of our energy will be produced from renewables by 2020. To use wind power, for example, would require us to build 40 windmills every month between now and 2020. As my hon. Friend the Minister for Energy and Construction pointed out so eloquently in a previous debate on energy, that will not happen, especially in areas of the country where the councils are under Liberal Democrat control. Every proposal for windmills is opposed on planning grounds in those areas.
A further point is that the wind does not blow all the time. We should thus require base load generation of some form—probably using gas or coal, the other two options for mass-produced energy.
My hon. Friend is absolutely right. Professor Laughton of the university of London has done the figures for us—if anyone cares to get hold of them and read them. He has shown that the prevailing winds are such that, in this country, the wind does not correspond with the demands for peak electricity consumption. We would have to spend £30 billion to £40 billion to build windmills all around the country to generate 20 per cent. of our electricity, and we would still have to match those windmills with onshore alternative energy supplies—almost certainly burning carbon—to guarantee continuity of supply. That would make an absolutely nonsensical energy policy. I put it to the House that the only energy policy that will make any sense for this country is one in which we have a balanced supply portfolio. That will require some carbon burning in the form of gas and clean coal.
I certainly take your advice on board, Madam Deputy Speaker, but I simply point out in my defence that we are seriously debating whether to accept the Bill and, if we say no to the Bill tonight, we are saying no to British Energy and no to nuclear power, so the context in which we make that decision must be clearly understood.
I do not see a future for nuclear power unless we accept the Bill, and we must therefore ask ourselves whether we should make a one-off loan and provide new arrangements for the industry and whether that solves our problem, or whether we are simply going to find ourselves in the same position six months, 12 months or a few years down the line.
My concern is that although my hon. Friend the Minister for Energy and Construction addressed very well the need to support British Energy in the short term, what he did not do so well—presumably because he expects to have such a debate when the White Paper is published—is talk about the industry's long-term framework, in which nuclear power can flourish as one of the components of a balanced portfolio.
I shall certainly do that, Madam Deputy Speaker.
The Bill will give British Energy a future. It minimises the expense that we can expect the Government to incur in guaranteeing that future. We must ensure that a way forward is built into the White Paper that will guarantee us a safe and consistent energy supply in the future and that will involve the least hardship for British Energy.
Points have been made about how British Energy got into this mess, and we have to accept that there have been considerable management failures, some of which my hon. Friend Mr. O'Neill mentioned earlier. I agree with him that management caused some very serious problems, but, equally, the Government must accept that NETA has had an impact on British Energy. Decisions about the rateable values of the company's sites have had an impact on its economic viability. Both those things need to be addressed if the Bill is to succeed in its aim of maintaining British Energy as a viable, going concern.
We must accept that the current wholesale price of energy generation—about £16 per megawatt hour—is lower than the economic price of generation for all electricity suppliers, not just the nuclear power industry. Indeed, British Energy's current price is very close to the wholesale price at about £17 per megawatt hour. However, it is not sustainable to have all forms of generation generating below the wholesale price, and I hope that my hon. Friend the Minister will address that in his winding-up speech.
My hon. Friend the Minister should accept that, although NETA has forced down the wholesale price, the retail price has not reduced so dramatically. If we take away the discounts that people in the domestic sector receive for changing their supply company and the short-term offers that some companies make, the retail price of electricity is about £66 per megawatt hour—four times the wholesale price. That seems a rather strange margin to allow the industry, and we need to consider how NETA operates, not only because of its impact on British Energy but because the whole energy industry is unsustainable at that price.
Apart from the rateable value of sites, which various hon. Members have already mentioned, we should recognise the fact that the nuclear power industry is the only form of generation that has to internalise the costs of waste and all the environmental costs. If we were to force the carbon-burning industry—whether clean coal, gas, or even including burning petrol in cars—to take account of its environmental costs, it would be by far the most expensive form of energy on the market today, and we have to judge the Bill's merits in that context.
The Bill is very much a short-term solution to British Energy's problems, but it will not stand alone. It must go hand in hand with other measures included in the White Paper to promote a balanced portfolio and ensure that this country's nuclear power industry has a future, so that we can continue to produce clean energy from nuclear sources, as well as developing the other forms of energy that are required.
We need a package of measures on top of the Bill to create a sustainable energy policy for this country, but at least the Bill is a good start. Opposition Members would be very unwise to vote against it because they will be judged in the long term by the impact that their action would have on British Energy's share value and on the environmental damage that, by implication, they would force on our country.
I was very interested in the remarks made by Dr. Ladyman because he hit on one of the crucial points that none of the Front-Bench spokesmen have emphasised so far, which is that the whole energy industry cannot sustain the present prices. He quoted the figure of £16 per megawatt-hour, whereas £22 per megawatt-hour is needed for anyone to be profitable, but he must ask why prices are so low. Of course the answer is—
With due respect, Madam Deputy Speaker, the reason that British Energy is in this position is that it is not profitable because it has had to operate in a market where the prices are simply unsustainable. That is the reason why we are discussing the Bill today, and I am concerned about the operation of NETA, which the Government imposed about 18 months or so ago, and the prices are unsustainable as a result. Of course there are other reasons why we are in this position. I fully accept the Minister's point that British Energy's problems are not simply to do with prices.
The hon. Gentleman makes a point about NETA, but does he accept that the way in which nuclear energy was favoured under the marginal pricing system of the pool is the reason why it was able to appear to be economic and that, when it had to face competition under NETA, it could not hack it?
That is a substantial point. The problem has been that we have gone from the pool situation, on which Mr. O'Neill commented favourably, to the reverse situation in which no one can make any money at the current price. That is because we have too much capacity—I think that the Minister mentioned 22 per cent.—and because of the way that the NETA system operates. It is a brutal market system.
Yet another reason is that the market has not been allowed to operate freely. The most uneconomic generators—the Magnox nuclear stations—are hopelessly unprofitable and are forcing prices down, and the market cannot therefore operate in a genuine way.
Whatever may be the case, the fact is that the Government brought in a system that is wholly predicated on a straightforward, simple, unaffected market system, leading to prices that are unsustainable, which, among other factors, has led to the present pass of British Energy. Nothing will change until something is done about the NETA system—that is the point that I want to get across.
The arrangements that the Government are currently introducing, as the Minister has argued, may be necessary, short-term palliatives to deal with a crisis situation. What he cannot escape, however, is the Government's responsibility for introducing a pricing system that has led to this pass. That is the argument with which the Government must contend.
In response to the arguments of the hon. Member for South Thanet, I agree that we need a balanced system with regard to the various types of energy supply. Not only do we need a balanced system but we need to take into account the social consequences, in terms of jobs, and the environmental consequences of our energy policy. That is extremely complicated, and not all of those factors can be taken into account in dealing with a short-term situation such as British Energy and its continuing performance.
That is why my hon. Friend Mr. Lansley was right when he teased out from the Minister his casual approach to the question of the White Paper. Waiting for that White Paper is like waiting for Godot—we have been waiting for months and months. The Committee that I chair, the Environmental Audit Committee, published a report on renewable energy last July in the expectation that some sort of White Paper would appear in the autumn. Autumn passed, December and Christmas came, we began to expect it in January or February, and we are now told that it may appear in February or March. While I respect the Minister's point that he would rather get it right than produce it too early, the way in which this debate is taking place is like "Hamlet" without the prince. We need to consider energy policy in the round, which the Government should also do before they make crucial decisions involving millions and potentially billions of taxpayer's money without any of us knowing where we are proceeding in terms of wholesale energy policy.
Does the hon. Gentleman concede that in relation to the specifics of the company whose financial plight we are trying to address this evening, something like 20 to 25 per cent. of its generating capacity is not affected by NETA in so far as it is under a private agreement with Scottish Power and Scottish and Southern Energy? There will be an opportunity before too long, when the new British electricity trading arrangements are introduced, to recast the whole equation and to see it if it can be done better. That does not need a White Paper, as we will be dealing with market situations that will prevail for perhaps seven to 10 years. A White Paper will deal with new build that will probably barely have started within that time scale.
I take the hon. Gentleman's point, but, none the less, the operation of the NETA system has been a contributory factor to the current plight, and we are having to spend millions and billions of pounds to get out of it. It would have been better if, from the start, the Government had instituted a market system that was within a logical framework of a clear energy policy. As was pointed out, although the details of the situation can vary, that would at least ensure the right trajectory. In that respect, the measure is flawed, as, first, the NETA arrangements take no account of the need to encourage renewables. A renewables obligation exists, as the hon. Member for Ochil mentioned, but it is a very weak instrument. The hon. Member for South Thanet said that he knew of no engineer who would say that the Government could achieve 20 per cent. of our energy from renewables by 2020. In Denmark, however, 25 to 28 per cent. of the energy supply is from renewables, and that has been achieved in less than 17 years—the period between now and 2020. I confess that I cannot name an engineer who would support my case, but, if it has been done in Denmark, I cannot see why it cannot be done here.
I agree with the hon. Member for South Thanet, however, that we must have a balanced approach, and I concede that nuclear has a role to play as well as renewables. I am not one of those people who believe that we should have renewables at all costs and that we can do without nuclear altogether. Clearly, that is not sustainable in the current situation.
Thank you, Madam Deputy Speaker, for that sensible reminder.
Nuclear energy has a role to play, but we cannot say currently what will happen: whether administration or the solvent restructuring about which the Government are talking will be pursued. We do not know how much money the taxpayer will have to fork out. The Government must consider the NETA arrangements fairly soon. I agree that we must not talk too much about the White Paper, which we hope that we will debate in the next couple of months, but one thing that the Government can do is talk to the regulator about how he is operating. I notice that the Minister is laughing rather extensively about that. He may regard talking to the regulator as impossible. Certainly, when we interviewed him while discussing these matters in the Select Committee, we found him resistant to suggestions that even the Government could talk to him. The fact is that as a result of the way in which he has operated the arrangements, nuclear energy has faced the problems that the Minister is trying to address today.
Does the hon. Gentleman agree that one of the problems with the regulator, which we examined in the Select Committee, was that the environmental and social guidance promised in the Utilities Bill had not been delivered to the regulator at exactly the time when the debates about NETA and British Energy were taking place? In fact, the House only approved them a few weeks ago. That has also been a failure in the NETA arrangements.
That is why I am afraid that the Government, although they have a crisis agenda with regard to British Energy—they must handle it one way or another, and they have come forward with a solution this evening—have gone about their policy in the wrong way. The cart is being put before the horse, as we do not know where we are going, and we do not know the priorities of the Government in relation to the various alternatives. We are discussing today a Bill that puts billions of pounds in the hands of a particular organisation whose future role we cannot yet envisage.
Again, that point has been made repeatedly. The fact is that the Government have addressed these issues often. A performance and innovation unit report has been published, we are expecting a White Paper, and papers have been published previously. All of them, however, are expressed in bland generalities that do not grasp the nettles that must be grasped. That is why the Minister must now grasp in the short-term a particular nettle, as a consequence of not facing up to the difficult choices that a sensible Government would have made years ago. This Government have been in power for five and a half years.
We have reached a stage at which we have no sensible energy policy. Such a policy has a major contribution to make, not only to manufacturing industrial strength—which it has done, because prices have been very low; I fully concede that that has been of great benefit—but also to environmental policy, to Kyoto and to social questions. None of that has been forthcoming. So the Government have put the cart before the horse, which is one reason why I shall vote against the Bill.
I want to address a number of issues in relation to the Bill. I found it amusing to listen to the end of my hon. Friend's speech and to the speech of the Opposition Front-Bench spokesman. I have been in the House for nearly 20 years. I came here from an energy industry and had energy interests for many of those years, to the extent that I served on the Opposition Front Bench considering the Bill that became the Electricity Act 1989. I remember very well sitting through many months of consideration, with my right hon. Friend who is now the Prime Minister, who was then leading for the Opposition in the shadow Cabinet.
If anything could have been predicted, it was the state that British Energy finds itself in today. During that Committee stage we had a plethora of leaks of letters, draft letters, speeches and draft speeches from people who were then members of the Central Electricity Generating Board but who were about to be senior participants in the new privatised companies that were to come into being when the industry was put into the private sector.
The nuclear industry was to be with a company, National Power, which would take over 70 per cent. of electricity generation. That did not happen. The arrangement was withdrawn in 1990 because it did not stack up. Nobody could answer the question that Dr. Cable attempted to ask today, when he said that we should have an independent assessment of the costs of the nuclear industry. Twenty years ago nobody knew the costs of the full nuclear fuel cycle, and I suspect that nobody knows them now. The back-end nuclear liabilities can to some extent be predicted, and in the Electricity Act there was an attempt to do that. I shall address a couple of comments to that a little later.
At that time the Government were convinced that the nuclear industry could stand up in the private sector and that it would be profitable. Sir Michael Spicer was Under-Secretary when we considered the Act in Committee. He was adamant that
"The Government believe that the non-fossil fuel obligation"— it was actually a tax on fossil fuels to assist the nuclear industry—
"will result in four PWRs being built. PWRs are an efficient way of producing nuclear electricity."
He later said that my now right hon. Friend the Prime Minister had raised two points:
"His second question was whether I accept that nuclear electricity will necessarily be more expensive. I do not accept that, for at least two reasons." —[Official Report, Standing Committee E,
One was the environment and the other was that he was adamant that PWRs were the future of nuclear generation in this country, and that it had a future. That was not true. It did not work. Sizewell B was completed, but we saw nothing of the other PWRs, and we have not seen them since.
Does not my right hon. Friend accept that at the time he is speaking about, in the 1980s, there was not the same degree of liberalised market, under pressure from the European Commission, as there is now? The single market was not around, and there was not the same pressure from the environmental lobby, with the knowledge of the greenhouse effect.
We shall not have a debate on the greenhouse effect now, but it is right to say that those other two points did not apply at that time. But the Opposition argued in Committee about the horizontal privatisation of the electricity industry, which meant that generators could not own supply companies. I and many others went to America to see the privatised electricity industry. Ministers also went to America, where many of the companies concerned owned the energy source, the generation plant and the supply companies. They were supplying into homes. It was that type of vertical privatisation that we should have had in this country. But we do not have it, so I want to move on.
There were the seeds of the problems before us today. The Government are right to act by introducing this Bill to ensure the safety and security of supply and to deal with nuclear liabilities. British Energy is currently attempting to restructure. If it fails, it is highly likely that no private company will want it. What we are doing in the Bill is to make sure that the Government could be a purchaser of last resort. That is something that we should vote for.
It is the height of irresponsibility for Mr. Blunt to say that the market should operate, that if the company cannot be reconfigured and goes into administration, and if there are no takers, it is as well that it should go out of business. That shows a complete misunderstanding of the nuclear industry and the life cycle of nuclear plants.
