With this it will be convenient to discuss the following:
Amendment No. 10, in page 1, line 6, at end insert—
'in relation to qualifying activities'.
Amendment No. 14, in page 1, line 13, at end insert—
'( ) Nothing in subsection (1) shall permit the Secretary of State to incur expenditure on the management, transportation, storage or reprocessing of nuclear waste materials.'.
Amendment No. 15, in page 1, line 13, at end insert—
'( ) Nothing in subsection (1) shall permit the Secretary of State to enter into any arrangement having the effect of transferring financial liability for the storage or reprocessing of nuclear waste material to the Exchequer.'.
Amendment No. 3, in page 1, line 20, after 'loan', insert 'or'.
Amendment No. 4, in page 1, line 21, leave out 'by any other means'.
Amendment No. 11, in page 2, line 3, at end insert—
'"qualifying activities" shall be limited to the financial liabilities generated by a British Energy company prior to 4th September 2002, to a maximum of £2,100 million'.
Amendment No. 26, in page 2, line 8, at end add—
'(4) No money shall be made available by the Secretary of State to a British Energy company for the purposes of reprocessing spent nuclear fuel, or that would have the effect of displacing the cost of reprocessing spent nuclear fuel from the general expenditure of a British Energy company.'.
New clause 1—Historic liabilities—
'Expenditure under the provisions of this Act shall be restricted to the historic liabilities of British Energy plc as at 4th September 2002.'.
I am delighted to begin the Bill's consideration in Committee. I am conscious of the fact, however, that we have very limited time. The time for discussion in Committee has been concertinaed, and it has now been further reduced by the statement on Iraq, so I will try to be brief and to the point. I am also conscious of the fact—we had strong guidance about this from the Chair on Second Reading—that this is a narrow discussion; it is not about the general merits and demerits of nuclear power, and this series of amendments will narrow the debate even further.
I wish to focus on three issues, the first of which is captured in amendment No. 12 and relates to the lively debate in government and the European Commission and what should be a lively debate in Committee about the relative merits of solvent restructuring versus administration. We have tried to capture that issue in the amendment by proposing the deletion of the relevant subsection.
Secondly, we have tabled amendments Nos. 10 and 11, by which we seek to limit the Government's commitment to their decommissioning liabilities. That is an attempt to address the issue, which is replete in the Bill, of very large, open-ended financial liabilities. Whatever we feel about nuclear power or British Energy, we wish to try to provide some discipline and limits on those financial commitments.
Thirdly, we have a couple of amendments—to which I hope that my hon. Friend Mr. Stunell will speak—that relate to the link between British Energy and BNFL and our concern that BNFL's losses and British Energy's problems will simply become interchangeable in a very opaque way. The purpose of those amendments is effectively to create a financial firewall between the two undertakings.
Let me address most of my remarks to the very live issue: the relative merits of administration as opposed to solvent restructuring. When I first publicly raised the idea of administration, I vividly recall that it was regarded as being somewhat insane, but I subsequently discovered that my wing of the lunatic asylum is inhabited by the European Commission and, if we are to believe the press, by the Chancellor of the Exchequer, too. It would appear that there are great doubts in government about whether solvent restructuring is the best option for the British taxpayer.
Perhaps I can put the discussion in context by reading the relevant quotations from the Secretary of State for Trade and Industry. In her first statement, which was very well balanced, she made two keys points that frame the whole discussion. She said:
—administration or solvent restructuring—
"nuclear power stations will continue to generate electricity and will continue to employ staff. Pensions entitlements will be met. Trade suppliers will be paid. Customers' lights will stay on."—[Hansard, 28 November 2002; Vol. 395, c. 490.]
We are not debating safety issues or security of supply. The Secretary of State has made it very clear that those aspects would be protected under an administration arrangement. She went on to say:
"Let me make it clear that there is no real difference in the cost to the taxpayer between the solvent restructuring that we are giving the company a chance to put into place and falling into administration".—[Hansard, 28 November 2002; Vol. 395, c. 492–93.]
The Government's own starting point is that the two approaches are not fundamentally different financially, but it is very clear that a debate is going on about them.
Does the hon. Gentleman have any observation to make on the last point about the difference in cost? If, as is proposed by the Bill, the financial ceiling is removed, is there not the danger that British Energy will become a sink down which money is poured?
Indeed, that is very much my view, and I hope to develop it in more detail. However, that concern is shared not just by Liberal Democrat Members and even by Conservative Members, but in many reaches of the Government. There was a discussion in The Business newspaper on Sunday about the debate that is going on in Whitehall. As none of us has had that kind of information, one must assume that it has some accuracy. It said:
It has been made very clear that the Treasury, which has done its own cost-benefit analysis, is very sceptical about whether solvent restructuring is the best deal for the taxpayer. It concludes that narrative by saying:
So I shall briefly assume the mantle of the Chancellor of the Exchequer, rather than that of Liberal Democrat spokesman, and argue what I think he would argue if he were here defending his corner against the DTI. He would make the point that, if solvent restructuring goes ahead, there are clearly some financial benefits to the Government, and those benefits have to be set against the costs in a fair-minded way.
The Government would derive two benefits from solvent restructuring. First, £275 million in new bonds will be produced by the restructured company. That is new money; it is a positive addition of cash, which the Government would not have got if the company had gone straight into administration. When the issue was raised by the Select Committee on Trade and Industry, the Minister for Energy and Construction was asked to explain the assumption that the bonds can be successfully floated. That is the problem. I do not know whether they can be floated, but we are in a difficult market environment. There are certainly question marks over whether that is deliverable.
The second and most contentious benefit relates to the fact that, under the restructuring deal, the Government will be able to attract into the company, by keeping it private, 65 per cent. of free funds—in other words, net cash flow. Those funds would not be available to the company if it went into administration. At the optimistic end of the range of forecasts, we are talking about £100 million. I shall say in a moment why I think that that figure is wildly optimistic.
The hon. Gentleman mentions the marketability of the bonds, which was indeed touched on by the Select Committee. Of course, the point is that marketability depends on the market. The private sector does not know what the market is because the White Paper has not been published. That is one of the problems that we have in considering the Bill at this time.
The hon. Gentleman is absolutely right. There is massive uncertainty about whether the 7 per cent. coupon yield that, I think, has been offered is sufficient to overcome that problem, but I am not an expert in securities markets. At the very least, there are doubts. Equally, there are doubts about whether the 65 per cent. free funds will be available. The economics are very questionable indeed.
British Energy, which has been making enormous efforts to improve the productive efficiency of its units, is currently producing at about £18.50 a megawatt-hour. That is its production cost, but for the additional cash flow to materialise, it will need to get its costs down by about £2 a megawatt-hour. It will need to achieve an extra 10 per cent. in efficiency to get the margin to generate the cash flow. I have seen no indication, other than a hope, about how that increased efficiency will be achieved. It is assumed that the plants will work flat out and at optimal efficiency and that the problems that have occurred at Torness and elsewhere will not arise. It is an heroic assumption and, if the assumptions are not realised, the benefit will not be maintained. Those are the two elusive financial benefits that may come from the solvent restructuring solution.
The Government will have to contemplate paying out money that would not be paid out in the administration solution. Other factors also have to be taken into account. There is the balance of the free funds—the 35 per cent.—and, more important, there will be a commitment to continue paying interest on the bonds, which will amount to about £50 million a year. That money will have to be paid to outstanding creditors in the private sector, which would not happen in administration.
If we put the two elements together, we can see that the case is finely balanced and that there is a lot of uncertainty. However, in an uncertain environment, several compelling reasons arise for pursuing administration. We are dealing with a private company that has manifestly failed in the past. I know that it has a new chief executive who may turn things round. However, we are being asked to believe that, despite their record of failure, the same company and the same chain of management can deliver spectacular improvements that have not been seen before.
If the company went into administration, we would not have the problem that the restructured company will have—that of having to justify its treatment relative to its competitors. It is not yet clear that the restructuring proposal will get through the European Commission. Some of Mr. Monti's comments suggest that the Commission does not regard the Government's proposal as acceptable state aid, although we do not yet know the final outcome of that. He has certainly made it clear that the Commission's assessment is that administration is the preferable solution. With administration, the Government would not be committed—as they will be under the present proposals—to open-ended financial support for this private company.
The Government keep reassuring us that their £650 million loan is secure, that they have first charge on all the assets, that the money will be paid, and that the taxpayer has nothing particular to worry about from the bail-out. They keep telling us that and, in purely legal terms, they may well be right. However, the Government's optimism is belied by other things that they are doing. As we know, their submission to the European Commission had a much higher ceiling level, and this Bill has an unlimited ceiling.
Let us assume that solvent restructuring is agreed by the City and the Commission and that it goes ahead. What will happen if the price of electricity falls? British Energy is already losing money with the financial terms under which it is required to operate. Its costs, including capital charges, are well above the market price. However, what if the price falls further? We know that the industry has a lot of excess capacity. None of that is being removed by British Energy, which will be required to operate flat out to meet its financial objectives. We could well be coming into a difficult economic environment. We do not know what will be the economic consequences of a war in Iraq. The effects on the economy and the price of electricity could well be to drive that price down much further. There will then be open-ended liabilities that the Government will be required to pay to this private company. The £650 million—or some other form of assistance—could well be the minimum rather than the maximum.
I will finish my point and then take an intervention.
Whatever we think about the controversial issue of nuclear power, if we take all those factors into account, and if we take into account the body language that we see in Whitehall Departments—notably the Treasury—administration would seem to be a more prudent solution for the taxpayer than the route that the Government are taking.
The hon. Gentleman has rightly pointed out the commercial risks. None the less, it is fair to say that commercial risk is inherent in this. The City of London, although it would take account of his concerns, would be able to price things accordingly. Will he say a little more about the risk that the whole financial assistance package falls foul of European Union law? That was not discussed in any great detail on Second Reading and the Minister for Energy and Construction has not given a full analysis of those concerns.
For several reasons, the proposals may run into difficulties because of the need to consider competitors. We await the ruling of the European Commission. We know that some private creditors, such as Barclays, have taken the view that administration would be no worse and would probably be better than the Government's proposal. Those creditors may well take court action on that point. There is the Greenpeace legal case as well. For any one of a variety of reasons, competitors may well be able to stop the process.
I will conclude now—remembering that I started my speech by invoking the issue of time. I want just to refer briefly to the other amendments. My points will flow from the discussion that we have just had.
Amendments Nos. 10 and 11 seek to limit the extent of the financial liabilities that the Government are undertaking. They try to limit the liabilities to decommissioning liabilities. We would all accept, given the Government's position, that the taxpayer will have to assume decommissioning liabilities in some form. Years ago, it was hoped that the private sector would be able to finance nuclear power and its decommissioning liabilities, but those hopes seem to have gone. There is little prospect of them being realised. We concede, in these two amendments, that the Government will have to make a substantial increase in their contribution to nuclear decommissioning liabilities. However, we say, "Why not leave it at that? Why do the Government need extra financial provision?" The Minister has always forcefully said that, even in the event of the industry going into administration, the economics of nuclear power are clear because the operating costs justify keeping the industry going. A sane administrator would keep the industry going because the operating costs mean that there would be a bit left over for interest obligations, if not all of them. Why, therefore, is there a need for additional financial support beyond the decommissioning assistance?
Has the hon. Gentleman not touched on the reason why the Government are right to try what they are trying? Under administration, the Government would not be able to avoid decommissioning costs. Under successful solvent restructuring, there is at least a possibility that, in the long term, the industry could do what it was always intended that it would do, and pay the decommissioning costs itself.
The hon. Gentleman is right. The upside of the story is that, under solvent restructuring, private companies would make a modest contribution to decommissioning costs. If that part of the package realised its full potential—which is, I believe, around £100 million—that would be a positive element of restructuring. I accept that that would go on the plus side of the balance sheet, but we have to consider the overall balance.
We are dealing with very complex financial calculations and none of us here is qualified to make professional judgments. I urge now, and will urge in amendments to follow, that before the Bill has completed its passage, we must build in some mechanism whereby auditing authorities, and the House through its Committees, can consider properly the economics and the financing arrangements. At the moment, those arrangements are highly opaque. That obscurity is one of the most unsatisfactory parts of the Bill.
I am pleased to follow Dr. Cable, who rightly concluded that this is a complex matter. He would like more transparency, and so would we all. He offered a range of possibilities for the direction that the energy market will take. He wondered whether electricity prices would fall as a result of war. I suspect that they would go up rather than down. He also spoke about the range of liability costs over the coming years.
I want to be more practical and more down to earth than the hon. Gentleman. The rescue package will cost the Government a great deal of money. These amendments seek to cap or restrain those financial consequences. Can my hon. Friend the Minister tell us whether the money is there to do the job? In the short term, there is a £650 million loan, with contributions of between £150 million and £200 million over 10 years, amounting to something like £2.1 billion. My impression—I put it this mildly—is that that clears out the Department of Trade and Industry energy budget in one stroke. Many of the issues that we have been discussing relate to the consequences and the direction of future energy policy and the cost of this rescue package, however it is done, over the next 10 years.
The White Paper will be published shortly—in the spring, or at the end of February or the beginning of March—and one of the things that many Members wish to know is the consequent cost of that in relation to the White Paper. My hon. Friend the Minister, who has been very good to me over many years, will know of my long-standing interest in other sources of energy, particularly coal. Is the £60 million that has been set aside for the coal industry investment aid scheme starting this year still available, or has it been cleared out to give to British Energy?
It is a pleasure to follow Paddy Tipping, whose expertise in energy matters is known to all hon. Members. I am grateful to Dr. Cable for setting out the broader picture so well. I do not intend to repeat that exercise but simply to pick up one or two points that he made.
First, it might be helpful if the Minister were to let us know whether there is any new formulation in relation to when the White Paper is due. According to the last one, it is due at the end of February or the beginning of March. If things have moved on since—it has been more than 10 days—it would be useful to know.
I am now tempted to ask which months make up summer, but I might trespass on your patience, Sir Alan, if I pursue that line.
The hon. Member for Twickenham rightly drew attention to the fact that this whole debate is now about the amount of assistance that the Government will give British Energy, behind which sits the whole question of state aids and the European Union. Even if the Government are successful in putting together the rescue package with British Energy, it is highly likely that when we arrive at the summer of 2004, the competition commissioners will, properly, unpick the whole thing.
There cannot be a case for giving an unlimited amount of money to one company in the electricity sector, particularly when the rest of that sector is under such enormous pressure. I am certain that at least one company will pursue the matter vigorously, along with environmental groups, with the competition authorities. That is why the question of whether this Bill is necessary at all remains.
The hon. Member for Twickenham made it clear—repeating what is now accepted across the House—that the plants will continue to generate power, whatever condition they end up in: administration as an independent private company; a private company with the Government rescue arrangement; or owned by the Government. No one disputes that they will continue to generate power, and, on my understanding of their financial situation, they will continue to generate cash because the costs will now have been discounted and most of their liabilities, of one form or another, will have been taken on by the Government under whatever arrangement we reach.
I take issue only with the hon. Gentleman's suggestion that even the Conservatives were now interested in how much money was going to be put into the company. I cede to no one in the House the defence of the taxpayer's interests—the Conservative party has a proud record of doing that. A decade ago, the situation for nuclear energy was slightly different. I am sorry that Mr. Skinner is not in his place, as the unfortunate leadership under which the National Union of Mineworkers found itself labouring had much to do with creating the environment of the late 1980s in which the vigorous support for nuclear energy perhaps went beyond the economic case.
I have tabled new clause 1 and amendments Nos. 4 and 5. New clause 1, which is similar to and has the same design as amendments Nos. 10 and 11 tabled by the hon. Member for Twickenham, would limit the liabilities assumed by the Government to the historic liabilities. We have tabled a figure of £2.1 billion, which is the figure for the back-end fuel costs in the April report and accounts for the company, to which the taxpayer's exposure would be limited.