I should like to ask my hon. Friend the Minister about the likely effect of repealing sections 72 and 74 of the original Act, which restricted the Government's powers to acquire shares in companies that were formed before privatisation. The relevant clause will give the Government power to acquire shares. How does my hon. Friend see this operating?
In a debate in Westminster Hall on
"to maintain an indigenous energy source".
Another was to meet our environmental obligations, which everybody would say we have to do. Both Opposition Front-Bench spokesmen should reflect upon that if they are going to vote against the Bill. The third was that
"it would cost more to shut nuclear power stations than it does to keep them open."—[Hansard, Westminster Hall, 3 December 2002; Vol. 385, c. 198WH.]
Mr. Thomas is shaking his head. Nobody knows the cost of the full lifetime of the nuclear cycle. I remember the debates 10 years ago when people asked "What do we do when a nuclear power station closes? Do we leave it alone for 10 years, 50 years or 100 years, before starting to dismantle it, because it will be more inert then?" Nobody knows the cost. I said that at the beginning of the debate, and I firmly believe it. Nobody has yet convinced me that we could switch off the current nuclear power stations and be able to maintain them as they are for a period. The suggestion is the height of irresponsibility.
British Energy has to put into its accounts some account of this "height of irresponsibility", because it has to say what the liability costs are. Its accounts say that for the first five years the liability costs about £600 million, which is the very minimum of what we are giving British Energy in the Bill, and that the vast majority of costs are after 35 years. Therefore, the right hon. Gentleman should accept that it is unproven that the open-ended cheque that we are writing for the nuclear industry in the Bill is any better than the real decommissioning costs of nuclear energy.
I think that the hon. Gentleman is second-guessing on that. I shall have something to say about what the Bill does, especially to schedule 12 of the Act. I well remember the debates in Committee about this issue. Nobody can say that we could turn the nuclear stations off tomorrow, whether we have excess generating capacity or not—and we have. We have to recognise also that for most of their lives these generators have been base-load generators, and there is a lot of other generation that would be put in place. That may have severe implications for electricity generation in this country.
Surely the right hon. Gentleman appreciates that for years nuclear plants throughout the country have been turned off, when necessary, for maintenance, or left idle for periods, and then brought back on stream when the market would bear it or the repairs were completed. He is painting a wholly unrealistic picture of the way in which nuclear plants are brought on and off stream.
On liabilities, if nuclear plants are turned off, any revenue stream will end, and that has major implications for the taxpayer. We cannot wish these things away. The issue of whether we ought to have used nuclear plants in the past or of whether there should be new ones in future does not matter; we will wait and see what the White Paper says. However, it would be irresponsible to turn off plants, and the taxpayer may end up having to spend more money.
I agree with much of what my right hon. Friend says. Does he agree that, in real terms, the cost of decommissioning these plants is the same whether one does so early or at the end of their lifetime, but if we decommission them early, we will receive no profit from the electricity that they could have been producing in the meantime?
I shall not give way because I have only about four minutes left, and I want to finish my speech.
In the Westminster Hall debate, the Minister used the word "indigenous" to describe nuclear energy. I have strong thoughts about other indigenous fuels which I would like to express, but not in this debate. I know, Madam Deputy Speaker, that I cannot do that. I just hope that the last colliery in my constituency, which is under threat, will still be around when we are able to debate the energy White Paper in a few months. Some people tell me that that is doubtful; I hope that they are wrong.
I turn briefly to clause 3, which amends schedule 12 of the Electricity Act 1989. That provided for financial assistance from the Government for nuclear liabilities, up to a ceiling of £2.5 billion. The Bill will remove that ceiling. I have a couple of questions for the Minister. One concerns a report in The Mail on Sunday yesterday. I gladly admit to my hon. Friends that I am guilty of buying and reading that newspaper. [Hon. Members: "Shame."] I know that it is a shame, and most of its contents are a shame. The article says:
"As part of the restructuring deal, the Government has agreed to pay £2.1 billion towards the generator's decommissioning liabilities . . . There is also growing confidence within the company that the White Paper on energy will not spell the end of nuclear power in Britain".
I do not necessarily want to see the end of nuclear power, and clearly nothing in the White Paper will have that effect; nuclear power will be around for a long time. However, I wonder whether £2.1 billion has been earmarked for that purpose.
My other question concerns the protection that taxpayers will have in relation to the operation of the amended schedule. How can we safeguard taxpayers' money and prevent it from being given to a private company that has mismanaged its affairs and consequently has to go into administration? Will taxpayers' money used to manage nuclear liabilities be ring-fenced within such a company so that, even if it goes out of business, there is still money to pay for the clean-up of the end of the nuclear fuel cycle? The hon. Member for Reigate suggested that that may be the case.
This debate will go on long after the passage of the Bill. However, we ought to secure the protection of taxpayers' money. We ought to ensure that if that money is being paid to a private company, it will be used for exactly the purpose for which it was intended. In this case, that is to meet the liabilities of the nuclear fuel cycle, and the money should not go into shareholders' pockets or be used for any other purpose.
It is a great pleasure to speak after Mr. Barron, who gave a spirited defence of his long-standing interest in the energy industry, and Dr. Ladyman, who suggested that, by voting against Second Reading, we would be voting to write off the whole nuclear industry.
It seems that there is no problem so big that a good dose of Government intervention cannot make it worse. Although I accept that, from the Minister's point of view, it is prudent to plan for all eventualities, and that the Bill is obviously the result of such planning over recent months, no one should be deceived. This is wholesale renationalisation of the business, or at least the first and most important step towards that.
It is indeed. There is a great fear among Opposition Members that this may become Railtrack mark II and that the taxpayer will effectively be asked to sign a blank cheque. The Minister will remember that, on that long ago day in October 2001 when Railtrack was reorganised, to put it at its most euphemistic, it was said that no taxpayer's money would be spent, and of course we have seen the results of that in the intervening 15 or 16 months.
I shall canter through a quick history of the UK energy sector. I accept, as I am sure that the right hon. Member for Rother Valley does, that there has been rapid change in the past 50 years. In 1950, we relied on coal for about nine tenths of our energy, and roughly one tenth came from crude oil. Gas, high-grade oil and nuclear power were not even a gleam in anyone's eye. Now, 43 per cent. of energy comes from gas, 32 per cent. from oil and only 15 per cent. from coal. We may not be sure about the route that we will take in the next half-century, but one thing that we can all be sure of is that there will be rapid change in the energy sector. I suspect that, whether or not Liberal Democrat councillors get in the way, the hon. Member for South Thanet is right to suggest that wind power will not be the answer to all the UK's problems.
More recently, the energy review has tried to envisage what energy policy we will have in 50 years. There is a fallacy of over-prescriptive planning, and one has to consider the law of unintended consequences, which all too often rears its ugly head in any planning that promotes one sector over another. I greatly fear that, in giving this Bill a Second Reading and giving a thumbs-up for the long-term future of nuclear energy, which intrinsically I support, we will distort the whole energy market. It will be interesting to see how the energy White Paper, when it is eventually published in late February, early March or even a week or two later, is integrated with the Bill.
There is widespread acceptance of certain beneficial impacts, both economically and environmentally, of the changes that have taken place in the past 10 or 11 years. Mr. Hendrick hit the nail on the head when he said that there had been a sea change in thought about environmental issues in the past 12 or 13 years, particularly in relation to greenhouse gases and global warming.
The changes in the 1990s, both under Conservative Governments and more recently since Labour was elected in May 1997, have reduced the cost of production as a result of the liberalisation of the market. Wholesale reductions in the cost of raw materials have fed through to the consumer. That has led to a reduction in UK fuel poverty, which was a large-scale problem discussed by many only 10 years ago, but it has not been in the headlines in more recent years. We have also seen a switch from coal to gas, which has allowed us to achieve many international environment targets.
I shall indeed. I apologise.
There is little doubt that one problem in the electricity sector is the precipitate fall in wholesale prices, down 40 per cent. since 1998 as a result of misguided pricing policies and over-building. That created a generation capacity 22 per cent. higher than required, to which hon. Members referred. The role of NETA, the new market clearing system, accelerated the worsening position since 2002. The fallout in the increasingly international energy market has also been a problem. We fear that that is not over and that British Energy is at the forefront of the financially embarrassed market.
What is the right way forward? We all agree that there are problems. We need a concerted strategy, not just as an Elastoplast for the stage that we are considering, but as something that plans for the years and decades ahead. British Energy provides about 20 per cent. of the UK's electricity, with more than 5,000 staff and 15 of the 31 nuclear reactors. The precipitate problem that began only last August, with the shutdown of new plant owing to the probe over a fault, led to a run on the British Energy share price, which lost a third of its value almost overnight. That resulted in the financial position turning down from the already precarious to the somewhat ugly. At the end of 2002, creditors were owed £1.26 billion.
Even the Department appreciates that the introduction of NETA opened up competition between operators and helped to drive down prices of wholesale electricity. That would not be such a problem but for the fact that British Energy has no retail business on which it can rely. After the warnings of insolvency, which Conservative Members espoused as recently as September, the Secretary of State assured us:
"There's no question at all of taxpayers writing a blank cheque to British Energy and its shareholders".
That assurance seems hollow in the light of the Bill, which will probably go through tonight, and any action consequent on it.
Last autumn was characterised by the extension and increase of British Energy's financial support package. The blank cheque rose in value from £410 million to £650 million to provide working capital because of its shot-through balance sheet. Even the Bill can only take effect to the extent permitted by the European Union state aid rules. We may not have heard the last of that. My hon. Friend Mr. Cash tried to address the problem in a point of order before the debate. I suspect that we will return to it on Report next week and later. It is of great concern that the papers will not be given to the Commission until March, by which time there is a risk of the package falling apart. The Minister will know that the Commission has reportedly launched a new investigation into British Energy after its request to local councils to defer business rates. There is the suggestion that that falls foul of state aid provisions.
We are gravely concerned that the Bill amounts to unnecessary Government intervention. It is anti-competitive and, by exposing the taxpayer to an unlimited and uncosted liability, there is a risk that it will not be in the public interest. Specifically, it is clear that British Energy will not enjoy fair trading until proper account is taken of the true effect of the climate change levy. Given the absence of carbon dioxide emissions, the proper account should be nil. Although I am instinctively supportive of measures that will improve the global environment, the Government have all too often allowed the environmental tail, in the form of the climate change levy, to wag the energy dog. Their policies, as highlighted by the Bill, make neither economic nor environmental sense.
The Bill is both a response to, and a reflection of, an energy sector that is changing massively and quickly. It gives the Department the tools to respond flexibly if we need to restructure British Energy or if it goes into administration. Conceptually, I support the approach, but it is important to view British Energy's problems against the wider energy difficulties, as Mr. Field said. It is not just British Energy that faces problems. Enron, AES, T"U and even the coal producers, UK Coal, face problems in a rapidly changing energy market.
As a reflection of how quickly the energy market is changing, let me take the Minister back to the performance and innovation unit energy review published last February, less than 12 months ago, in which it said:
"Because nuclear is a mature technology within a well established global industry, there is no current case for further government support."
Things have changed fairly radically in the space of a few months and I predict that they will change radically again.
To enable us to discuss the Bill, we need to consider the problems arising from British Energy. Hon. Members have referred to the climate change levy, the nature of the contract with BNFL and the effect of NETA on British Energy. It is important to acknowledge that the management of British Energy should shoulder a good deal of the blame.
British Energy has not responded to a changing energy market. It attempted to widen its generating base by buying Eggborough at the cost of about £500 million, which was perhaps not the best of investments. It acquired and sold SWALEC. When other energy companies were trying to integrate vertically, British Energy was going in a different direction. Over the years, for the majority of its life, British Energy has consistently paid out special dividends. It has been a good earner for shareholders until now. It is important to focus some of our attention on the failure of the management at British Energy. In technical engineering terms, the management have been good, but they have been pretty poor in responding to market signals.
Surely the great danger is that, if the market is not allowed to take its course with British Energy, people will wonder when the Government will intervene in other sectors.
That is a problem. Hon. Members have different views on British Energy and legitimate arguments to make. The point is that we have an asset with an income stream. It is important to consider how we make best use of that. Some hon. Members argued that it is important to close and decommission the plant as quickly as possible. Others offered a counter-voice and argued that perhaps we could extend the plant safely beyond 2020. The intervention in the market will have consequences that I want to spell out.
The cost to the taxpayer looks immense, with a £650 million loan. I acknowledge that it is only a loan, but whether we will see a return on it is a different matter. The key issue is the commitment in the proposal announced on
We are about to experience a step change or a conceptual shift in energy policy: we are about to move from a free-market approach to one where we need to set a framework for energy policy. Our discussion of the Bill and British Energy's policy must therefore be set in the context of the White Paper, which draws on the PIU report. That report is good on questions, but not very good on answers. One problem caused by the delayed publication of the White Paper is that we are not sure what the answers will be. However, the introduction of a set of energy proposals is inconceivable without nuclear having a role to play. I guess that our energy proposals will focus on affordability, diversity of supply and environmental aspects. Nuclear clearly has a role in those three propositions, and will continue to play a role.
On security of supply, there has been a just discussion about the amount of generating capacity. There is too much, but it would not be sensible to take nuclear out in one go. It is more sensible to allow it to decline over a period and introduce a series of measures to build renewables.
As things stand, there is no future for nuclear energy. The private sector has never replaced nuclear with nuclear and will not do so until the distant future when we have resolved the issues about decommissioning, disposal and liabilities. There is a strong argument for building a renewables base while nuclear declines. There are great challenges for renewables, as we must achieve a 10 per cent. target by 2010 and one of 20 per cent. by 2020. At the moment, 3 per cent. of our energy comes from renewables, much of it from traditional hydro. Many planning applications for wind farms have been withdrawn. In fact, two thirds do not see the light of day.
I shall ensure that I do not, Madam Deputy Speaker. I am making the point that the Bill is necessary because we need a rescue package for British Energy if nuclear is to develop in future. Our balanced and diverse energy supply should not be dependent on renewables and gas. The PIU report said that 80 per cent. of our energy could come from gas by 2020, and 90 per cent. of that would be imported. If we want a balanced energy policy, it is important that British nuclear energy has a role and that other sources of supply are maintained. Many environmentalists dismiss nuclear as a dirty fuel. There are genuine environmental problems with disposal but, on the plus side, nuclear gives rise to minimal emissions.
My final point relates directly to the Bill and the money that the Government have made available to British Energy. That involves an immense cost, and one of the step changes that we are contemplating may be about moving away from the notion of cheap energy. Wholesale prices have fallen by 40 per cent. but the knock-on benefit for the consumer has not been nearly as great. With the promise of extra money from the Government and taxpayers, should we not reflect on whether the days of the cheapest energy supply are over? The Bill deals with that problem, and I very much hope that we will develop the issue and discuss it again when the White Paper is published.