Amendment No. 12 was tabled by the hon. Member for Twickenham and deletes the provision for assistance to the company. Will the Minister explain whether such legislation is absolutely necessary to assist the company were it to go into administration? I do not believe that it is necessary, but I would be grateful for the Government's view.
Amendments Nos. 4 and 5 are designed to tighten up the ways in which the Government can give financial assistance to British Energy by removing the phrase, "by any other means", which seems to be drafted widely. Plainly, the drafting covers any way in which the Government could give money to British Energy. Some perfectly proper ways exist in which they can assist British Energy without having to resort to "by any other means". One is to ensure that if we have something that can properly be called a climate change levy, it is not paid by nuclear generated electricity. Equally, its business rates could be assessed on the same basis as those of any other power generating company rather than under the arrangement introduced in a statutory instrument passed in 2000. We are looking for answers to those questions. Why should the provision on the Government's form of support be drafted so widely? Why cannot the liabilities be limited to the historic liabilities at
Finally, I want to address the point raised by Dr. Ladyman in an intervention on the hon. Member for Twickenham: that the only case for the Government to rescue British Energy in the interests of the taxpayer is that the company may be able to trade out of its current position. The Government would therefore get a return on their investment in rescuing British Energy. Of course, the assets of British Energy—the power plants—have a value in the market. If the Government take a title to the liabilities, they will have first charge, should the company go into administration, over the money that would be raised from the sale of those assets. Will the hon. Gentleman reflect—I know that he is a supporter of nuclear energy—on what will be the future of the nuclear generating industry in this country if it has to be rescued in this way by the Government or if it ends up in public ownership? I think that that would be its death knell.
Will my hon. Friend tell the Committee whether, in seeking to cap the cost to public funds of meeting those liabilities, and thereby exercising his and the Opposition's fiduciary responsibility to the taxpayer, he is purely motivated by intellectual considerations or is properly responding to representations from other hard-pressed power suppliers?
There have been representations from the renewable energy sector in particular—Ecotricity is one company that springs to mind. I hope that my arguments are also sustained by intellectual credibility. The rest of the electricity industry has ducked below the parapet somewhat, and there seems to be a certain shamefacedness about the consequences of emerging into the open to challenge the Government on this rescue strategy. I think that the industry is waiting to see, perhaps hoping that it might not come to this after all and that the Government will not end up taking such a position in the electricity market and so disrupting it for other electricity generators.
One or two companies made some noises in September when the loan was first made, but they have gone rather quiet since then. It would be helpful to all of us in illuminating the debate as time goes on, not just this afternoon, if the Electricity Association and the individual companies were prepared to be rather more clear about exactly what their position was.
I want to speak specifically about my amendment No. 26, but first I wish to say that I was very sorry not to be here for Second Reading. However, I did read the text of much of that debate in Hansard, and it occurred to me that, on this difficult and complex problem confronting the Government, those who argued for the Bill did not divide into either supporters or opponents of nuclear energy. There was an enormous ambiguity in the Government's solution, and so it attracted supporters from both sides. Some opponents of the further development of nuclear power were happy to support the Bill on Second Reading precisely because they thought that it would hasten the end of nuclear power, and the supporters of nuclear power were happy to support it precisely because they thought that it was the only way to ensure a continued future for nuclear power.
That ambiguity is also present with regard to the amendment, which argues that, under any future financial arrangements whereby the Government put public funds into British Energy, those funds should not be deployed to sustain the reprocessing of spent nuclear fuel. Both the opponents and proponents of nuclear energy should support the amendment.
The traditional environmental lobby, in which I broadly include myself, feels that the days of nuclear power are numbered and that, whatever happens to our overall energy mix, nuclear will play a significantly smaller role until or unless we finally discover the secrets of nuclear fusion. We must always ensure that that possibility remains open.
For those of us who are broadly opposed to the further development of nuclear power in its current form, the question of the reprocessing of spent fuel is hugely important, because reprocessing is enormously expensive. We all know the complaints that British Energy made, I think two years ago, about the excessive amount it had to pay to British Nuclear Fuels Ltd. for reprocessing spent fuel and the savings that it thought that it could make if it could store its spent fuel.
The economic arguments against reprocessing are extremely strong. It follows, therefore, that those who want a future for nuclear power should understand that its likelihood is strengthened if reprocessing spent fuel is taken out of the equation. The cost to any future British Energy, whether publicly owned or restructured solvently, of storing its fuel would be significantly less than that of reprocessing. As I recall the figures, the savings could be £100 million to £200 million per annum for the next 10 years—a not insignificant amount.
I understand that there have been discussions between BNFL and British Energy. I recall from the Library briefing on the Bill that my hon. Friend the Minister had said as late as December that those discussions had not been concluded, and that there was no agreement about what the future basis for reprocessing contracts might be. It would be very helpful if in his reply my hon. Friend could tell us the latest information on the renegotiation of contracts.
Whatever the economics, and whatever the price of reprocessing spent fuel, it is important to understand—
Has my hon. Friend made any calculation of the cost of discontinuing reprocessing in the light of the expenditure that has already been made for the plant? How much would it cost to mothball or dismantle it? How much would it cost BNFL if these contracts, which have already been signed and which one would imagine are still in force, had to be written of?
I have not made such calculations, but others have. Now that British Energy is no longer a private sector company, and may not continue as a private sector company, the whole question of the space within the Government accounts where the cost of reprocessing appears is quite different. This is a strong argument for ending reprocessing, because the Government now, both as the sole shareholder of BNFL and in their role in controlling the future of British Energy, are in a stronger position to determine what the future will be.
Certainly, in terms of the comparative costs of reprocessing as against the storage of spent fuel, there is no dispute: storage is significantly cheaper. That is why in nuclear power stations across the world, 85 per cent. of spent fuel is stored and not reprocessed. That is why the United States decided in 1977 to end reprocessing. The economics are clear, and they impinge directly on the future liabilities of the British taxpayer, which lie at the heart of this group of amendments.
I should like to speak briefly about the reason for our historic commitment to reprocessing and how the conditions in which the reprocessing decision was taken no longer apply. Forty years ago, the prime purpose of developing nuclear energy was to generate plutonium to build up our stockpiles of weapons during the early years of the cold war. The decision to reprocess was taken when uranium was considered to be in short supply, or to be a fuel that would become so expensive that we needed alternatives. Those days have gone. Uranium is still there and is comparatively cheap.
When the decision was taken, there was no serious debate about the technologies of storage. In the early years of nuclear energy, some fuel had been stored. In fact, some fuel from the Magnox reactors was stored and continued to be dry-stored at the Wylfa reactor. My argument is that the decision to develop a reprocessing industry in Britain many years ago was arbitrary. It could have gone differently. It was based on circumstances that no longer apply and has not been followed by most countries that have a nuclear power industry. We have trapped ourselves into that historic mistake.
The collapse of British Energy, as with so many crises, gives an opportunity to re-evaluate the fundamental assumptions that have determined our thinking for many years. There must be such a re-evaluation. The amendment's purpose is to argue that now, whatever people's views about the total amount of public money that should go into the rescue of British Energy, there can be no dispute that none of it should go into carrying on the reprocessing of spent fuel. Discontinuing it would be cheaper for the taxpayer and for whatever the future form of British Energy may be. It would also be safer in terms of the environment and certainly in terms of the current international problems with proliferation. I cannot be the only Member who sees a contradiction between our view of what is happening in North Korea with the starting up of nuclear plant to generate plutonium, and the fact that that is exactly what we have been doing for the past 40 years.
I want to make a point that I have made in similar debates, although without any success. A Treasury Minister should be present because we are talking about substantial sums of public money. Dr. Cable, who fluently and ably moved the amendment, tried to remedy that by proposing that he should don the cap of the Chancellor of the Exchequer. I think Lloyd George was the last Liberal Chancellor, so there is a distinguished lineage. However, he is not likely to be Chancellor and his brave effort, sadly, failed.
No doubt the Minister would not entirely welcome the presence of a Treasury Minister. There will have been sensible arguments between the Department of Trade and Industry, the Minister and the Treasury. We are entering a period in which the Government's finances look distinctly rocky and the Bill paves the way for a further payment. In addition to the £5 billion or so that we may spend on a war in Iraq, which we heard about earlier, there are other considerable outlays that could not have been foreseen when the Department's budget was originally suggested. The House must take its role as the guardian of taxpayers' money seriously, as my hon. Friend Mr. Blunt said.
Paddy Tipping asked whether the deal has cleaned out the Department's energy budget. Presumably, like every other Department, the DTI drew up its public service agreement with the Treasury some time ago under the spending agreements, to which the Chancellor attaches great importance, and there was a provision for energy. Does the scheme clear out the budget or will there be a drawing down from a separate contingency fund? I shall be interested to hear what the Minister says about that.
It would also be useful to have a Treasury Minister present because, as Mr. Chaytor said, we have an opportunity to re-evaluate the differing roles of energy suppliers in the total picture. We know that because the Minister is producing a White Paper, perhaps in the early summer, and the whole energy debate is at a critical point. In many ways, it is a great pity that British Energy has reached its present pass before the Government's views on how the picture may evolve have been made public. There will be differing expenditure consequences as a result of the, hopefully different, choices that the Government may make while they deliberate on the White Paper. I, too, want greater support for renewable energy. That will cost the Government quite a bit, at least in the initial stages. I do not think that renewable energy can solve the whole problem, but it can make a contribution, so I hope that the Government give it extra support.
For all those reasons, I should have liked a more comprehensive assessment of the financial consequences of the measure set against the background of the energy debate and deteriorating public finances generally.
I support the case made by Dr. Cable and will support his amendments if he presses them. He made cogent points about the financial aspects of British Energy and there is confusion about the Government's strategy for it. It is unfortunate that the White Paper has not been published.
Mr. Chaytor made a good point about the difficulties faced by both pro- and anti-nuclear energy interests. Had the money for British Energy been linked to a run-down and decommissioning of plants, many of us would have enthusiastically supported the plan, but that is not the case. What is the strategy for British Energy? Is it linked to building new nuclear power plants? Is that why the Government wish to keep it in the private sector and keep it going as a non-state company, because we would oppose that?
It has been stated that nuclear plants cannot be shut down overnight. We all accept that. The policy pursued by the Scottish National party is that all nuclear plants should be shut down at the end of their economic or technological life. We recognise that it takes years to phase out nuclear power plants and that they will continue to operate during that time, but most plants owned by British Energy are due to be decommissioned within the next 30 years. In Scotland, Hunterston is due to shut by 2030 and Torness by 2024. So why put huge sums into British Energy? If we are going to decommission existing stations, would it not make more sense to allow it to go into administration and gradually run it down within that period as the plants come to the end of their technological lives?
Even the most enthusiastic projections for British Energy do not predict that it will be able to make anything other than a minimal contribution to its liabilities over the remaining lifetime of the plants even if they run successfully and at full capacity, which is a major assumption given the difficulties recently experienced at some plants that have had to shut down. The shut-down earlier this year at Torness contributed to the financial difficulties in which British Energy now finds itself.
As I understand it, if we take out the start-up costs, such companies run efficiently and around profitability, which is the opposite of what the hon. Gentleman claims.
I do not know that it is. Both start-up and run-down costs are associated with the company. The problem is that the industry, partly because of its historic liabilities, is uneconomic, so the energy that it produces is uneconomic. Bonds were mentioned and Mr. Field said that the City would set its own level if they were issued. But the Secretary of State noted in her statement on
Whatever route we take—whether British Energy remains in the private sector or is effectively renationalised—the taxpayer will pick up the bill. There is little sense in going through the restructuring plan unless the Government intend to expand nuclear power.
The hon. Gentleman is working on an assumption that he has not explained or thought through. He seems to think that the maintenance costs and the safety obligations diminish as a power station reaches the end of its life, but the opposite is true. We must have proper safety at great expense right up to the moment when the power station closes. There is never a taper. The idea that the financial requirement will diminish is wrong because it will be roughly the same, allowing for inflation, right up to when we say that there is no more need to put fuel rods into a station. That is why substantial sums need to be provided. It does not preclude investment or require investment in new build.
That makes no difference to the fact that the taxpayer will pick up the tab whichever way we go. It does not make any difference whether the taxpayer pays to keep British Energy going in the private sector or in the public sector by effectively renationalising it. If the plants are to close anyway, that cost has to be met. There is no reason to keep it in the private sector unless there is a prospect of expanding nuclear power.
A possible problem with the European Union has been mentioned. In an e-mail this afternoon—perhaps other hon. Members also received it—Greenpeace reassesses the European Commission's decision, although I am sure that the Minister will not accept what it says as gospel. Greenpeace says that the decision
"underlines the requirement that aid drawn down from the loan facility must be the minimum necessary amount to keep the firm in business for the rescue period".
In other words, if British Energy became insolvent or went into administration, the amount required for the minimum safety level would be less than that required if it continued trading, as funds for creditors, bondholders and others would be realised, thus reducing the amount for essential safety and security. More public money would have to go in so, from the taxpayer's point of view, administration is the cheaper option.
Has the hon. Gentleman not demonstrated why this group of amendments is unnecessary? The European Commission is likely to rule that any amount of money put in by the Government has to be the minimum amount necessary. If the Government exceed that, it would be illegal under European law. We therefore do not need the amendments, which tie the Government's hands.
The minimum amount will vary, depending on whether the company stays in the private sector or goes into administration. If I understood the hon. Member for Twickenham correctly, the preferred option in the amendments is for the company to go into administration. That would be the best deal for the taxpayer, and I believe that it is more likely to ensure the eventual decommissioning of those stations and stop the expansion of nuclear power. I therefore support the hon. Gentleman's amendments.
I want to draw the attention of Committee members to amendments Nos. 14 and 15, which are similar in intention to amendment No. 26, which was tabled by Mr. Chaytor. Our amendments aim to prevent the creation of a hidden or circular subsidy between BNFL and British Energy. A number of Members have already asked whether British Energy is capable of making money if historic costs and/or future liabilities are written off. That debate clearly requires a good deal of technical exploration, because the figures can be interpreted differently. At the beginning of 2002, British Energy's production costs were about £20 a megawatt-hour, but by the end of last year, they were down to £18.50, compared with a wholesale price of about £16 a megawatt-hour. The company was apparently running at a loss all last year, but a lot depends on future costs and prices. Amendments Nos. 14 and 15 do not address that directly.
We are obviously entering an area in which Members cannot claim to be experts. In its annual review, British Energy claimed that its operating costs had already been driven down to £16.70 a megawatt-hour, and said that it aimed to get them down to £16 a megawatt-hour. When I visited its plant at Heysham, I was told that that included depreciation costs, which suggests that when liabilities and depreciation are taken away, the costs are significantly less. British Energy therefore generates cash now, and if the electricity price returns to the long-run cost of generators, it would make a significant amount of cash.
I am grateful to the hon. Gentleman, who has underlined the point that the figures are open to interpretation. When one is looking at costs, as anyone who has attempted to run a business will know, the final figures depend on what is included and excluded. I do not base my case on any particular interpretation of prices, but simply wish to make the point that the rescue package—if that is what it is—must be based on the best available information. Some information could be seriously affected by the potential cross-subsidy between BNFL and British Energy in the reprocessing contracts. The hon. Member for Bury, North has already referred to that, and there have been difficult negotiations between the two companies over the past 12 months. In fact, the failure of negotiations was the trigger for British Energy to approach the Government and make it clear that it was in grave financial difficulties.