I am glad of the opportunity to contribute to our debate and follow Paddy Tipping, who made a useful contribution. Interestingly—I hope that this is still the case when I finish my speech—everyone who has spoken has added to our debate, not least in the form of information and ideas. Dr. Cable was generous about me—I suspect that my knowledge of the subject is not as great as it ought to be—and I shall try to follow that precedent. Mr. O'Neill and members of the Select Committee have wrestled with aspects of the subject and related matters during the course of our inquiries, including the security of energy supply, so we have something to offer.
I shall treat one or two things as read, even if they are the subject of further debate in the House. First, as the hon. Member for Sherwood explained, British Energy contributed to its own downfall, because it did not adjust to market circumstances sufficiently, nor did it secure vertical integration to capture the remaining benefits of consumers' willingness to pay for electricity. It bought and sold SWALEC, and bought Eggborough on a basis that was not as commercially advantageous as it might have hoped. As the Minister said when he appeared before the Select Committee, it did not enter early advantageous long-term contracts, given that it is a base-load supplier of the national grid. It therefore contributed to its own downfall, and I am not seeking to excuse it or bail it out.
I may sometimes go a little further than the Minister, but we may share common ground as I do not blame the new electricity trading arrangements for the problem. If we were to turn the problem round and say, "Fine, let's not have NETA", what would be the consequences? If they were higher prices for consumers, they would have no intrinsic merit. If, in the long term, consumers have to pay higher prices because environmental objectives must be met through the extension of renewables, carbon-free emissions and so on, that would be a rational basis for proceeding. If consumers have to pay higher prices because the way in which the market operates means that the highest-cost producers disappear and the margin between overcapacity and supply is better balanced, that would be acceptable. However, the worst possible reason for changing NETA would be the lack of commercial success of operators who are uneconomic or who have failed to adapt to a market-led system. Intrinsically, we should move towards a liberalised system. The shareholders in British Energy should to that extent have no complaint. The company was privatised into what was intended to become progressively a more liberal marketplace.
The Minister made it clear in reply to me that we will not see the energy White Paper before the Bill passes through this place at least—I do not know about the other place. That is regrettable. It would have been better to have seen it at the same time in order to set it in context. At least the Minister told us that nothing in the White Paper would fundamentally change the economics of nuclear generation, because if there were such a thing it would change the economics of British Energy's generation.
Had the Minister not done so, I would have gone on about the climate change levy and its impact on the economics of British Energy's electricity generation. The Minister knows that the levy could make a difference of 0.4p per kWh—£4 per megawatt-hour. Irritatingly, everybody is talking in pounds per megawatt-hour, but I think in pence per kilowatt-hour. However, I think that we can manage. It is curious that the Minister said that it was illogical that the Government should give financial assistance with one hand and take it away in the form of tax with the other, given that the Government propose financial assistance on one hand and impose the climate change levy on the other. I do not see what is so logical about applying the climate change levy to nuclear generation, and so illogical about applying tax. They seem almost the same.
I followed the hon. Gentleman's persuasive argument in favour of the market. He now seems to be suggesting some double distortion in favour of nuclear, and that the industry should benefit from not only the grant, loan or whatever is in the Bill, but the removal of the climate change obligation, which all other electricity producers apart from those of renewables must meet. Surely that would also be distortion of the market. We must be careful not to replicate the old pool arrangements, under which the base load rewarded nuclear and the shareholders benefited from it.
I shall come on to discuss the financial assistance. I did not mean to go on about the climate change levy, but it depends what the levy is for. The Minister would say that it is to stimulate energy efficiency, but if that were the principal purpose, surely one would apply it primarily to the domestic rather than the industrial sector. As he told the Select Committee, the industrial sector has seen a 62 per cent. increase in energy intensity, compared with only about 6 per cent. in the domestic sector. The climate change levy is in truth a tax, the ostensible purpose of which is to reduce carbon emissions. If so, it does not make sense to apply it to nuclear. That is not a distortion; it simply means not applying it to those who should not pay it.
The question that I want to reach before time elapses is, what does one do? The Government were clearly right to make finance available in order to forestall what would otherwise have resulted in administration and damaging financial consequences—in relation not least to the north American assets—as set out by my hon. Friend Mr. Blunt. Having done that, the Government need to think about the longer term.
Although the hon. Member for Twickenham tried manfully to work through the numbers, he was still somewhat confused. We are dealing on one hand with the liabilities associated with past generation, which the Government, effectively, intend to remove from British Energy, except to the extent that it will be able to generate cash resources to help meet them. On the other hand, the costs associated with managing the waste from current and future generation and the resultant decommissioning must also be met at some point. The hon. Gentleman more or less said "Why don't we just meet them in the next few years? At present net value, that would cost us only £1 billion." That is £1 billion that we do not have to spend. The figure could be £1 billion or £5 billion; I do not know where it is between the two.
One cannot compare that £1 billion with the £2.1 billion that the Government have talked about as the net present value of historic waste liabilities, because they are different liabilities. The hon. Gentleman seemed to suggest that the Government pay the £2.1 billion and the £1 billion, and also that we do not have the electricity generated by nuclear power stations—which is a substantial part of our security of supply and greatly reduces our carbon emissions. What is the logic in that? It is environmental and financial nonsense.
What is in the Bill, and is it sensible? Up to now, the Minister and I might not have parted company, but at this point we do. Clauses 1 and 2 include an option for the Government to acquire shares in British Energy and, if necessary, to renationalise it. By doing so, the Government are opening up shareholders and future bondholders to the opportunity, from their point of view, of everything being handed back to the state if it all goes wrong.
The Minister may say that everything will be handed back anyway, but we should not make it that easy. The plant would not be shut down. The assets, not the company, should be handed over to the Government. In the event of the failure of British Energy, the result would not be renationalisation but simple failure. If the Government are to accept responsibility for the long-term liabilities, they must be prepared—just as the Liabilities Management Authority will have both responsibility for liabilities and control over the assets—to accept the transfer of the assets, but not the company.
Does that mean that there should be no legislation? I shall vote against the Bill because, owing to the risk of nationalisation, there is no cost incentive for British Energy to achieve what should be achieved in the private sector: driving down costs and responding to markets and market opportunities. There should be a Bill—perhaps alongside the forthcoming Bill on the Liabilities Management Authority, as it takes a similar approach—comprising of part of clause 1, not clause 2, and certainly clauses 3 and 4, as it might be necessary to extend financial assistance. The presence of the nationalisation provisions make this Bill fundamentally flawed.
Even if the Government go down this path, I am far from convinced that they have chosen the most advantageous mechanism for the taxpayer concerning British Energy's contribution to the costs of waste management and decommissioning. The House will remember, not least from what the hon. Member for Twickenham said, that some of the bond issue is to be transferred into a fund, and that in future 65 per cent. of available cash is to help meet the liabilities. That is 65 per cent. of available cash after meeting British Energy's cash reserve position and the running costs of plant and so on. That is not the right solution. We must leave British Energy with incentives to drive down costs.
British Energy is not the cheapest producer of energy, but it is not the most expensive by a long stretch. Dr. Ladyman might have more up-to-date figures, but last year British Energy representatives made it clear, when talking to the Select Committee, that their public target was 1.6p per kWh. If they can meet that, the company will not be far off—certainly if it does not have to meet historic liabilities—the current market price. That would make the company if not profitable at least not a substantial loss-making activity.
When British Energy came to see us, the figure was £18 per megawatt-hour. Even after the problems associated with Torness and other things, it is moving towards that target. I do not know what the market price is, but let us say that it is about £17 or £18 per megawatt-hour. The company is not really losing money on that basis. It cannot meet the historic liabilities, so the business is not necessarily solvent, but after the financial restructuring it might be.
Where is the incentive to control costs? In effect, the Government are offering the opportunity for costs simply to be passed through. They will be allowed for in the mechanism. It would be much better, as in the BNFL arrangement with British Energy, for the Government to have an arrangement with British Energy shareholders to share that incentive. For example—one would have to work through the numbers—in so far as the market price went above 1.8p per kWh, the revenue beyond that point would be shared in some proportion, possibly two thirds and a third, between the Government, as a contribution to the fund, and British Energy shareholders, rather than allowing the costs to be passed through.
That may be regarded as a nit-picking point of detail that we in the Select Committee will have to pick up and work on, but in the long run it might be important. If, as may well be the case, the price shifts to 2.2p per kWh or even higher, and if the plant continues to work efficiently, we should make sure that British Energy cannot allow its costs to escalate beyond its publicly-stated target of 1.6p per kWh. The benefit of that and the cash resources that flow from it should not subsidise inefficient quasi-public ownership of British Energy, least of all if it were nationalised. The company should have an incentive to drive down costs and deliver a substantial part of the benefit that flows from that to the Government.
Nationalisation would be the worst of all scenarios, as there would be no incentive to control costs or to respond to market pressures. The costs would begin to move in the opposite direction to that in which they have moved in the past. The net result of my argument is not to let the company go to the wall, but to support it in a way that maintains incentive. Nationalisation has never been the way to provide an incentive.
From listening to the debate so far, one would think that British Energy was the only company that had ever undergone restructuring. As my hon. Friend Paddy Tipping said, a number of energy companies have been in trouble recently, and many companies have been through a restructuring exercise. We should bear that in mind and learn the lessons from those restructurings.
One of the benefits of the Bill is that it gives us time to do that, and buys time for British Energy to restructure in a way that will allow it to continue to trade. The key objective is not just to keep the company going but to protect its work force and ensure that they have a role in the future of the industry. Two further objectives have been mentioned: security of supply and safety. Enough has been said about those, but it is important to reflect on the lessons of other restructurings.
We need to consider the Bill in the light of the rundown of Magnox stations. I disagree totally with the remark of Richard Ottaway that Magnox distorts the market. The crux of the matter is British Energy's business case. Does its business case stack up? I agree with Mr. Lansley—that is becoming a habit on the Communications Bill, on which we have had a number of debates. He makes a valid point when he says that British Energy's costs should not be allowed to get out of control. It is important that we make sure that its business case is robust. It should not be based on hidden figures, as it was under the previous management. It should be transparent. We must not repeat the strategic mistakes that were made previously.
My hon. Friend the Minister will no doubt take that on board. The business plan must set out the proper direction. The change in the chair is welcome. The business case must be monitored and we must have assurances of its viability. The costs to the taxpayer and to the company must be controlled. The Bill gets us over the short-term hurdle and gives the business case a chance to work, but it must not be implemented in the context of the White Paper and the long-term energy market. That brings me to the role of the regulator.
We have considerable experience of privatisation in this country. Some privatisations have been quite good and have stood the test of time. Others have shown themselves to be viable when the market is buoyant, but not through the full cycle of the market. British Energy fits into that category. We need to learn that not all privatisations have been in the best interest of the company, the country or the work force.
We have seen what happened abroad—in California, for example, where the lack of investment and delay in strategic decision making have led to power cuts. In Scandinavia, the debate on the future of the nuclear industry has led Sweden and Finland to take different decisions about the way forward. The Bill will allow us to debate the type of activity in which British Energy should be involved as it moves forward. Others have raised the issue. It is not a case of business as usual or closure. There are choices that British Energy can make about the way in which it carries out its business and runs the power stations. That may affect the cost to the taxpayer. Once the Bill is enacted, it is important that the Government, through the regulator, engage with British Energy in a discussion about the strategic options for the operation of the power stations. My hon. Friend Dr. Ladyman is right to draw attention to the economics of that, but the way in which British Energy deals with BNFL must be challenged.
As a refugee from the Utilities Bill in 2000, I remember the debates about the new electricity trading arrangements. Dr. Cable is right. Many of us expressed fears about NETA at the time, but I do not recall British Energy approaching members of the Committee and saying that it had a problem. We said that the role of the regulator would be crucial to the operation of the company.
With regard to the present Bill, I am concerned that the decisions of the independent regulator should be consistent with Government policy. I fear that the independent regulator could undermine Government policy and take decisions that cause problems for British Energy. I look to the Government to make sure that the independent regulator's decisions are consistent with the terms of the Bill.
The negotiations about the conditions under which British Energy will supply could be badly hit if the wrong assumptions are made about market conditions or the regulator's intentions. I do not want us to be back in the same situation in a few months' time because the new management at British Energy has made the same strategic mistakes.
As has been said, we cannot shut nuclear power stations overnight. We need to get the balance between different suppliers right. I expect, Madam Deputy Speaker, that you will tell me that that is a matter for the White Paper, and I will not stray into it, except to mention that my private Member's Bill on sustainable energy will come before the House shortly. It will deal with issues connected with NETA, but that is a debate for another day, and I will not stray into it.
It is important that we look at how the money that we are giving to British Energy is being spent. The House needs assurances that the money is being spent properly, that it represents value for the taxpayer, that the environmental, social and energy gains are right for the country, and that if intervention in British Energy is necessary, it is done quickly, and the matter is not left to drift. One of the problems that British Energy has had in the past is that it let strategic decisions drift.
To conclude—I appreciate that many other speakers want to contribute—the Bill will allow restructuring to occur. It will not make a difference to whether British Energy succeeds or not—rightly or wrongly, that will be down to the market and the independent regulator. In those circumstances, the Bill will give British Energy the greatest chance of success.
In the light some of your earlier strictures, Madam Deputy Speaker, I have dismissed my meticulously prepared notes, which are next to me in piles on the Bench, and am left with a couple of sheets of paper. I wanted to contribute because since I came to the House I have followed with interest the debate about the future of energy policy. I throw up my hands in horror at the fact that, three years later, we still do not have an energy policy and are debating the issues out of context, which is why we are facing some difficulty in finding our way ahead.
One of the most startling statements in the debate was made by the Minister. It related not to the money that we are putting into British Energy in grants, loans or whatever, but to the White Paper, so I hope that you, Madam Deputy Speaker, will allow me to respond to his comments. He said that he could give an assurance that the White Paper would contain nothing to affect British Energy. That is an astonishing statement, although it may be necessary in the context of the Bill, shareholders and so on. However, it shows not only that the nuclear industry as it is currently constructed will not be affected by the White Paper, as hon. Members have pointed out, but that, because there is a liberalised energy market, the other players in it will not significantly be affected.
That means that we are still asking the same questions that were being asked a year ago in the performance and innovation unit report and that we are unlikely to get any clear answers from the Government in their White Paper, apart from some fudging around the sides. There may be a little bit extra for renewables, combined heat and power or whatever else, but the basic construct of where energy in this country is going remains unchanged by the Bill and, in all likelihood, will remain unchanged by the White Paper. That shows that the Government have learned nothing from the fiasco that has occurred and the way in which the new electricity trading arrangements have worked in respect not only of British Energy, but renewables and CHP, even though they have not had the benefit of such a debate in the House or the introduction of their own measure.