We must remember that BNFL is a wholly Government-owned enterprise which, financially, is on the brink. It could not afford to release British Energy from its contracts—had it done so, that would have pushed it over the brink, rather than British Energy. There are therefore two companies on the brink tussling over a contract. How convenient for the Government and perhaps the Department of Trade and Industry if negotiations between those two companies did not result in a reduction in the cost to British Energy but in an increase in the price paid for reprocessing. Suppose it went up from £250 million to £350 million or £500 million—there is nothing in the Bill to prevent the money injected into British Energy from being used to support that contract, whatever value the negotiations achieve. We have tabled subsequent amendments that address the issue of a ceiling on the amount of subsidy and input that the Government can provide.
The intention of our amendments is to establish with the Government the possibility of a cross-subsidy or circular subsidy that would indirectly rescue BNFL as well as rescuing British Energy. In our view, the contracts that were entered into were foolish—unnecessary work was commissioned, and excessive and pointless amounts of nuclear work have been created. To leave a loophole in the legislation—the failings of the reprocessing concept and BNFL's financial weakness, which could be covered up by additional subsidies pumped through in distorted contracts and prices—would make a bad commercial and environmental situation even worse. That is why we tabled amendments Nos. 14 and 15, and I shall certainly support the amendment tabled by the hon. Member for Bury, North.
I urge the Committee to resist the amendments. I was interested in the comment by my hon. Friend Mr. Chaytor that there is ambiguity about the pros and antis in this debate. Some people are anti-nuclear, but pro the legislation, and vice versa. I recall that there was an ostensible ambiguity at the time of nuclear privatisation. As someone who opposed nuclear privatisation, I remember very well that it was supported by Greenpeace and kindred spirits, as they thought that privatisation would damage nuclear so much that its demise would be hastened. One reason why I am cynical about Greenpeace is that it keeps starting court cases for which it gets cheap publicity before abandoning them in less publicised ignominy. As someone who, for all the right reasons, did not think that British Energy should ever have been privatised, I believe that Greenpeace, for all the wrong reasons, supported something that was greatly against the public interest.
Mr. Stunell has just painted a rather bizarre scenario, and if I was as big a conspiracy theorist as him, I might imagine that the Tories were in league with Greenpeace and all sorts of dark forces, and that the whole business of privatising British Energy was a long-term conspiracy. However, I relieve the Tories and the predecessors of Mr. Blunt of that charge—I just think that they were stupid, short-sighted, dogmatic and, above all, greedy in privatising the nuclear industry.
I thought that I would contest the charge of greed. The Minister said that the company was sold by the taxpayer and has now gone into the private sector. The shareholders and bondholders who lent the company money now appear to have lost all their money. Far from being greedy, my predecessors successfully protected the taxpayer's interest.
I do not want to go too deeply into the matter, but what that analysis omits is the causal relationship between the problems of British Energy and the privatisation, which some people foresaw at the time from different perspectives, and the impossibility of unleashing into a privatised and liberalised market a nuclear company which, for all the right reasons, has irreducible minimum costs.
We have taken up the debate where we left off. Opposition Members, as is their right and duty, are sniffing around in search of a better way, but none of them can argue convincingly for a better way than the one that we propose. Because restructuring and administration are postulated as opposites, Opposition Members have to support administration in order to oppose restructuring. That takes them down a rather curious route. In the case of the Tories, they have to believe that it is better for the company to end up in public ownership than for it to be given a chance to survive in the private sector, but that is for them to sort out.
As I said when I wound up the Second Reading debate, we came to the last chapter in Tory alternative scenarios, in which I thought we would be told who was likely to take the company out of administration, other than Government, to which there came no answer. What the hon. Gentleman says may be right in other cases, but there is not much sign of it being an option in the present case.
The debate seems to have proceeded on a misapprehension—that somehow, if we went down the administration route, that would be cost-free, and that administration could proceed without the benefit of the Bill. Let me be clear. We have never been dogmatic about restructuring versus administration. At every stage of the process, we have said that everybody must sign up to restructuring, otherwise administration is an option. The Bill provides the legislative basis necessary to accommodate either eventuality.
We are not saying that one course is absolutely right and the other absolutely wrong. We are saying that, on balance, we think that it is better for the taxpayer, better for security of supply, and better for nuclear safety if restructuring is the chosen option. If everyone signs up to that, restructuring will take place. However, if everybody does not sign up, administration is the alternative way. As a responsible Government, we have to take powers in that direction as well.
I am interested in what the Minister is saying. My understanding is that following the privatisation of nuclear energy, if the company was unable to continue, irrespective of whether the Bill was in place, the assets, such as they are, and the liabilities would come back to the Government in any event. The Public Accounts Committee made that point in a report in 1999. Therefore, would not the taxpayer pick up the tab in the event of administration, whether or not the Bill is enacted?
No. The assets of the industry are now in the hands of a private company. If restructuring is successful, they will continue to be in the hands of the private company, and if it is not successful, they will go into the hands of an administrator, who will still have to run the business. The stations will continue to run, as was properly made clear by Dr. Cable, and that will happen precisely because Government have taken the appropriate steps to make sure that funding is available in the form of a temporary loan facility and ultimately—this is the important point—if necessary in the form of funding to an administrator.
The stations will not continue to run if no one is providing the financial support to allow them to run. That would lead to massive problems, which no responsible Government could contemplate. Whichever route we go down, there will be costs associated with it. Clause 1(a) is framed to provide maximum flexibility, so it could be used for the rescue aid loan facility that we are providing—I emphasise again that it is a loan facility, so we should not play off the definition of a loan against suggestions that this is a cost in terms of grant or support to other industries. It could be used to support BE companies if they go into administration, funded through the administrator, and it could be used to fund trading arrangements, but not nuclear liabilities of BE's operating companies in public ownership if they were acquired under clause 1(b)(i).
We are taking the maximum range of powers for the full range of eventualities. However, we will not use the authority to fund under clause 1(1)(a) to fund the solvent restructuring. That will be done under the schedule 12 provision, which is specially designed for liabilities. Nor will clause 1(a) be used for subsidising the private sector BE in any way, apart from liabilities that perhaps begin to meet the Hazel Grove conspiracy theory. I stress that, as has been said, clause 1 can be used only to fund to the extent permissible under EU state aid rules.
I fully support my hon. Friend's approach in trying to give solvent restructuring a chance. The nightmare scenario presented by Dr. Cable raised the question of what would happen if that restructuring goes ahead but circumstances change. Is it not correct that, in those circumstances, under company law, the fiduciary duties of directors of the company would be the same, in effect, as the fiduciary duties on the administrator—in other words, to minimise the losses and liquidate any assets of the company? What the hon. Member for Twickenham depicts as a nightmare scenario is no such thing, and my hon. Friend's approach is the only sensible one to try.
I welcome my hon. Friend's comments. He is right. The hope and the expectation of Labour Members—or most Labour Members—is that the restructured British Energy would be a successful company, and that the measures that we are taking in the context of the restructuring would facilitate that outcome.
There has been some confusion, which the spokesman for the Opposition, Mr. Blunt, was helpful in clarifying, about BE's costs. The hon. Member for Twickenham suggested that costs would have to be reduced by 10 per cent. That is the reduction that would be necessary before restructuring, but of course the restructuring plan cuts costs by removing historic liabilities. Together with the projected improvements in output, that would deliver a sufficient cut in costs to ensure profitability. No further improvements would be needed, beyond the restructuring plan. Clearly, the willingness of people to sign up to a restructuring plan is based on that expectation and belief.
I do not accept that the costs of administration are lower than those of restructuring. Administration involves the cost of paying the administrator and impacts on BE's operation. We support restructuring not for any dogmatic reasons, but because it is a pragmatic way of ensuring the continued safe operation on fair terms for the taxpayer. Government support is not open-ended and is limited to nuclear liabilities.
The really clever thing about what the Minister is doing is that not only are consultants and lawyers running up vast fees preparing the plan to rescue British Energy, but it is almost certain that the administrator will run up equally vast fees as well, so the taxpayer will get a double benefit from the Government's strategy.
If that is a policy statement saying that the Tories are against consultants and lawyers running up fat fees, I welcome it as the biggest U-turn in political history. Of course, the best way of avoiding the administrator running up fat fees is not to have an administrator. That is one of the reasons why restructuring of the company is our preferred option.
On the limitation of funding to liabilities, is not my hon. Friend therefore agreeing with amendment No. 26, which I tabled? The amendment seeks to ensure that the funding will not be used for future reprocessing. Will he deal with the point that I made earlier regarding negotiations between BNFL and British Energy about the future costs of reprocessing?
I do not disagree with the spirit of that intervention, but I should like to deal with the issue in my own way. I do not want to speak for too long, as I am aware that there are other groups of amendments and I do not want to close down debate on them.
Clause 1(1)(a) provides statutory authority for expenditure on British Energy in the situations that I have described. It puts the loan facility that the Government have provided to BE on a firm statutory footing. The facility is currently being provided under the authority of the Appropriation Act 2002, which is entirely proper, given the circumstances. However, the principles of a long-standing agreement between Parliament and the Government spell out that, although that Act can be relied on in the short term, it is a matter of good practice that significant expenditure should have the explicit statutory authority of Parliament. Clause 1(1)(a) gives that authority in relation to the loan facility.
The statutory authority provided by clause 1(1)(a) could be used by the Government to provide essential funding to keep the nuclear business running safely in the event of an administration. That could include funding the administrator. It would also allow the Government to continue to fund the trading arrangements of the operating companies if they came into public ownership.
I do not think that my hon. Friend can throw away the key point merely by including the word "although" in his comments. A loan is a loan, so it is expected to be repaid. The safeguards that the Government have established in that regard are well known. None the less, I would prefer to answer his question on a positive note. As he knows, we had a very constructive meeting today on the subject of coal, which is close to his heart and mine. I do not think that this is a time at which we should try to play off one sector against another. We have obligations and responsibilities in respect of British Energy, security of supply and the safe operation of nuclear power stations. It is up to us as a Government to ensure that those issues are compatible with our other responsibilities. Of course, that will be reflected in the energy White Paper. We are making progress on all those issues, so I say to him that now is not the time to drive in wedges, although I know that that is not his intention.
Amendment No. 12 seeks completely to remove clause 1(1)(a), which exists for reasons that I have explained. Given the points that I have made about the importance of the provision, I hope that hon. Members will not press that amendment.
Amendment No. 10 proposes that clause 1(1)(a) should ensure that financial assistance can be provided to the company only in relation to "qualifying activities", which amendment No. 11 defines as
"financial liabilities generated by a British Energy company prior to
There again appears to be some confusion, as the Government have said that they are prepared to provide assistance for BE's nuclear liabilities. We intend to do that using the power provided in schedule 12 to the Electricity Act 1989, having removed the ceiling using the Bill, rather than under the clause. Therefore, I would say that the provision is separate from funding BE's financial liabilities. In any case, subsection (1)(a) is not specifically aimed at funding financial liabilities. The Government have already made it clear that we do not intend to bail out BE's creditors. Rather, it is our intention that funding should be used for day-to-day operational costs such as salaries or trading arrangements. I therefore suggest that amendments Nos. 10 and 11 are not appropriate to the purpose of the clause.
New clause 1, which was tabled by Opposition Front Benchers, suggests that any expenditure
"under the provisions of this Act shall be restricted to the historic liabilities of British Energy plc as at 4th September".
Again, I strongly disagree with that proposal. As I have continued to emphasise, the provisions in the Bill ensure that the Government are fully prepared for every eventuality. Restricting expenditure to historic liabilities would leave the Government unready to deal effectively with a range of scenarios, including the possibility of having to fund BE through administration or, alternatively, continuing to fund the trading arrangements of the operating companies if they were to come into public ownership.
Amendments Nos. 3 and 4 essentially seek to limit the way in which financial assistance can be delivered to BE. Grants, loans and guarantees are clearly the main ways in which we expect to deliver assistance. However, as I said, the Bill needs to prepare us for all eventualities, so we want to ensure that the provision preserves flexibility to enable us to act appropriately in the circumstances. That is in the interests of taxpayers.
Amendments Nos. 14 and 15 seek to ensure that the Government can commit no expenditure
"on the management, transportation, storage or reprocessing of nuclear waste" under the clause. The hon. Member for Hazel Grove raised that issue in a somewhat conspiratorial context, suggesting that the provision would act as a conduit to BNFL. Given the checks, balances and safeguards, I do not think that that scenario should be taken seriously. Of course, that is not the intention of the Government.
My hon. Friend Mr. Chaytor said that support should not fund reprocessing of fuel. Again, I do not approach the matter from any ideological point of view. Storage might have been cheaper if plants had been built on that basis, but with the exception of Sizewell B, storage facilities are very limited. This is an issue not of principle, but of practicality, and contracts on operational arrangements envisage that some fuel will be stored. I emphasise that I am not getting into discussing the relative merits. From personal experience, I know that British Energy has at some points during its history favoured on-site dry storage. It all depended on the deal that we could get out of BNFL. Storage versus reprocessing remains an operational matter and I am sure that BE and BNFL will communicate any future changes to plans. However, my hon. Friend made his points well.
Amendments Nos. 25 and 26 would provide that support for BE could not be used
"for the purposes of reprocessing spent nuclear fuel".
I have dealt with that.
Let us consider the longer term. We have already said that we shall review the way in which nuclear liabilities are managed when the liabilities management authority is established. Again, that might help my hon. Friend the Member for Bury, North, and I hope that he will not press his amendments.
I hope that I have explained sufficiently the problems that are attached to the amendments in the group. If the hon. Member for Twickenham withdraws the amendment, we shall have even more time to discuss the next group.
The Minister began by having a go at Greenpeace. I remember when Greenpeace abseilers demonstrated outside my window on the 21st floor of the Shell centre and I therefore understand how he feels. However, Greenpeace has done an admirable job of conducting research that is not available outside government on the subject of our debate. It is the only organisation to produce detailed and professional assessments of the costs and benefits of both administration and nuclear power production. Given the obscurity of much official data, it has performed a heroic task. My assessment of its role is therefore positive.
I could have a go at Greenpeace under other circumstances, but I simply recalled their historical role. I wonder whether the hon. Gentleman's admiration extends to that body's original support for privatisation of the nuclear industry as a method of destroying it. It has perhaps turned out to be a method of costing the taxpayer a lot of money.
As we have said, privatisation is a disaster, but Greenpeace had a good reason for promoting it. Although privatisation's defects are manifest in the nuclear industry, it has at least led to an element of transparency about the costings and economics of nuclear power. That may be lost as the industry returns to some form of public ownership.
Paddy Tipping made a brief, common-sense and cogent point. He asked whether the funding was at the expense of other parts of the Department of Trade and Industry energy budget. He did not receive an answer. The letter that the Minister sent all hon. Members about the debate underlines that the £650 million is not a repayable loan on a fixed schedule but a facility. If things go wrong, the sum will remain a major energy commitment, clearly at the expense of the coal and renewables industries, which might otherwise have benefited from modest pump priming. That is important.
Mr. Blunt made some helpful, business-like contributions. I shall not repeat them all. He asked whether the Bill would be necessary if we were considering only administration. We did not receive an answer to that. He also emphasised that a problem with the solvent restructuring route is its impact on the competitors in the industry. It is not simply a question of the competitors feeling aggrieved; the Government have created a competitive electricity market, which has been effectively wrecked. None of the participants is confident that there is a level playing field. Their experience will prejudice their long-term investment decisions. The impact on competitiveness and competitors is one of the main arguments against the route that the Government have taken.
We missed the presence of hon. Member for Bury, North (Mr. Chaytor) on Second Reading because he knows much about the industry. He and my hon. Friend Mr. Stunell helpfully reminded us of the link between the restructuring operation and the reprocessing industry. A link exists; we do not need to propose conspiracy theories. The contracts are being renegotiated and we need to take account of the reprocessing industry. It was right to remind us of the ramifications of that.