I do not approach the Bill from the perspective of believing in overnight shutdown of nuclear energy. I do not see on safety and economic grounds the case for any new build for nuclear energy, but I certainly agree that we cannot go for an overnight closure. We need a natural progression in the nuclear industry. As the reactors come to the end of their natural life, they should be decommissioned and we should face the costs. As we move along that path in the next 14 to 15 years, we must decide how to pay for that—an issue that the Bill partly addresses—and how we should put in place the security of supply that the Minister has adduced as one of the main reasons for introducing the Bill.
Mr. Horam, the Chairman of the Select Committee on Environmental Audit, of which I am a member, led the Committee to Germany last year, when we looked into the future of energy needs in this country. We saw a Government who had already decided to give up a nuclear programme. They have decided not to support new nuclear Bills and have said that, as nuclear power stations reach the end of their natural life, they will be replaced not by more nuclear stations, but by a mix of other energy sources. Security of supply is therefore a serious issue for the German Government, but they are prepared to bite that bullet and address the issue thoroughly and properly.
The hon. Gentleman will be aware that there was a strong debate last year in Finland about whether nuclear power was right or wrong. It has now decided in favour of new nuclear build.
I accept that. It is for sovereign states to take the decision. We are not discussing a European directive; such matters are part of how a liberalised energy market is run. My submission is that the failure of British Energy is significant in terms of what we should be regarding as the long-term interests of nuclear energy in this country. We can deal with the short term in the Bill, but how should we deal with the long term? How should we deal with the fact that BNFL is also in a very dodgy financial position? That is a question that must be debated for the future.
We have already debated how we reached the current position, so I shall not reiterate the details. The Minister said in his evidence to the Select Committee that what happened was as much a failure of British Energy's management as anything else, and I shall not disagree. Nor do I think that we can put the blame at the door of NETA, although I have some problems in that regard. There are some questions about how NETA has worked in a moral vacuum with no pressure of social or environmental responsibility from Ofgem, the regulator. The shareholders in British Energy benefited wonderfully when there was a pool arrangement and the base load of British Energy was rewarded in that context, so they should not complain when they find it difficult to cope with the liberalised energy market that they knew would be introduced. That is not a matter that we should address at a legislative level, which is one of the reasons why I am disappointed with the Bill.
Mr. Blunt adequately demolished any significant arguments made on the grounds of security of supply. He made it clear that, if we did not take the Bill forward, we would not see the turning off of lights, as Mr. O'Neill put it, in Scotland or anywhere else. There are processes in respect of companies such as British Energy that will ensure a continuation of supply and employment, so there is a way of addressing that issue.
The other argument that the Minister prayed in aid—it was mentioned by Mr. Lansley—was that the Bill kept British Energy going and maintained an income flow into the liability fund, which would be cheaper for the taxpayer. There are two questions about that. First, we have seen no independent report about the real value of the settlement to the taxpayer. Secondly, my feeling is that we will not see much money coming from British Energy into the public liabilities fund. When the Minister winds up the debate, as I think he will do—
I shall not object to his doing so, and I hope that he will take the opportunity to tell us what sum he expects British Energy to contribute annually to the liabilities fund, bearing in mind that the Bill allows him to put £150 million to £200 million into the historic liabilities fund. I accept that those are different funds, but they come from the same pockets.
Decommissioning costs have also been mentioned. As I said in an intervention on Mr. Barron, who is not currently in his place, we need a proper assessment of the real costs. We may face up-front costs now. That does not mean overnight decommissioning, but if we see that some nuclear closures are needed to allow British Energy to work in a competitive marketplace, we must ask how those costs can be met from the public purse. Ultimately, as the backstop is the public liability, the taxpayer will have to pay. I am not convinced that that is a more expensive option than the up-front payments of about £1.15 billion for which the Government sought the European Commission's authorisation in the Bill and the ongoing £200 million a year that can be provided for at least 10 years, which amounts to at least £2 billion. It is with regard to that £3 billion package for British Energy that we must consider decommissioning costs. That is important not in the context of year one or even year five, as this is a 10-year Bill that provides the ability to give £3 billion to British Energy.
I agree with some of the comments of Opposition Members about the idea that the Bill introduces a type of nationalisation. It is an attempt to establish the framework for potential renationalisation. I would not necessarily philosophically object to such a policy. I did not do so in respect of Railtrack and I am not sure that I would in respect of the nuclear industry, which would possibly be safer in public hands than it has been in private hands. However, the Bill is an expensive way of pursuing such an approach. Setting up a framework involving a private company but always thinking "We'll come in and renationalise" is not good value for the taxpayer.
In the long term, we could argue about whether nationalisation is good value for the taxpayer. My central argument about nuclear power is that it cannot be valued on the basis only of price per megawatt or kilowatt; it has to be valued on the basis of security supply and safety in particular. I am not completely comfortable with an industry that says "Let's drive down costs at all costs." We saw what happened with Sellafield and BNFL in that regard. I am more comfortable with an industry that involves a great deal of public interest, but the Bill is a missed opportunity in that regard.
The hon. Gentleman mentioned safety several times. In more than 50 years, the total number of deaths as a result of the nuclear power industry is fewer than one a year. In the same period, the figure for the conventional power industry is 11,300. Will he therefore stop claiming that there is a safety issue? Nuclear is the safest form of electricity.
I am tempted to take the hon. Gentleman to a wind farm site. I appreciate that I am straying, Madam Deputy Speaker, and I shall be careful. The only community-owned wind farm site in Wales is in the constituency of my hon. Friend Mr. Llwyd and is on land that is still contaminated by the Chernobyl disaster. That is the price of the nuclear industry. The wind farms that have been built on the land will not contaminate it; Chernobyl still contaminates it.
I shall not give way again on that, and I will move on.
If the Bill is genuinely to protect taxpayers' interests, we must consider all the options. Hon. Members have outlined them, and I shall not reiterate all the questions. The Bill as currently drafted distorts the market enormously. It is open to challenge, and I would be amazed if another energy generating company did not challenge it. The European Commission has agreed to the £1.15 billion, but the Bill is different. I should be surprised if it were not challenged in some court.
In the context of the continuing debate on the White Paper, the Bill puts paid once and for all to the idea that we can have energy that is too cheap to meter. We should be grateful for that. The Bill acknowledges the true price of cheap energy. It is noticeable that several Labour Members have claimed that energy is too cheap. A liberalised market delivers the cheapest energy; that means the dash for gas and everything else that we have had to tolerate. I hope that hon. Members realise that cheap fuel alone cannot fulfil the need for security of supply and long-term energy. It cannot solve fuel poverty, which relates to energy efficiency and providing the best resources to the poorest people. It is not simply a matter of the price per kilowatt hour of electricity. I hope that that realisation is dawning on Labour Members. That is not apparent in the Bill.
The Bill does not deal with the genuine, long-term costs of the nuclear industry. It does not tackle the costs that the PIU report outlines or our position in five or 10 years. The measure is a sticking-plaster solution. Sticking plasters are not safe for nuclear reactors.
I am pleased to follow Mr. Thomas. I agree with much of his contribution. He said that he was disappointed with the Bill, but appeared to suggest that if it were more specific about public ownership, he would be attracted to voting for it. Similarly, Mr. Lansley considered whether the cost of public ownership would be too dear. At the same time, he appeared to claim that the liabilities were so great that if the Government took them on, the industry could be privatised again. I do not accept that.
The only way forward is public ownership. Dr. Cable suggested that to some extent. He rightly pointed out that Mr. Blunt did not robustly oppose renationalisation in the way that Conservative Front Benchers normally do. Perhaps he accepts that public ownership of a company that has such vast liabilities is the only way forward.
I want to ensure that I have not given hon. Members the wrong impression. Conservative Members would oppose renationalisation. Administration is a perfectly good route. The company's assets—the working power stations that generate cash and power—can be sold out of administration. The taxpayer will have the first charge on any receipts from that to meet the liabilities that the Government have taken on.
I am grateful to the hon. Gentleman for clarifying that point. Doubtless my hon. Friend the Minister has noted it.
I appreciate the Minister's need for the Bill. I understand that the Government require such a Bill to restructure. However, rather than restructuring British Energy and having to come back to the House to discuss public ownership, I urge the Minister to consider public ownership as the first option. I hold that view because of the enormity of the liabilities, to which I shall revert shortly.
The economic case for nuclear energy is not strong. If we consider the competition in the market before the new electricity trading arrangements, it is apparent that nuclear energy could hack it only because the pool favoured it. When I was member of the Trade and Industry Committee, we considered the proposal to privatise in 1996. It was discernible that the Tory party had decided to privatise British Energy despite removing it from the privatisation package in 1990 because the economic climate had changed. It had introduced the non-fossil fuel levy, which obliged specific suppliers to buy energy from a nuclear source, and the nuclear levy. The latter paid for the nuclear industry. The Tory Government therefore decided to privatise British Energy because the commercial position had changed.
The position has subsequently changed dramatically. The Minister referred to security of supply and safety. We should take up those points and I hope that Opposition Members are prepared to support the Government on them. Safety has been mentioned, and my hon. Friend Dr. Ladyman pointed out that only one person a year had died in a given period in the nuclear industry. However, he omitted to mention the way in which privatisation changes the safety culture. For example, contracting out and outsourcing in British Rail resulted in the employment of people who were less skilled than the previous in-house workers. That led to some of the problems that British Rail experienced and to Network Rail as a solution. Network Rail has now decided to use in-house workers for many of the maintenance jobs.
When British Energy was privatised, there was a move to outsourcing. Only a few months ago, the nuclear installations inspectorate raised the problem of safety. Questions were asked in the House about its report. British Energy may have adjusted to that. I am not sure whether it did so by retaining payroll workers in maintenance and cutting its outsourcing, but the nuclear installations inspectorate drew our attention to it.
I am grateful to my hon. Friend for prompting my memory. When the Minister considers the total picture, if he does not feel that outright public ownership should be the model, he may favour a Railtrack-type solution for British Energy. Whichever model he opts for—whether it is the public model or the Railtrack-type solution—the general public will have a greater commitment to the industry. They will feel safer if the industry is operating on a non-profit basis, so that commercial pressures tend not to subvert the safety culture. If it was in the public sector, we would see the return of that safety culture.
Another point that I want to raise with regard to the nuclear industry has not yet been mentioned—the threat from terrorism. We know that the industry is vulnerable to such threats. Indeed, only two weeks ago the Daily Mirror probed the defences of the nuclear industry and found that it was allowed to enter sites quite easily. Will the Minister tell us whether the Daily Mirror provided him with a report of that incursion by one of its journalists on to a nuclear cartilage, and, if so, whether he will act on it to ensure that security is tightened up?
My next point concerns liabilities. Opposition Members have suggested a number of options as to how liabilities should be dealt with. Some believe that the phasing out of nuclear energy would reduce the future liability and therefore be a saving to the overall energy economy, leaving more money available to be invested in its future. Others feel that the industry should be phased out over time, as in, for example, Holland, Germany, Spain and Sweden. I tend to favour that approach, because it would allow the industry to work to a timetable of phasing out and would enable the Government to address the issue of jobs. However, that would be better done within the context of public ownership. The hon. Member for South Cambridgeshire said that he was ideologically opposed to renationalisation. He did not use that phrase, but I think that is what he meant. If he had looked at some of the huge operators in the energy industry, especially British Gas before it was privatised, he would have seen that British Gas was described as a monopoly that operated in the public interest. If the Minister were prepared in clauses 1 and 2 to bring British Energy into the public sector, it would operate for the public interest.
The liabilities are vast indeed. I refer the hon. Member for Reigate to the Select Committee report of 1995–96, in which we were able to see the undiscounted and discounted liabilities. The undiscounted liabilities for the PWR and for the eight advanced gas-cooled reactors, which are part of British Energy, were £10.5 billion. Discounted at the rate of 2 per cent., that liability came down to £7.6 billion. That is another matter that I should like to be clarified. A segregated fund was set up when British Energy was privatised whereby contributions were made by the company towards dealing with the clean-up costs. How much was in the segregated fund when this crisis arose, and does the Minister think that the amounts that were put into it were sufficient? Can he say whether it is the board of the company that decides on the amount of moneys that will be put into the segregated fund? Who decides the rate of discount? That is an important issue. That rate depends on the size of the fund that is to be accumulated to deal with the clean up.
Although I am sceptical about nuclear energy, the Bill is necessary and I shall vote for it.
I am pleased to be able to take part in this debate. I want to start by picking up on a point made by my hon. Friend Dr. Cable, who said that gambling analogies apply to the Bill. It allows the Minister to do anything that he likes in relation to anything that has British Energy in its title without let or hindrance and with no cash limits whatsoever. That is the plain reading of the words in the Bill. Although discussion of specific sums of money has been useful and instructive, it is somewhat beside the point. All that can be put in the wastepaper basket on the day after the Bill is passed, all the numbers can be doubled, and the Minister has the authority of the House to do that. If nothing else, that is a good reason to oppose the Bill. As my hon. Friend said, it is like the young man at the tables in Monte Carlo who sends home a message saying, "System working well—send more money." The Government are professing that all is well, but they just need a bit more money to finish it off.
Several interesting points have been made in the debate, which has been of good quality and has shown that many hon. Members are seriously engaged in the issue. One of the issues that has been discussed is how the full decommissioning costs fall and who is to take responsibility for them. Mr. Barron argued that by the Government taking the firm over, the decommissioning costs could be paid for over a longer period from the profits made from the company. He went on to point out that the firm is running at a loss. Dr. Ladyman commented that the costs of production for the firm are £16.70 and the market price is lower than that. In other words, every day that it runs increases the loss—it does not allow it to contribute a profit to the fund. We therefore need to move to one of the other mechanisms that the Minister has suggested.
The hon. Gentleman makes a very good point, as did my hon. Friend the Member for Twickenham. What we need is a proper external objective assessment of the costs, how they accumulate and how they can be paid for. Mr. Clapham made a similar point when he referred to the discount rate. A small change in the discount rate completely upsets all the arithmetic that has been discussed so far. We have heard about the £72 million per year contribution to the nuclear liabilities fund, which is very susceptible to assumptions about rates of accrual and so on, and about the £275 million contribution by way of a bond by the company.
"What is the credit rating of the £275 million bonds?"
He pressed his point a couple of times and was finally told, at paragraph 39:
"If British Energy were now to go into insolvency, the government has taken security so the taxpayer will get first call on any value."
However, not discussed in the Select Committee was which of two civil servants would be at the front of the queue—the one wanting repayment of the £275 million bond or the one wanting repayment of the £650 million loan. The House will get to the same answer in the end—that is, those civil servants would simply be in a long list of creditors of a company essentially without value. I hope that the Minister concedes that we need that external, objective assessment with the figures agreed and in front of us.
The hon. Member for South Thanet complained bitterly that going for a renewables generation solution could easily cost £30 billion. I do not know where he got his sums from, but I remind him that the assessment before the House of the costs of Government support for the nuclear industry so far is £55 billion. The investments would be massive in either case, but I have a clear view as to which would give the House, the country and the environment best value.