Mr. Horam helpfully put our deliberations in the context of the wider budget. The Bill has enormous implications for public finance. We are considering billions of pounds of additional costs when the Government are straining at the limits of financial credibility on both tax and expenditure.
Mr. Weir asked whether one of the motives for the Government's choice of the solvent restructuring route was maintaining a vestige of credibility for private nuclear power, thus sustaining the hope that the energy White Paper would cover it. That is a plausible motive, although it remains for us to have the debate. However, the hon. Gentleman made a helpful point.
There was not an enormous difference between our approach and the Minister's to solvent restructuring versus administration. He acknowledges that the decision is pragmatic and that the difference between the routes is not enormous, although he could not resist a dig about administration being less acceptable for safety and security of supply. I do not believe that that reflects the Secretary of State's view. However, the Minister acknowledged that we are considering a pragmatic decision that entails costs and benefits on both sides.
I do not want to prolong this debate further, but I must set the record straight. There was never any question but that both routes would be subject to exactly the same regulatory control by the nuclear installations inspectorate and so on. There is not a safety issue, otherwise we would not have postulated them as two viable alternatives, which we have done from day one.
That is why I was surprised that the Minister even mentioned the matter, because it is clearly not an issue. He is quite right, however; we are concerned—at least in terms of the first group of amendments, which relate to what is essentially a pragmatic issue. The damage that would be done through the impact on competition and on the other competitors in the industry leads us to prefer the administration route. However, our main reason for pursuing these amendments—and the reason that I shall certainly pursue them to a vote—is that the way in which the Government have gone about this leaves open very large and completely open-ended financial liabilities, and we have had no satisfactory explanation of how they will be capped.
With this it will be convenient to discuss the following amendments: No. 2, page 1, leave out lines 18 and 19.
No. 5, in page 2, leave out lines 1 to 3.
No. 9, in title, line 1, leave out
', or the acquisition of any securities of or any part of the undertaking or assets of'.
We now turn to the issue of public ownership. The purpose of the amendment is to try to prevent the Government from going down a disastrous path—taking the company back into public ownership. The Minister said earlier that no one had come up with a better way. In fact, a better way would be that suggested by my hon. Friend Mr. Djanogly—a framework for the future of nuclear energy. There is no White Paper or other kind of framework on which people can form a judgment about the future of the industry. Indeed, as far as I am aware, there has been no unequivocal statement about the merits of nuclear energy from the Labour party for 25 years.
It is against that background that the industry is faced with such appalling uncertainty. Absolutely the worst outcome would be for the company to end up back in public ownership. Let me explain why that is plainly the case. The option of public ownership is simply not required. There is no threat to the security of supply from the power stations and no practical safety issue. If the company goes into administration, there will be an asset to be sold out of administration, because the stations and their workers generate not only power but cash, even at today's electricity prices. The Government have already said that they will take title to the liabilities under the rescue package that they are putting together with British Energy to keep it as a rescued entity in the private sector. That is a poor option, but public ownership would be a catastrophic option.
Do the Government really think that if the company goes into public ownership they will run it any better? That goes against all the evidence about public or private sector ownership over the past two decades. Aside from British Energy's commercial strategy, its operating performance—the performance of the work force, from plant manager downwards and of the plants themselves—has been very good. Indeed, some people would say that because British Energy has been so efficient at producing more power out of resources and reducing its cost base, it has contributed to the electricity industry's wider problem by producing more electricity into the market at lower cost, which is partly why the electricity industry now faces the problem of too much supply and not enough demand. Those people would argue that British Energy would have been better off investing its resources differently instead of driving its costs down. However, its work force have done everything that has been asked of them to improve their plants' output and operational performance. It cannot possibly be the case that that would be better in the public sector.
Let us deal with the consequences of public ownership. First, there would be a complete lack of transparency over costs. It is difficult enough to identify the costs to the Government associated with British Energy's proposed rescue package, so goodness knows what they would be in the case of public ownership, given the company's relationships with BNFL and its tax situation. What would happen in relation to the disposal of fuel from a publicly owned company? The situation would be even more opaque that it is now. Would the company continue to improve its operational performance? No, because it would have no incentive to do so. Its operational performance would almost certainly decline from what has been achieved by British Energy's management and work force in private ownership.
Most devastating of all is the effect that public ownership would have on the future of the nuclear energy industry. That is why I profoundly disagree with the Minister's assessment of why he was opposed to privatisation in 1989. The simple fact is that if there is to be a new generation of nuclear power stations, it is conceivable that that investment would come only from the private sector. However, the private sector would make that investment only if there were a framework that allowed investors to judge performance. The Government have failed to produce that framework.
We do not know what the future price of electricity will be. Investors will make their own judgments about that, and for significant parts of the past year City analysts said that British Energy shares were worth buying and that the company would be successful commercially. Those judgments proved erroneous, but assumptions made last summer about the long-term price of electricity could turn out to be true by next summer if generating capacity continues to be withdrawn. The question of the future of coal-fired power stations after 2008, and the costs of the European directive on clean coal technology and other matters, will also have an effect on the generating sector.
If the industry is put into public ownership, will the Government say that they will build new nuclear power stations? No—I do not for a minute believe that they will. However, designs for a new generation of nuclear power stations might be available in five or 10 years. Those stations would produce electricity and help us to meet our Kyoto obligations in the most economically efficient way. It would be wholly irresponsible if that option were shut off.
In that respect, I depart from Liberal Democrat Members. They want the option to be shut off, and consider that the proper course of action is to run existing power stations to the end of their lives and not replace them. However, choices have to be made about bringing on new generating capacity in the UK. If British Energy were taken into public ownership, we would be deciding not to enable private companies to build new nuclear power stations that could use new designs, such as pebble-bed reactors. That would damage our national interest, as such stations might be the best economic and environmental answer for the UK. That is why it is essential that the company does not end up in public ownership.
I can tell the hon. Gentleman that BNFL owns Westinghouse. That is why the Conservative party will welcome the proposals that the Government will make on the liabilities management authority and the reorganisation of BNFL. If the Government pursue a sensible strategy on those arrangements, Westinghouse will be sold into the private sector, where it belongs. However, it appears that the Govt will produce another hybrid and that another hideous public-private partnership will emerge. Westinghouse designs and builds new nuclear reactors, and the company would be well placed to compete in the private sector with other similar companies from around the world.
If the Government take nuclear generation entirely into the public sector, the message would be that the industry was a lame duck that could survive only with public subsidy. In the end, there would be no opportunity to consider new options for nuclear generating capacity, even if they were in the UK's interests. Those options are at present an open question, and it would be wrong to preclude them now.
What message would be sent to the rest of the electricity market if the company were taken into public ownership? The case about the Magnox reactors owned by BNFL has often been made by my hon. Friend Richard Ottaway. He is not here at present, but he has pointed out that they are the oldest power stations supplying electricity to the grid, that they are uneconomic on their own, and that they are kept going by subsidies from BNFL—that is, the Government.
I cannot come to a judgment about that, as I do not know enough about the economics involved, or about that particular case. However, if all nuclear reactors were in the public sector, it could be claimed that they were being kept in production unfairly, at the expense of the rest of the market.
The point was eloquently made by Dr. Cable, and also by Ofgem in its submission to the Government, that if the Government interfere with the operation of the electricity market, they will raise the internal rate of return for people who want to invest in that industry. If the Government take the company into public ownership, there will be a significant increase in the risk for investors. To offset that risk, they will demand a higher return on their investments in new UK generating capacity.
That is why I urge the Government to make it clear that they do not intend to interfere in the market. It is vital that they stand back and allow the market to work in order to secure the largest possible private investment so that our future generating capacity needs are met.
Does my hon. Friend agree that he is justified in seeking the Government's assurance that they do not propose to nationalise, on account both of their treatment of British Energy and of the fact that we are shortly to have the Second Reading of the Industrial Development (Financial Assistance) Bill, which is a further token and indication of the Government's thinking on these subjects?