If I may, I shall deal with a question that has been mentioned a number of times: whether the company going into administration would mean that the plants had to close immediately, causing some catastrophic loss of capacity or even safety issues to arise. A number of Members on both sides of the House have done well in rebutting that point. In particular, I draw the House's attention to what Mr. Lansley said about it. There will be working plants capable of generating electricity, and any administrator with a mind to maximise the return for creditors will clearly see them in operation, provided that they continue to contribute to the company's cash flow.
Is the hon. Gentleman saying that there will be no difference whether the plants carry on as they are or go into administration? That is what he seems to be suggesting.
There will clearly be an important financial difference, which I am just coming to: the Government will be £650 million better off if the plants go into administration than if they take the route set out by the Bill. There are good reasons why the Bill should fail. The key one, which the House should have regard to, is that £650 million will be available for something else in the energy industry, or perhaps beyond it.
Members should imagine that we have before us not the Bill, but the White Paper, and that Treasury is saying to the Minister, "You have £650 million you can spend. What would you like to spend it on?" It would be inconceivable, in the context of the White Paper, for the Minister to say, "There is a drain. Let's tip the money down there, please, and forget everything else in the White Paper." For instance, £650 million would go a long way towards the planned restructuring of and compensation for those bits of the electricity generating industry that are the least efficient and which produce the greatest amount of carbon dioxide. Clearly, when one looks five or 10 years ahead, one sees large, elderly coal-fired plant, which is environmentally and financially not worthwhile.
I certainly accept that point, and the hon. Gentleman and I make common cause on it. This country should indeed pay attention to that technology, as well as others. My central point is that the Bill is not the priority investment in the energy industry for the Government in the context of developing an energy policy and the likely outcome of almost any conceivable White Paper that they might produce. However, it will artificially preserve a huge overcapacity in the industry and lead to low wholesale prices, although, as a number of people have pointed out, not to particularly low retail prices.
Another reason for refusing to pass the Bill is that we are seeing a distortion of the competition in the industry. There is competition for investment in the national economy as a whole, but particularly in the energy industry, and the competition for private investment is intense. An energy generator might say to a banker, "Please lend me the odd £600 million. I want to make some money." The banker would say, "What is your business plan?" The energy generator could show the banker any conceivable business plan, but he would be unable to make any money and the banker would not provide such an investment. Such distortion is making such investment more difficult to make.
I am impressed by the argument made by Paddy Tipping, who thinks that the day of the liberalised market is coming to an end. I think he rather fancies returning to a somewhat Stalinist command economy. We on these Benches do not believe in that. We believe that the market has to be an important component in the development of the energy industry, and it has to be the job of the House and of any Government to set the regulatory framework in which that can take place.
I am sorry that I was not speaking loud enough for my voice to reach the Labour Back Bench. I said that it is for the Government and the House to provide the regulatory and fiscal framework. I have talked in the House several times about the need to extend the renewables obligation, for example. However, I shall move on, as I am conscious of the time, Mr. Deputy Speaker.
Our discussion has been somewhat handicapped by the need to set it in a wider context relating to the White Paper and the forthcoming Bill on the Liabilities Management Authority. I do not want to transgress your rulings, Mr. Deputy Speaker, so I shall say that the Bill will open the way to a failed rescue bid of the kind used throughout the 1970s and 1980s for failed industries. Such a rescue will distort the market, deter investment and delay the restructuring that is essential if we are to have a viable energy industry for the future.
British Energy has shown itself to be a failed company in a failed industry. It paid monopoly money for Eggborough, for SWALEC and for project after project. Now, unfortunately, it seems that the Government are ready to pay monopoly money to rescue managers and investors who ought to take the rap for their misjudgments. 8.18 pm
It will come as no surprise to the House to hear that I support the Bill. It is a bit rich that the Government are being left to sort out another Tory privatisation disaster. Yet again, a major utility is under threat because the Tories allowed political dogma to drive an energy privatisation agenda rather than doing what was in the national interest. It is time to sort out that sorry saga.
A secure, stable and safe electricity supply is fundamental to our country's future. That can be achieved only through a diverse and balanced energy sector. My constituency has a diversity of energy supply to be proud of, including wind farms, coal and nuclear power. We should all avoid promoting our favourite causes and think of the big picture—a long-term, sustainable energy policy.
This is no time for woolly thinking. The Government have set realistic, ambitious targets to work towards renewable and reliable sources of electricity, but renewable energy, combined with hydro, meets only 2.8 per cent. of our energy needs. Nuclear power produces 50 per cent. of those needs in Scotland, and 21 per cent. of national need.
My hon. Friend seems to be saying that there is a need for nuclear energy to complement and support renewable energy. However, nuclear energy provides the dearest electricity on the wires. The one industry in which we should invest in order to support renewables is the coal industry. Does she agree that we need investment in clean coal technology?
I thank my hon. Friend for that, and I entirely agree. I do not know whether he knows my background, but I am a relative of Abe Moffat, well known in the mining industry, so I come from what we call "guid stock".
We should not forget that nuclear energy produces vital supplies of electricity and helps us to meet environmental obligations by being carbon-free. When I hear ludicrous statements from hon. Members calling on the Government simply to shut nuclear power stations, I find them quite irresponsible. Apart from anything else, it would cost us much more to shut them than it would to keep them open.
I thank my hon. Friend for that intervention, but I cannot pluck a figure from the sky. We are talking megabucks. I shall get back to my hon. Friend when I find out.
We have to do away with any pie-in-the-sky notion that wind and sea power are ready to replace nuclear power. It simply is not so. That notion simply does not bear scrutiny.
There must, then, be a future for nuclear. The debate has been very good on many levels, but I am a little disappointed that not enough hon. Members have paid tribute to the staff who work in the nuclear industry. Those staff have been the backbone of British Energy. I take this opportunity to commend those highly trained and motivated workers, who fully deserve our support. They—not the shareholders or bondholders who thought that they had a well to drink dry—have invested most in the industry. The workers, such as the 450 at Torness, have sacrificed the most in trying to save the company.
As well as the workers, I commend the trade union representatives who tried hard to consult with British Energy's management and to represent effectively the interests of their members. It is the workers who are reorganising and retraining. They have been doing all that they can—including shedding jobs—to make British Energy pay. Meanwhile, dividends have been paid to shareholders. We should ignore any morality calls from them about being paid compensation.
Security of supply is not a luxury but a matter of life and death for many of our citizens. Electricity is also the life-blood of our future prosperity, affecting every one of our constituents. We quite rightly expect that when we flick a switch, the light comes on. At North Berwick high school's end-of-term Christmas dance for the older pupils, the boys put on their kilts and the girls their fancy frocks only to have the dance abandoned because of a power failure. In the scheme of things, that is not a big deal, but it was a major disappointment to those pupils.
In essence, I support any action necessary to secure the future of the nuclear industry, including outright nationalisation if it proves necessary.
This has been an insightful debate and, for much of the afternoon, the Chamber has looked like the Standing Committee of the Communications Bill in exile. Many members of that Committee have displayed their customary depth of analysis today, as they do day in, day out in that rather laborious Committee on that clause-ridden Bill.
Most speakers have congratulated the Government on making the necessary provisions to guarantee that the country's energy supply is in good hands in the unfortunate event of British Energy failing to secure agreement on its restructuring. Mr. Thomas was a bit harsh on my hon. Friend the Minister when he said that security of supply had been blown out of the water as a motive for the Bill. It is important that management failures are not allowed to undermine the ability of households and businesses up and down the country to know with certainty that the lights will stay on and workers to know that they have a secure future.
This is a pragmatic Bill that takes a pragmatic approach, a stark contrast to the dogmatic approach that led the last Conservative Government into a rash, ill-informed and, as we can see now, unsuccessful privatisation; one that most City commentators at the time, and nearly all City commentators now, agree was perhaps an ideological step too far.
The Bill is not about turning back the clock; it is about being prepared for any eventuality. If British Energy can secure agreement for the restructuring proposal from its bondholders and creditors—I hope that it can—the Bill will be unnecessary. British Energy will be able to continue as an ongoing concern, generating electricity rather than column inches and debates in the Chamber.
I understand that real progress is being made in bringing bondholders and creditors together to reach an agreement on the restructuring. The detailed information that bondholders have required from the company has only been available since just before Christmas. It is understandable that those involved have been racing to reach an agreement and we must pay credit to them, as they are genuinely trying to reach agreement by the deadline of
My hon. Friend Anne Picking mentioned the hard work of the 5,000 workers in British Energy, and there is no doubt that their morale has been sapped over the last 12 months by the uncertainty that they all face. It is essential that we put pressure on the company to bolster its management, because the previous management was, at best, incomplete in its dealings with stakeholders and, at worst, simply misleading.
If British Energy cannot secure the agreement, it is absolutely right that the Bill will allow the Government to incur expenditure through a range of measures to ensure a "smoother path through administration." Let us not forget that the company does not have to nestle in the public sector for long. The provision of loans or grants may allow for the possibility of a new ownership structure to evolve. In that event, I hope that stakeholders look to recent successful not-for-profit models, as it need not be a wholly public sector solution.
When I talk about not-for-profit models, I am talking about Welsh Water, Britain's fourth-biggest water company. It is a good model to look at; it provides an essential public service, delivered in the private sector by a company without shareholders. Instead, bondholders fund the company. It makes a profit, but that profit is reinvested in the business, in training staff and in lowering bills for customers. I say to my hon. Friend the Minister that if things go wrong for British Energy, that would not be a bad model for the Government to look at.
Indeed. Having dealt with failed Tory privatisations, the Government have learned that we do not have to have wholly public or wholly private organisations. The Network Rail model is one we can look to.
I say to my hon. Friend the Minister that if it were down to the work force—those 5,000 employees we have mentioned—and their normally moderate unions, they would demand that the Government take control of the company today because they have faced such uncertainty for the past six months.
For too many years, the work force also faced uncertainty on safety. After the damning report on operating safety at British Energy issued by the World Association of Nuclear Operators two years ago, I understand that the management briefing notes that accompany presentations to safety representatives at BE are considered too embarrassing to share with the trade unions. Can my hon. Friend the Minister urge the new chairman of the company to release that important safety information to union representatives?
The question to which employees and consumers most want an answer from my hon. Friend the Minister is: how did we get into this situation? The answer is easy: first, Tory dogma and, secondly, constant mismanagement at the highest levels of British Energy. Hon. Members have laboured that point but it is worth remembering, as Parliament, once again, debates a failed privatisation, which is, like Railtrack, a privatisation that Labour Members warned against at its inception.
We are looking for new models. As has been said elsewhere, it is no coincidence that these problems surfaced in the two companies that were the last to be taken to the market during the final, frantic, befuddled death throes of the previous Conservative Government. In effect, the British Energy privatisation amounted to a massive gift from the taxpayer to the private sector—
Indeed. I have some figures for Opposition Members. British Energy was floated for £1.5 billion—a sale package consisting of seven advanced gas-cooled reactors and Sizewell B, which itself cost £3 billion to construct. The market capitalisation of BE is now below £100 million, making it one of the biggest write-offs in Tory privatisation history. At the time, concerns were brushed aside.
The hon. Gentleman cannot have it both ways. Either the shareholders have taken an enormous bath and should never have bought the thing in the first place, so encouraging shareholders to buy the company was a thoroughly good deal for taxpayers, or the company is subject to the vagaries of the market. He cannot say that simply because the company is now worth only £100 million privatisation was a disaster for the taxpayer—plainly it was not.
I agree with the hon. Gentleman. It is perhaps unique that the Conservatives managed to hit the taxpayer hard when they privatised the company and then undermined the shareholders by nearly bankrupting the institutions that invested in it.
At the time, concerns were expressed to the then Conservative Government in powerful contributions from my hon. Friend the Member for Cunninghame, North, now the Minister for Energy and Construction, and my right hon. Friend the Member for Derby, South, now the Secretary of State for Environment, Food and Rural Affairs. During those debates, one of the most prominent cheerleaders for privatisation was Bob Spink—although he has been noticeably quieter on the subject of late. He made the perceptive prediction that
"the key benefit is that privatisation would impart to the nuclear industry the ability to make decisions to benefit the industry".—[Hansard, 26 March 1996; Vol. 274, c. 859.]
With the benefit of hindsight, I have been trying to work out what the industry gained from that privatisation, but I cannot find many benefits at all.
Much has been made of the impact of NETA on the company and there has been some discussion as to whether that was a major factor in BE's problems. Many Members have pointed out that BE did not complain about NETA; in fact, the company welcomed NETA and said that the new arrangements were good, yet it failed to adapt to the new market conditions.
The company failed to take a natural hedge in the market to offset the sharp fall in prices. When everyone else was moving into retail distribution, BE was moving out of the retail electricity sector—just as others in the industry began to understand the benefits of vertical integration. Furthermore, the Eggborough plant, purchased for more than £600 million, is now reckoned to be worth only about £75 million or £100 million.
Those are all problems of senior management in British Energy, but the continued payment of handsome dividends, even as the storm clouds gathered and the company was dusting down its begging bowl, was a scandal. Last year, just months before the company turned up cap in hand at the DTI's door, it handed almost £50 million back to shareholders. The £500 million special dividend payment that it made in 1999 was an act of breathtaking complacency, and the excuse was that the money was not needed, as there were no immediate acquisitions to be made. That money would have been better used preparing for the company's many rainy days.
I am grateful to the hon. Gentleman, but he suggests that he will go into the Lobby tonight to support a Bill that will enable the Government to come to an arrangement whereby the taxpayer will help out the existing company's shareholders and bondholders. That is a rather surprising argument.
No, I will go into the Lobby to allow the Government to take on board any eventuality that the company faces. I apologise for the fact that we need to have this debate. As I tried to suggest earlier, even Mrs. Thatcher perhaps noted that this was a privatisation too far, but, as the hon. Gentleman has said, he was not a Member at the time, so he took no responsibility for the previous Government's decisions—a "not me, guv" attitude. So the Government are taking measures to deal with any liability.
However, as has been mentioned, the liabilities that we need to take on board are those of radioactive waste. The nuclear equation must not be forgotten as we discuss the industry's restructuring and, more widely, the United Kingdom's future energy mix, which we are not allowed to talk about now. So I will not talk about the energy White Paper, but perhaps the Government can learn a lesson from this privatisation about the other sectors of the industry that are considering restructuring—principally, Nirex.
I have pressed the Minister before on the fact that perhaps Nirex should be an independent foundation, divorced from ownership of British Energy and BNFL. I know that he will not tell us tonight about his future plans for Nirex, but I hope that he can rule out the ugly rumour, which is going around the nuclear industry, that Nirex will be privatised. The lesson of this debate is that, if we go down that route, we will find ourselves in a greater mess in years to come.
This is a good, pragmatic and flexible Bill. It is a Bill that we do not want to use if we can get away with it, but I hope that hon. Members will support it in the Lobby tonight.
Whatever is said about British Energy, there can be no doubt that it is an extremely important industry. As many hon. Members have said, it provides about 22 per cent. of the United Kingdom's electricity capacity. Given that it provides such a huge amount, even with 20 per cent. overcapacity, it is essential that that capacity remain available for two reasons. First, demand for electricity may increase. Secondly, it is important that capacity is spread over as wide a range of different sources as possible. It is clearly important that we reduce carbon dioxide emissions into the atmosphere and that, if a certain part of the industry hits problems, there is still the capacity for other parts to make up the gap. The industry's importance to the whole economy is phenomenal, and I would be very sad to see such an important industry go to the wall.
The risks of letting the industry go under must not be underestimated, and I commend the Government for bringing the Bill forward, first, to take account of the current financial difficulties, and, secondly, to make available provisions that might not be necessary but that will provide a safety net should the worst come to the worst. Let us not forget why we are here in the first place: a botched privatisation was rushed through in 1996 by a Government who were trying to get as many measures as possible on to the statute book before a general election that they knew that they were going to lose. The industry was privatised and raised £1.3 billion.
Perhaps I would not use that description, but I can see its merits.
As I said, £1.3 billion was raised. What was the market capitalisation in March 2000? It was £1.2 billion. In 2001, the market capitalisation rose to £1.8 million. [Hon. Members: "£1.8 billion."] I stand corrected. It was £1.8 billion. In 2002, it went down to £1.114 billion. On
It is essential that the company receive financial assistance. We cannot afford to switch off that essential capacity. As my hon. Friend Mr. Watson mentioned, something like eight nuclear power stations are currently involved, and the implications of even switching off the core of those reactors, as Dr. Cable suggested, are phenomenal. He said that the cost would be something to the tune of £600 million. Given the scale of the figures that we are talking about, that might not seem a great deal of money. However, decommissioning nuclear power stations is not just a question of stopping the core reactor generating electricity; it also involves the disposal and dismantling of the reactor facilities as a whole.
Does my hon. Friend agree that one factor that has been overlooked in relation to the shutting down of British Energy power stations is that many of them have contracts with other industries, which may have a knock-on effect not just on price but on jobs in those industries?
Yes. I have not dealt with the jobs issue yet, but what my hon. Friend says is correct. What the hon. Member for Twickenham failed to take into account, apart from the jobs issue, was that those problems were never going to go away. Just because we spend £600 million today does not mean that the rest of the costs associated with decommissioning will not be around for future Governments. It is important to factor in those issues.
Is the hon. Gentleman aware that, of the £5 billion decommissioning costs, about £2 billion would be incurred after 135 years, and another £2 billion after 50 years? Clearly, those long-term commitments have to be factored in, but they hardly make any difference as to whether the plants are closed down in five years or in another 15 years at the end of their natural life.
Again, I beg to differ with the hon. Gentleman. Apart from the loss of jobs, there would be a loss of revenue and of electricity generated as a result of the plant ceasing to operate. From that point of view, it was interesting that one of the Welsh nationalist Members who spoke earlier referred to Germany. Germany took the worst option of all, which was to pay the cost of the contracts and close the industries, too.
Before my hon. Friend gets too bogged down with the Liberal Democrats, does he recollect that the last time that we debated energy, they said that we should not build any nuclear power stations because we did not know how to decommission them? Today they tell us that we should not build any more because the ones we have should be decommissioned. The truth is that, as on so many issues, they do not know whether they are on foot or on horseback.
My hon. Friend makes a very good contribution.
Clause 1 provides for financial assistance in the short term and gives the option of acquiring the company or its assets if the solvent restructuring fails. The Government have stressed that this is an enabling Bill and that there is no agenda other than to try to restructure the company and get it up and running. I mentioned in an intervention a possible Railtrack-style solution, as John Edmonds, general secretary of the GMB, put it. I give the Government the benefit of the doubt with regard to this approach. There is still the possibility that more restructuring of the industry would not make it more profitable or self-sustaining than it is now.
There are two conflicting approaches to the provision of electricity in this or any other country. With a totally market-led approach, it stands to reason, because of the very different ways in which the energy is derived and then distributed, that not every method would potentially result in the same costs.
Similarly, if one believes in an energy policy that is diverse and draws from a number of sources, it is clear that some sources may be more profitable than others, and that therefore certain types of industry, as we have already seen from renewable industries, would need extra support in the form of derogations from the climate change levy or taxes to rebalance the market. The Government should enter into discussions with the European Commission to see how that matter can be examined, because a totally market-driven approach does not necessarily mean a fair market. It can be a distorted market, as my hon. Friend Dr. Ladyman put it. In fossil fuel generation of electricity, there are associated costs that are not immediately paid for. In fact, the environmental costs of those industries probably compare with the environmental costs of the nuclear industry, if everything is taken into consideration.
I completely agree with my hon. Friend. If matters are left totally to the open market, we shall not have a balance: we will not have nuclear or renewables but a short-term system based on gas turbines that will probably burn imported gas from unstable countries.
I absolutely agree. When the decision was made to allow gas to be used in generating stations I was one of those who thought that it was somewhat of a disaster, because gas is very precious. There should have been a continued emphasis on coal, with new technologies to work with it alongside the generating capacity that was there—
I apologise, Mr. Deputy Speaker. It is just that, in determining the true costs of nuclear power, to determine whether a nuclear power industry is viable, to some extent we need to look at the alternatives, because obviously there are implications. But I will not stray any further in that direction.
Britain's nuclear power industry has developed from a programme that originally had military imperatives into one with political imperatives, leaving us with what is, by its very nature, an expensive means of producing electrical energy. During the debate in the 1980s, cost per kilowatt-hour in comparisons between coal and nuclear power was based purely on the operating costs of each means of generating electricity. I put it to the Minister that £16 per megawatt-hour, which is the lowest cost of production nowadays, is probably not the real cost, for the reasons that I mentioned earlier. Research and development costs for nuclear facilities and waste management and disposal were never factored into the equation for operating costs because the industry was Government-owned and not subject to market scrutiny.
As other Members have said, the privatisation in 1996 was a give-away, and it should never have taken place because the industry was never going to meet, and beat, the competition from gas. British Energy, like Railtrack, has put shareholders before consumers. Last May, it had a profit of £42 million in its British and north American operations, but an overall loss to its UK operations of £41 million. None the less, the company chose to maintain its dividend, paying out nearly £50 million to its shareholders. Last year, when the company had already recorded large losses of over £500 million, the chief executive was awarded a performance bonus, and is now being offered a fortune. Given the dividend, which was clearly a bribe to keep the chief executive in his job, and his bonus, it seems that the company is paying itself for under-performance.
Despite that, it is essential that BE continue to produce electricity and that this country develop a viable nuclear power programme to meet our international obligations on climate change. The switch-off of all eight stations would cost more than letting them continue to run. They need upgrading, and, in time, the Government will need to consider new build. Safe nuclear power is the future, and it must be part of an overall balanced energy policy with a mix of sources.
While the single European market in energy continues to develop, it is plain that a purely market-driven energy policy will not respect the environment, just as the coal-generating industry failed to respect it before scrubbing technologies were introduced. The Government should work with the European Commission to consider how nuclear generation industries throughout Europe can be assisted in coming years. Wind and waves are okay, but they will never produce 20 per cent. of this country's electricity, and they would do well to reach 10 per cent. The nuclear industry has the capacity, and it is an essential part of this country's electricity generation programme.
I am pleased to be able to contribute to the Second Reading of this enabling Bill. My hon. Friend Mr. Watson said that he thought the Chamber was full of exiles from the Standing Committee on the Communications Bill, so I take it that there are difficulties in that Committee. I suggest that tomorrow he pop along to Room 14, where the Hunting Bill will be discussed, and then he will see real difficulties.
The Bill focuses on the current problems for British Energy. Hon. Members on both sides of the House have made a variety of observations, but a common thread that runs through the debate is that the decisions of the company's management have greatly contributed to its downfall. We have heard about the spent field contracts with BNFL. Signing contracts has done nothing to assist with the difficulties; in fact it has contributed significantly to the problems.
The Bill will ensure that the Government are prepared for the successful restructuring of the company or its administration. I would sincerely like to think that it will be the former. Administration is not my preference. It would be a major mistake. However, we need to make contingency plans for it, otherwise people will highlight it at each and every opportunity.
Some colleagues I spoke to recently think that the Bill is a form of renationalisation, which in some people's minds is a good idea. However, even those on the extreme left wing of the Labour party would shy away from renationalising the nuclear industry, because the two do not tie together. I do not want to stray beyond the terms of the Bill. The energy debate has been touched on in a variety of forms, but it is for another day.
The energy White Paper will be important in determining how the Government deal with the country's future needs. Some 11 days ago, I received a written response from the Minister to an oral question in which I asked about the energy White Paper. He gave the succinct answer that it would be published shortly. Today, he said that that might be published in February or March. Let me give my hon. Friend some advice. Some hon. Members greatly admire and love nuclear energy, so perhaps Valentine's day would be a good time to publish the White Paper. Others are not so keen, however. He has heard the arguments before, and perhaps he should beware the Ides of March. Whatever he decides, many of us look forward to the White Paper being published soon.
The priorities of nuclear safety and security of supply must be met. The Bill will enable those to be determined in Committee and beyond. Security of supply has always been a feature of the energy debate. There is a wide variety of views on how it can best be achieved. Mr. Thomas said that the 22 per cent. overcapacity could be dealt with by the closure of nuclear power stations, but that would create in the sector a fine balance that I would not be prepared to risk. He said that nuclear contributes to some 20 to 25 per cent. of power generation in the UK. I would not argue with that. My hon. Friend Anne Picking rightly said that it is double in Scotland, at about 50 per cent.
The margin of 20 to 25 per cent. has to exist. Another consideration is the position of the stations on the grid. Just switching them off would create many problems with balancing the electricity supply around the country.
My hon. Friend is right. The strategic placing of sites is important for access to lines and interconnectors. It is strange that he should raise that matter, because I was about to mention a constituency case that relates to the position on the grid. Losing eight British energy sites would have an impact. Like some in the industry, I believe that it is a nightmare scenario. To return to the point made by my hon. Friend, there is a Magnox reactor run by BNFL in Chapelcross in my constituency. I was interested to learn that not many months ago, my predecessor, a long-serving Member of Parliament who supported that site for many years, had suggested to a colleague of mine that a replacement reactor on the site may not be a good idea because it was not close enough to the marketplace. My hon. Friend therefore made an interesting and important point.
Many Members have driven home the point about people returning home in the evening and wanting power so that they can sit in a warm home and switch on the television. That is something that we all expect, and families without those luxuries desperately want them. There is therefore an even greater demand for power generation in this country. On security of supply, this time last year we had a detailed discussion with Ofgem about the Magnox station in my constituency, which centred on access to the interconnector. The power station exports everything to the interconnector and south of the border, so the regulator asked Scottish Power whether it could guarantee security of supply if it were not in operation. Eventually, after much browbeating, Scottish Power said that it could not. The site has four reactors generating 196 MW, so security of supply is clearly important.
The potential for power reductions and what are known as "brown-outs" had been identified by others, which is why that information was fed to the regulator. However, it is not just household supply and domestic use that would be affected, but industry as well. We must consider how the industrial sector would be damaged if, as colleagues in the House have suggested, there was an early run-down and we did not support British Energy in the Bill. If restructuring of the company proves successful, the Government must ensure that they deliver their part of the deal, as financial assistance will be needed for nuclear liabilities. If restructuring goes wrong and British Energy goes into administration, the Government must be sure that they can acquire the power station business by acquiring the company or its assets directly, assuming that no third party wants to do so.
Will the hon. Gentleman clarify that point? The Bill obviously gives the Government the ability to acquire British Energy in those circumstances, but what would happen if it did not complete its passage through Parliament and British Energy was unable to continue? Would the company automatically revert to the Government in any event?
The hon. Gentleman made that assumption. I am not about to assume that the Bill will not go through, because it clearly will.
I asked the Opposition spokesman about a third party, but I am not convinced that a creature of that ilk exists. So we have a difficulty, which the Government and the Department of Trade and Industry have identified.
We are duty bound—my hon. Friend the Member for East Lothian raised this point, too—to consider those who work in the sector. We must not write off people; we are talking about highly skilled work forces. Dr. Cable mentioned the figure of £5 billion and gave a breakdown of possible costs—£2 million 150 years from now, £2 million in 50 years' time and perhaps £1 billion now.
A moral duty lies behind all that. This is not a game of figures and what we must do in 50 or 150 years from now. I know that only too well because we are already preparing for the closure of the Magnox site in my constituency that will take us into the next 15 or 20 years. BNFL has identified the liabilities and how the matter must be dealt with in the communities affected. My hon. Friend the Minister said in his opening remarks that we cannot simply switch off reactors and make moves toward de-fuelling—there is a cost attached to that. The economics show clearly that it makes sense to run the businesses and to utilise precious assets.
Clauses 3 and 4 of this narrow, enabling Bill amend schedule 12 of the Electricity Act 1989. The proposed removal of the financial ceiling has allowed restructuring to go ahead. If the current ceiling is strictly interpreted, it could block the Government's delivery of their part of the deal, because we must guarantee British Energy's liabilities. The ceiling also makes no provision for inflation and does not reflect the industry's standard practice of discounting large sums in the distant future.
The changing of the tax status of grants under schedule 12 is important: it will ensure that the Government can deliver their part of the restructuring plan without incurring a massive tax liability. That is why the Minister referred to giving with one hand but not taking away with the other.
As my hon. Friend Mr. O'Neill said, this is a small Bill. It is pragmatic, but it will go a long way to assisting in the future.
It was not my intention to speak in this debate, but there have been several speeches on which I should like to reflect. My hon. Friend Mr. Brown talked about people on the left queueing up to participate in this debate. Obviously, I am not on the left, although I remember demonstrating against the opening of Torness power station in the constituency next to mine. I must always remember that Tony Benn signed the paper allowing nuclear power to start.
One important issue is the security of Britain's long-term interests. Two or three colleagues have commented on the work force and it is important that I start with that point. We should remember that the work force will be very concerned at the moment. As someone who came from the coalmining industry, I understand that concern. We have all been listening to this debate intently. The work force will be looking to their future security.
I am concerned that the ex-chairman of the company has walked away with a golden handshake and with a pension that many pensioners would be extremely pleased to enjoy. That matter needs to be investigated. We need to look at some of today's chairmen and the deals that they get when they go.
It has been said that some 22 per cent. of fuel is generated by nuclear power. In Scotland, the figure is 50 per cent. I understand that the White Paper will be published in February or March and I look forward to the debate on it because the diversity of Britain's requirements is key. Whether we like it or not, we all have to play the game, but I am not a supporter of nuclear power. I have opposed it and nuclear weapons all my life. However, that is not the issue. We have many nuclear reactors throughout the country, and there is no question of closing them down. They should be allowed to come to the end of their natural life. In the long term, as Dr. Cable said, we should look at reinvesting in other renewables and in clean coal. What concerns me is that the money that has to be spent to bail out nuclear power could have been used in other ways, and can be in future.
My hon. Friend Dr. Ladyman said that the accident rate in the nuclear power industry was very small—one per year, I think he said—but all it would take is one major disaster at a nuclear power station to make that figure seem infinitesimal. Let me give an example. When I served on a council, we looked at the question of energy requirements and what would happen if a disaster occurred in the neighbouring county. Edinburgh would be taken out, Midlothian would be taken out, East Lothian would be taken out and Fife would be taken out. There would not be a firth of Forth; there would be a sea. That is what you have to think about as you listen to the debate.
That is why we need green coal—[Laughter.]—and long-term investment in other options. Conservative Members talk about privatisation of the industry, and then cry over spilled milk because the shareholdings have gone pear-shaped, and reject the criticisms that we make. Investment in health and safety is for the long term. You talk in terms of historical significance. I am too young to remember, but you may remember the smog in London and the 4,000 people who died. We moved away from that by introducing clean air Acts. Europe is moving towards that, which I welcome. With new technology, we can consider renewables and other options. Wind and wave power may sound ludicrous, but such energy sources must be developed.
When we speak about security, let us think about what is happening in Iraq. Is it not all about oil? That is security, and in Britain we have to act.
Order. The hon. Gentleman is starting to stray slightly outside the Bill. Also, may I remind him not to use the word "you" when referring to hon. Members in the Chamber? He must use the correct parliamentary language.
I said youse. That is a Scottish word, which is collective, but I take the point, Mr. Deputy Speaker, and thank you for your guidance. I did digress slightly on Iraq. I dare say that we will return to that in another debate.
On the issues raised by the Minister and the billions of pounds involved, I see no alternative to what is proposed in the Bill. I will support it, because it contains the possibility that British Energy may come back into public ownership, if necessary. We do not have the luxury of voting against the Bill, when everyone knows full well that no other option is available to us. There is no third party that would be interested in picking up a dead duck.
When I came to the House a year and a half ago, I was reminded many times of my responsibility to my constituents and the people who put me here. That is partly what the Bill is about. Some of the matters that we have to deal with in Parliament are unpalatable. If the public purse must be used to secure the long-term interests of energy, that is what we must do, rather than arguing about it when there is no alternative.
Some important points have been made in the debate. I agree with the unions at the TUC conference when they decided unanimously—unusual nowadays—that the industry should be taken back into public ownership. I look forward to that day.
It is difficult to speak at the end of a debate without repeating the points that have been made, but I have been here for most of it, while Mr. Robathan, who will speak from the Conservative Front Bench, has not, or at least his hon. Friends have not. That is not the point, however: it is difficult to make new contributions, but I shall try to do so.
As has been pointed out, the Bill is an enabling Bill. While it is a technical Bill that enables the Government to deal with financial problems relating to British Energy, it is difficult to limit our comments and observations to this unique situation and not to discuss the wider ramifications for the electricity industry and nuclear energy in particular. Indeed, some clauses have a general application. The financial problems of British Energy have attracted wide interest, as has the impact on any future energy policies. I realise that you will call me to order if I stray on to the White Paper on energy policy, Mr. Deputy Speaker, but I point out that it is very significant, for reasons that I shall explain later.
As the only Welsh Member with a nuclear power station in their constituency, I bring to the debate a Welsh dimension that I believe is current and relevant, even if it is not universally accepted by Plaid Cymru Members. My hon. Friend Mr. Watson referred to Welsh Water—he called it south Wales water—but I must correct him, as Dwr Cymru, Welsh Water, covers the whole of Wales. The Welsh model has some relevance in discussing a future model that is a halfway house located between full renationalisation and the private sector—a point that he made most forcefully.
When the British Government announced the first loan to British Energy in September, I was approached by interested parties in my constituency—BNFL, managers, unions representing the workers in the local power station at Wylfa, environmental groups and individuals. They were concerned about the impact that such a decision would have on the electricity industry. Some blamed the managers of British Energy, while others blamed the Government or botched privatisation by the previous Government. A number of concerns were also expressed about the future of nuclear power. I believe that what is needed and will be provided in the White Paper is a mature debate about the right energy mix for this country and for the future.
I shall not stray into that debate—I know that you would not allow me to do so, Mr. Deputy Speaker—for which there will be ample opportunity. However, I should like to correct the hon. Gentleman, as I said that we needed a mature debate to get the right mix. All hon. Members will agree that we need to have that mature debate without being sidetracked by individuals' comments.
When the loan was further extended and my right hon. Friend the Secretary of State for Trade and Industry told the House about the plans to introduce the measures before us today, the focus of attention shifted from the blame culture, whereby people tried to decide whose fault it was, to exactly how—not whether—we were going to introduce legislation enabling the Government to provide a safety net. The blame game was over. After all, British Energy is a major generator in crisis. Like every crisis, this one requires crisis management. The Government could not sit idly by and do nothing. That is why I support the Bill and the measures that it is introducing for the reasons that my hon. Friend the Minister set out.
The Bill may not be good, old-fashioned nationalisation—a measure that a number of my colleagues, as well the groups and individuals that have contacted me, have mentioned—but, while I do not advocate renationalisation of British Energy, it is not such an absurd proposition, especially with plans to set up an authority to deal with public sector nuclear liabilities. While it would be wrong to engage in political point scoring, let us not forget that the privatisation of British Energy was a privatisation too far, as was privatisation of the railways. We now have to revisit the Railtrack fiasco and the privatisation of British Energy.
The Government are right to implement plans to provide the necessary mechanisms in the event of administration or solvent restructuring. We cannot simply shut down nuclear power stations. I appreciate that some hon. Members on both sides tackled that, but it is important to emphasise it. We should reject simply shutting down nuclear power stations because of the job factor. It would also cost more to shut them down than to keep them open.
As my hon. Friend Mark Tami said earlier, many British Energy power stations are located in areas of high unemployment. They have links with other manufacturing industries in the area that would be severed if the power stations were simply closed, resulting in job losses downstream. I should like my hon. Friend the Minister to deal with that and assure us that jobs and contracts will be safeguarded if the Bill is enacted. I appreciate that it is a difficult matter for the Minister to tackle, but people in the nuclear industry who are worried about the knock-on effects have raised it with me time and again.
Let us consider the interdependency of major employers. British Nuclear Fuels Ltd. owns the station at Wylfa in my constituency. As I said earlier, it is the only operator in Wales and it has some 500 employees and 100 permanent contractors. More than 75 per cent. of the work force is local, and it is well trained. Jobs there are the highest quality jobs in my constituency. Wylfa contributes £20 million per annum to the local economy. That is a quarter of my area's gross domestic product. Nuclear power stations therefore have a significant impact on the GDP of the areas where they are situated.
My hon. Friend David Hamilton mentioned the union stance. He rightly said that there was unanimity at the TUC conference, and I accept that that is rare. However, individual unions and leaders have approached me about the subject. They look to the Government to get matters right and ensure job security in future. Some advocate Railtrack-style solutions and others go as far as good old-fashioned renationalisation. However, safeguarding the quality jobs should top the agenda. Again, I press my hon. Friend the Minister for that assurance in his winding-up speech.
The reasons for the Government's intervention are security of supply and guarantee of safe operations. They are important matters and, again, I call for a mature debate to get the right mix of energy needs for the United Kingdom. I believe that we all support that.
Yes, but insecurity exists. Some contracts could be jeopardised and we must therefore get the Bill right now.
The Californian experience shows that if we do not provide the right incentives for new investment—in any sort of energy—we could end up with a worst case scenario. Fulfilling the demands of low carbon needs requires planning—proper planning, not knee-jerk reactions. The Bill will provide stability, albeit in the short term. It provides opportunities to re-examine the matter in future and perhaps accept good old-fashioned renationalisation or the Welsh model that some people advocate. However, we need the prospect of sustainable energy. We also need to deal properly with British Energy so that we can approach the White Paper on a level playing field. The Bill may be narrow but it has wide ramifications for nuclear power, the electricity industry and the review to which I look forward in a few weeks.
I must tell Albert Owen that if the Whip asks him to speak for 15 minutes, he should not simply speak for 10 minutes. I could see the Whip saying that.
We are debating a Bill that will cost the British taxpayer perhaps £3 billion. I am glad to see the Secretary of State here now, because it is important that she registers by her presence the significance of the Bill. We regret that she was not here at the beginning of the debate, but I am sure that she was very busy.
I am sure that he will walk through the door as I speak. He was here for the first couple of hours.
The Bill is very short, comprising two-and-a-half pages and five brief clauses. That has made the debate difficult in that many hon. Members—looking around, I see several of them—wanted to contribute at greater length to the more general aspects of energy policy, but were prevented by Madam Deputy Speaker from doing so. That is a pity, because some of those contributions would have been interesting.
The Bill faces opposition from inside and outside the House. It comes on the one hand from free marketeers and on the other from what one might call the green lobby. I find myself in a rather schizophrenic, or hybrid, position, because I am both a free marketeer and—I do not want any hon. Members to tell my Conservative colleagues—I have been a member of Friends of the Earth for longer than I have been a member of the Conservative party. Moreover, I have a photovoltaic roof, which is kindly supported by the Department of Trade and Industry—it has not generated much electricity yet, but we long for sunshine—and I am looking to have a wind generator installed on some land in my constituency. I should say, however, that I do not support Friends of the Earth's position on nuclear energy, and I am not anti-nuclear. I detach myself from its arguments in that respect.
The key question is whether the Bill is the right way forward for British energy and for our energy policy. I want to consider some of the contributions to the debate. The Minister made one of the funniest speeches that I have heard in the Chamber about Liberal Democrat energy policy. It is one to cut out and keep, and I intend to do so. He seemed very unhappy when he was speaking—indeed, Dr. Cable thought that he looked sombre. I suggest that that is because, through the Bill, he is presiding over a failure of policy and over chaos, to which we shall return later.
My hon. Friend Mr. Blunt made a powerful and well-researched speech in which he highlighted the said chaos and failure of policy. He spoke about the blank cheque that hon. Members are being asked to sign today— we shall not do so—and the unlimited liability that the Government may face. He made an extremely well-argued alternative case and demolished the Government's policy on nuclear energy. Whatever the way forward may be, the Bill certainly is not it.
Mr. O'Neill, who chairs the Select Committee, brought to the debate his knowledge and long experience of the DTI and pointed out the shortcomings of management. Up to a point, he made a sensible analysis with which I would not disagree, but his conclusions were somewhat unusual. He criticised the high dividends that British Energy had paid to its shareholders, then said that we could not let down the investors who had bought shares at ludicrously low prices. That involves a dichotomy or clash of logic that he may like to consider. In my view, it is not the business of the British taxpayer to bail out those who have made bad investment decisions.
Perhaps I can help the hon. Gentleman through his problem. There are a great number of very small shareholders in privatised utilities, some of whom worked in them and some of whom bought their shares. It is the one investment that they have made in their lives. They do not have the sophisticated background of wealth and privilege that Conservative Members have. In several instances, they were mesmerised by the easy money period of the 1980s and early 1990s. Sometimes foolishly, they devoted undue amounts of resources to a single bet on the stock exchange. Those people need some degree of protection and assistance.
I have every sympathy with those people who will lose money through poor investments, but I quote the hon. Gentleman again. He referred to ludicrously low prices for the shares and, in particular, criticised the high dividends that they paid to those same investors. He will recall that the taxpayers who are bailing those investors out are also elderly and they, too, have to struggle by on pensions. There is no dichotomy in my argument.
The hon. Member for Twickenham, who spoke for the Liberal Democrats, described the Government as a gambler manically stuck at the table and thinking that the luck will turn, but when I looked at the Minister he did not strike me as a Michael Owen look-alike and he did not look much like a refugee from Las Vegas either. Mr. Stunell returned to the manic gambling analogy, and there is a certain truth in it.
Although it may have been faint, the hon. Member for Twickenham gave some praise to the arguments made by my hon. Friend the Member for Reigate, which is always a bit worrying. The hon. Gentleman also pointed out that safety is not threatened, contrary to what people have been saying, nor is security of supply. A real issue of competition is involved, and he said that administration is the logical way ahead, because there is no shareholder value in the shares.
Dr. Ladyman accused my hon. Friend the Member for Reigate of being dishonest.
Of being dishonest. Contrary to what the hon. Member for South Thanet said, the Bill is not a good start, and he will rue the day that he said it was. He also said that it would be judged by its impact on shareholder value. I disagree, and he will rue those words as well.
I think I said that the hon. Gentleman's policy, not Government policy, would be judged on shareholder value. He is a friend of the earth, but does he not realise that the change in carbon dioxide concentrations since the second world war is equivalent to that associated with our coming out of the last ice age? Therefore, if we want to address climate change, we must do something about carbon dioxide reductions. That means that the policy of closing down the nuclear power industry suggested from the Front Bench by the hon. Member for Reigate is not the way forward.
The hon. Gentleman has completely misunderstood the policy that my hon. Friend put forward, because it is not about closing down power stations. It is about letting the market run its course. The power stations will continue to operate, as was pointed out very ably by the hon. Member for Twickenham, with whom I do not always align myself.
My hon. Friend Mr. Horam, the Chairman of the Environmental Audit Committee, rightly pointed out the calamitous impact of the new electricity trading arrangements on the energy market from the point of view of the producer. Whatever the rights and wrongs of NETA, the Minister knows that we shared an Adjournment debate some 18 months ago on the bad impact that it also had on combined heat and power. My hon. Friend spoke with authority.
Mr. Barron gave us a history lesson on the past 19 years of nuclear energy. I was not aware of the Prime Minister's hand in nuclear energy, so that point was of interest. I hope that the colliery in his constituency, which he was not allowed to mention, benefits from his support. I wish that he had been able to mention it. He agreed with us that taxpayers should not just compensate shareholders.
My hon. Friend Mr. Field made a sensible and knowledgeable speech pointing out that the Government are anti-competitive. Paddy Tipping wanted to talk about wind farms, and I was looking forward to that. He pointed out British Energy's failure of management, and there is broad agreement across the Chamber on the tremendous mistakes that have been made. Whether they could have been avoided is, as always, a matter for dispute. He also pointed out the immense cost involved and made a sensible long-term point about the desirability or otherwise of cheap energy.
My hon. Friend Mr. Lansley, who is a member of the Trade and Industry Committee, spoke without a note and made logical arguments. He criticised British Energy's failures, made a spirited defence of the free market and of NETA's contribution, and opposed renationalisation. We might not agree on every word he said, but his speech was excellent.
I missed most of the speech of Brian White, as I went out for dinner. However, I know that he has a sustainable energy Bill coming up, which sounds helpful.
No, it was not steak and kidney pudding actually.
We agree with much of what was said by Mr. Thomas, although I was not here for his speech. He agreed with the arguments made by my hon. Friend the Member for Reigate about security of supply and how the Bill was distorting the market. I am sorry that the hon. Gentleman is unlikely to vote with us—
I am delighted to hear that. I thought that he had supported renationalisation.
Mr. Clapham said that safety was better in the public sector. I think that there is no justification for that.
If the hon. Gentleman remembers privatisation of the railways and the history of Railtrack and if he reads the report that the nuclear installations inspectorate published about 18 months ago, he will realise that industries are safer in the public sector.
I am sorry that I cannot agree. With his name, the hon. Gentleman should remember the Clapham rail disaster, which happened long before privatisation. He should remember King's Cross and the underground. He should perhaps remember that a crash happened only this weekend on the underground, which has not, I think, yet been privatised, unless the Government have done so without telling us.
The hon. Member for Hazel Grove repeated the gambling analogy, saying that we needed objective external assessment of liability costs. We agree with that entirely. We also agree that the market must play an important part and that the regulatory framework should be set by the House.
I am afraid that I came in to the Chamber as Anne Picking was making her speech. I know that she spoke on behalf of her constituents at Torness, but the idea that wind and wave power will immediately take the place of other forms of energy is misguided. I understand, however, why she spoke on behalf of her constituents.
Mr. Watson spoke of Tory dogma, something of which I know nothing. He suggested that the matter is a safety issue. The hon. Member for South Thanet had already pointed out that British Energy has an exceptionally good safety record, and that there is one death a year in the worldwide nuclear industry. We may dismiss the argument about the safety issue. The hon. Member for West Bromwich, East theatrically gave us some great analogies, telling us that storm clouds were gathering and that there had been breathtaking complacency, but he must learn to keep a straight face on these occasions.
Mr. Hendrick also referred to botched privatisation, then spent his entire speech blaming management. He made the profound point that some forms of generation are more expensive than others. Mr. Brown is of course a cheerleader for renationalisation. David Hamilton—possibly a pressed man—said that he was anti-nuclear power and a member of the Campaign for Nuclear Disarmament. I was glad he spoke about his responsibilities to his constituents, however, because we all share those.
Many good points and informative speeches have been made on both sides. The collapse of British Energy is due to several factors. Poor management—management mistakes for those who prefer that phrase—is one. The climate change levy—the carbon tax—has certainly contributed. The higher level of business rates at nuclear power stations is another factor. The nuclear legacy is, of course, another issue. NETA, whether or not it is good for consumers, has created low prices, which has reduced revenue.
The company is failing—indeed, it has failed. We say that that is the working of the market and that the company should go into administration. The Bill is a renationalisation measure. The Trades Union Congress was unanimous, we have been told, in wanting British Energy to be renationalised. Is that the spectre of old Labour coming out from under the skies of new Labour? [Interruption.] I can hear hon. Members saying yes.
We must ask whether the Bill is good for the nuclear energy industry, taxpayers or the country. It is certainly not good for taxpayers. Taxpayers will bail out the company, perhaps paying £3 billion or more. The Bill is a blank cheque. Why, for instance, should taxpayers pay a £336,000 pay-off and £150,000 pension for the chairman and chief executive? If, under his leadership, the company failed and went into administration, he would not get that. My hon. Friend Mr. Norman is promoting a Bill on Friday that would prevent failed directors from getting such pay-offs if they were not justified.
I will not because I am about to sit down.
We say, "Let the company go into administration." The true value of the power stations and their generating ability will ensure their continued existence, with better management. This is purely a short-term palliative, at enormous cost to the taxpayer. What will happen if, as my hon. Friend Mr. Cash said, the Bill is hybrid and is thrown out? What will happen if the EU countermands the state aid subsidy? What will happen if the Minister does not get his Bill, as he may not? We think that this is a bad Bill, at huge cost, and we oppose it.
With leave of the House, Mr. Speaker. Through most of that speech I wondered whether it was a winding-up speech or an amateur dramatics adjudication. I am pleased to hear that Mr. Lansley got the award for the best performance from his Front-Bench colleague.
I am sorry that I did not amuse Mr. Robathan earlier, but one would need to work pretty hard to make the Electricity (Miscellaneous Provisions) Bill into a comedy turn. If the charge is that I was sombre, my reply is that I would rather be sombre than sanguine. What we heard from all Opposition parties tonight seemed to be remarkably sanguine on a number of scores. The best description of the Bill and its limited objectives came from my hon. Friend Mr. Watson, who said that it was a good and pragmatic Bill. That is all it is meant to be and it reacts to a particular set of circumstances.
Opposition Members were remarkably sanguine about security of supply. There were some extraordinary comments, as if it would be all right on the night and that we could wish away the contribution of the power stations that we are discussing; we could take 22 away from 22 and still have security of supply. That is absolutely nonsense, and we heard that from members of all the Opposition parties who spoke, and particularly from—
I was just going to mention the Liberal Democrats. On the basis of their casual approach to security of supply, I would not put them in charge of the street lighting, never mind the nation's energy policy. Simply to say that there is not a security of supply issue in terms of the problems of British Energy seems downright bizarre.
Is the Minister's opinion shared by the regulator, Ofgem? I got the impression that it did not support the Minister.
This has been sprung on me—[Interruption.] If the hon. Gentleman wishes to nitpick with Ofgem, he is welcome to do so. Since Ofgem's prime responsibility is to maintain security of supply—that is also my prime responsibility—we are at one on this question. I have certainly heard nothing from Ofgem in that regard; of course it recognises the importance of the contribution from British Energy. That, largely, has motivated us throughout this affair.
We heard speeches from Tories, Liberal Democrats and from Welsh nationalists. The Scottish nationalists thought it was an 8.30 kick-off. After all, only 50 per cent. of Scottish electricity comes from nuclear power. We could not possibly expect any of the six Scottish National party MPs to turn up for a debate of this significance. It is, after all, still the Burns season.
Opposition spokesmen who did participate were remarkably sanguine about the interests of the work force. The Tory spokesman, Mr. Blunt, gave them a mention towards the end of his contribution, but only after he had devoted his entire speech to making the strange point that the company should go into administration. I do not know whether he, the Liberal Democrats, the Welsh national party Members or Members of any other party have taken the trouble to talk to the British Energy work force or to the trade unions who represent them, but I can assure them that the one thing that people representing the work force do not want is for the company to be put deliberately into administration.
We have always been honest with the unions—as with everyone else—that administration remains a possibility. However, to pursue that course of action, as the Opposition parties recommend, is certainly against the interests of the work force, in their perception. It is noteworthy that the only contributors to the debate to raise the interests of the work force were Labour Members: my hon. Friends the Members for East Lothian (Anne Picking) and for Ynys Môn (Albert Owen) and others.
The Minister acknowledged that I referred to the interests of the work force during my remarks, but he cannot maintain that the interests of everyone else must come second to the interests of the work force. Clearly, the work force are in a wretched position, but their interests are not paramount over those of the rest of the country or of the taxpayer.
Nobody made that suggestion. I am pointing out that the hon. Gentleman was inconsistent. He advocated administration in 95 per cent. of his speech—an odd position in any case—and then, only at the end, expressed concern about the work force, who do not see administration as their preferred option.
Many of the Opposition speeches were remarkably sanguine about the environment. The whole performance of the Liberal Democrat spokesman, Dr. Cable, was supposed to be about carbon saving, yet he wants to close down the nuclear industry without the remotest regard for the economic consequences. He is prepared to forgo the revenues from nuclear power stations for the rest of their natural life in order to pursue the objective of turning the key on them at the earliest possible moment.
How does the hon. Gentleman reconcile that approach with his supposed commitment to the imperative of carbon reduction? When it comes to the point, he and the organisations which he prayed in aid are much more anti-nuclear than pro-low-carbon. They refuse to face up to that dichotomy, but the public can see through it. They cannot have it both ways; they cannot preach a low-carbon message while walking away from a source of electricity that gives the United Kingdom 22 per cent. of our non-carbon generation at present.
Opposition spokesmen were remarkably sanguine about safety, which is the other reason that we believe that what we are doing is essential for the future of British Energy and the only way for a responsible Government to act. The principal Opposition spokesman, the hon. Member for Reigate, put forward his plan for administration, but there was no clue as to who, apart from the Government, would take the company out administration. Rather belatedly, the hon. Gentleman sprang up to say that he was against the Government taking the company out of administration.
The hon. Gentleman blithely said that if someone turned up to take the company out of administration or if it continued in administration there should be no bureaucratic impediments to the transfer of licence. Does he understand for a moment what is involved in transferring the licence to operate a nuclear site? Has he spoken to the nuclear installations inspectorate or to the Health and Safety Executive? I am delighted to say that they have made plain to me that there would be no automatic transfer of licence. Anybody who wants to operate a nuclear site, whether an administrator, a company or the state in some form, has to demonstrate that they are capable of doing so. We cannot simply brush aside concerns about security of supply, the impact on the work force, the environmental effects and the safety implications of licence transfer.
Opposition parties vaguely think that they should be against the Government's proposals, but they do not have a clue as to what they would put in their place. At the end of the debate, I am reinforced in my view that what we are doing is the only plausible, practical and pragmatic way to approach the problems of British Energy.
Does my hon. Friend accept that there is another important factor—the international aspect of the nuclear industry—and that one of the problems with losing one of the major firms in this country is that it would have a dramatic impact on our ability to work internationally in dealing with all manner of nuclear issues?
Of course I agree with my hon. Friend, but that is not one of the specific purposes motivating us to take action. Some people casually denigrate the nuclear industry, but thank heavens we have that degree of expertise in the United Kingdom, and we can send it out to other parts of the world, particularly parts of the former Soviet Union, where it is valued and where, as a result of the skills that have been developed in the United Kingdom, we can make plants less vulnerable to incidents. We can contribute to the international effort to make those plants safer.
Of course we wish that we did not have the problems that we are addressing tonight. I have personally known about the circumstances at British Energy for a long time and those at Scottish Nuclear even longer, but those problems are not of our making and the choice that we face is how to respond to them in the most responsible way possible. The actions that we have taken since September have passed those tests. The official Opposition have changed their attitude since then because they recognise that we took the only responsible course of action in the immediate aftermath of those events. We could not walk away from the industry.
My hon. Friend has rightly identified the expertise—we disagree about the pronunciation of that word—of the British nuclear industry and its personnel, but does he agree that one way in which we could sustain the industry and make it an attractive occupation and a lifetime career would be to give some more positive indications that it will be sustained beyond the next five to 10 years, which is the furthest horizon that most of us can see at the moment, without any positive statements and other positive documents that might be produced in the near future?
In the current circumstances, no one expects any document to say, "Go out and build nuclear power stations", even if it were in the power of a document to say such a thing. That is not to give away anything at all. However, there is a recognition that the industry will be with us for some time to come and that the worst of all worlds would be to lose the skills base on which it will continue to depend, so the future lies in that territory.
I want to return to the point that the Bill is relatively narrow; it is an enabling Bill. It will provide parliamentary authority for the Government to incur expenditure on British Energy, which is necessary in case the company goes into administration. It will amend the Electricity Act 1989 to remove the ceiling on the financial system in relation to nuclear energy, and it will ensure that the Government can acquire British Energy's operating companies if it goes into administration. Those are the narrow purposes of the Bill.
An issue that has not been touched upon at all in the debate is how we move forward to a hydrogen economy, so that we can really start to make an impact on carbon emissions. How would we achieve a hydrogen economy without a continuing and successful British Energy and a continuing and successful nuclear power industry?
I do not want to second-guess what you might say, Mr. Speaker, but I suspect that one of the reasons why that issue has not been touched on is that it is not the subject of the debate, but, as always, my hon. Friend makes a valuable and constructive point.
I want to try to answer some of the specific points that have been made. The hon. Member for Reigate seemed to blame BNFL for British Energy's difficulties. We had a little bit of an exchange about that, and I utterly refute what he says. I stress that the agreement that BNFL and British Energy eventually reach will be similar to that which the companies discussed last year. It ultimately became clear last year that BNFL could have done nothing on its own that would have been sufficient to help British Energy, given the company's position at the time.
As I said, I find the Tories' support for administration strange, but that is their business. For our part, we responded to the company's plan for solvent restructuring. We assessed its implications with our financial advisers, and decided that we would play our part and support it. Administration has always remained an option for the company if its plan did not succeed. Whatever route we go down, British Energy's historic costs will be borne by the Government, and we know that there is not exactly a queue of buyers waiting to acquire the company. As the Opposition story unfolded, I waited for the final chapter, in which, with one leap, they would be free by telling us who are the mysterious people who are going to take the company out of administration—I am still waiting to hear. That reaffirms the point that it would have been irresponsible of this Government to push or to seek to push the company into administration.
We have already pointed out that stations generate more revenue than their operating costs, and I am surprised that anyone even questions that—it is a pretty straightforward calculation. Because of the high capital costs of nuclear power stations, the operating costs are relatively marginal, and the revenue generated by every station outweighs them. As I said at the outset, it would be economic madness to shut the stations down and lose the revenue. I extrapolated from that that because it is economic madness—although it has a certain populous ring to it—it defines the economic policy of the Liberal Democrats.
I also want to take issue with the hon. Member for Reigate about the Bruce station in Canada. He was the first to point out the risks involved in the leaseholder of the Bruce station repossessing the plant in the event of administration. I stress, however, that the decision to dispose of Bruce Power was not imposed as a condition of Government support and was taken by British Energy in October to preserve value against the risk that I have just highlighted.
While it seemed at one point that we would have rather long winding-up speeches, we are now having fairly short ones. I will undertake to write to other hon. Members who have raised substantive points tonight.
The major issue in this small Bill is that of lifting the ceiling or cap that is set in schedule 12 of the original 1989 Act from £2.5 billion to whatever figure is decided. Is my hon. Friend secure in the knowledge that, whatever money the industry receives, given that it is in the private sector, it will be used solely for the liabilities left by the industry and not for other things?
The sums to which my right hon. Friend refers are for historic liabilities. That point was well made by the hon. Member for South Cambridgeshire, who made a good contribution to the debate. A distinction is made between historic costs and future operating costs, which must be borne by the industry and the company.
Earlier, someone said that waiting for the White Paper was like waiting for Godot. After this debate, we can rework that cliché, and say that it is like waiting for the shadow Secretary of State to come through the door. Sadly, he has still not arrived. This is an essential, pragmatic, good Bill to deal with a situation that is not of our making. I commend it to the House.
Question put, That the Bill be now read the Second time:—
The House proceeded to a Division.