I am grateful to my hon. Friend; he makes the point extremely well.
I entirely part company with the hon. Member for Twickenham in his view of the current state of liberalisation and privatisation in the electricity market, although I am not sure that he meant his remarks to be as extreme as they sounded when he said that the disadvantages of privatisation were manifest. How are those disadvantages manifest? In the 40 per cent. reduction in wholesale electricity prices that has sustained our manufacturing competitiveness? In the 35 per cent. reduction in prices for consumers since privatisation? Those price reductions alone have lifted 1 million people out of fuel poverty.
The privatisation of the industry has been of enormous benefit to the United Kingdom. We are still only at the initial stages of understanding how best to use Ofgem to ensure that the industry remains as competitive as possible, yet there is so much evidence that the lessons have been well learned in the UK and that the rest of the world is following our example—not least the European Union, where there is to be privatisation and liberalisation.
My hon. Friend makes a powerful case against nationalisation. Is there not another important point? Whenever nationalisation has taken place in the past, it has been at enormous financial risk to the taxpayer. It costs far too much money when it goes wrong and puts money that is needed for teachers, nurses and doctors to a wholly unproductive use, as I am sure that my hon. Friend will confirm.
I entirely agree with my right hon. Friend. That is true not only of companies that are taken into public ownership, but of the Government's support for British Energy's proposed restructuring package. The value left for the bondholders or shareholders of British Energy if the deal is approved would otherwise have been available to the taxpayer to spend on the services to which my right hon. Friend alluded. Furthermore, staggering amounts of money are being spent on consultancy fees; I understand that, to date, the bills from lawyers and management consultants amount to £9 million and that a possible total of £100 million was suggested in The Times. The Minister pooh-poohed that on the radio. He asked where such figures came from, but if the Government have already been presented with bills for £9 million, I should not be surprised if the total were £50 million or even £100 million by the end of the process. It would be a tragedy to throw away the benefits of the industry being in the private sector, when potentially huge damage could be done to the UK's future interests. Privatisation and liberalisation are the right economic answers. Sometimes when companies get into commercial difficulties, investors lose money and the companies go bust or into administration. In this case, there will be assets to be sold out of administration, which will work in the public interest in the UK by generating power and cash for people who choose to buy those assets—which is why British Energy should not be allowed to fall into the hands of the Government.
I agree with Mr. Blunt about the need to keep open opportunities for nuclear generation, but on everything else he talks absolute nonsense. The Government would be foolhardy not to provide for the option of returning British Energy to public ownership if that were the only way to safeguard its basic integrity and, more important, the skills and expertise that are vital in meeting national and international requirements. The nuclear industry's special circumstances require that those skills and that expertise are kept alive.
I am not suggesting for a moment that the company will be nationalised, but has it not been the case throughout history that nationalisations have resulted from market failure? Not to nationalise in some circumstances would be totally irresponsible.
I agree. If the state were not the lender of last resort, who would be? It is a nice idea that one can asset strip and reconfigure the industry, but everyone—whether pro-nuclear, anti-nuclear or agnostic on nuclear—would worry if the industry were split up under the pretence that everything will be hunky-dory. That would be an illusion at best and could be incredibly dangerous, given the times in which we live, so the Government must act honourably and sensibly. I do not believe that the market would have any interest in taking on responsibility. It would look at the financial outcome—certainly not at safety and security.
New nuclear energy needs a framework within which people can invest. It will plainly include some form of payment to a fund to provide for the risks currently being taken by the Government. I refer not to the current decommissioning fund for which British Energy currently provides. The issue that must be addressed is where a company that is meant to contribute from its profits to its back-end fuel liabilities does not make a profit.
I wish that I could be as optimistic. The City works within an incredibly short-term framework but the nuclear industry, with the best of intentions, looks to a set of long-term outcomes—well beyond the life expectancy of most right hon. and hon. Members. Bringing those completely contradictory themes together is neither easy nor practicable, so the Government are entirely right.
It is a nice notion also that keeping British Energy in the private sector would in some way make all the calculations, different arrangements and contracts that much more transparent. Anyone who has seen the parliamentary questions that are regularly asked about BNFL or British Energy, which is more difficult, will know that the stock answer is that financial matters are confidential to those companies. That is the way of the world; huge contracts dependent on the negotiations between the different interested parties are involved, and they are not in the public domain.
The fact is that the way in which the industry was privatised is at the root of many of the problems. The lines drawn between British Energy and BNFL have always been grey. Many of my constituents go up and down the road between Berkeley and Barnwood, as they are employees of those companies. Anyone who knows about the industry will say that it is very complex and that the overlap is always so great that it is very difficult to pretend that there is transparency in the financial operations. More importantly, the companies are so integral to each other that it is very difficult to pretend that there is anything other than a seamless arrangement between them, rather than a join. So the idea that there is transparency is somewhat illusory.
The third point is the suggestion that we would be fundamentally different from other parts of the world. I wish someone would tell me where the nuclear industry operates entirely through the marketplace and where it is entirely about private enterprise. In every part of the world—whether in South Africa, the former Soviet Union states, Japan or even the United States, which is the closest comparison—the state is involved directly or indirectly in determining the strategy, providing the finance and setting the parameters.
Again, the idea that we have a nice, neat division between the private and public sectors is completely illusory, so the Government are entirely right to have a backstop and to be responsible. They must have the means to keep people in the industry so that it can do what it needs to do nationally and, more importantly, internationally.
I hope that my hon. Friend will not mind if I conclude my remarks now.
Even with the best will in the world, I cannot support the amendment, and I hope that it will not be pressed to a vote. If it were accepted, there would be an even greater threat not just to market sensibilities, but to the whole strategic direction of the energy industry in this country and, I dare say, further afield.
First, I should like to declare a non-registerable interest in British Energy shares.
My first point is technical and relates to the definition of British Energy in the context of the amendments. The Bill defines "British Energy company" as
"British Energy p.l.c. or a company which either is or immediately before the passing of this Act was a subsidiary of British Energy p.l.c. (within the meaning of the Companies Act 1985)".
The Companies Act 1985 uses a control definition of "subsidiary"—normally, if more than 50 per cent. of the company is owned—but a smaller percentage holding could apply if control of the subsidiary were owned through voting rights.
I should like to ask the Minister some questions. Are there any subsidiaries that are not 100 per cent. owned? If so, who owns those minority shareholdings? If there are such companies—for example, joint ventures and so on—will the Government give an assurance that clause 1 will not be used to acquire them? Of course, the fear is that those provisions could be used effectively to pay off third parties and to get around the order of payment that would apply under the normal insolvency rules. If the clause were used to subvert our insolvency rules, there could be great cause for concern and hon. Members would certainly want it to be debated.
Nationalising the company would be a disaster. Clearly, it has had problems. There have been management and strategy failures, and the Government have failed to understand the implications of their own legislation on the market. Ironically, the windfall tax has taken from this sector about the same amount as the taxpayer will need to pay towards British Energy's historic nuclear fuel liabilities.
We then have to consider the climate change levy and the new electricity trading arrangements. We could discuss the Government's failure to give a clear lead on where the industry is going. Without the energy White Paper, we and the whole energy sector are forced to scramble around in the dark. That will continue until we know what is in that White Paper.
Of one thing I am sure: any attempt to manage this business from Whitehall would certainly not work. That would remove the sector even further from the disciplines of the marketplace, and would load further liabilities on to the taxpayer. The power of acquisition in this clause will send all the wrong messages. This company should go into administration, as any other company in a similar situation would do. The Government have admitted that, either way, they will be responsible for nuclear liabilities. Why, therefore, do they keep digging a hole—a hole that will appear in taxpayers' pockets? That hole will get bigger if the Government start buying up power stations.
The Government view having an administrator as a possibility but, worryingly, the Minister for Energy and Construction is already undermining the role of any such administrator. That role, of course, is to maximise returns for creditors. On Second Reading, the Minister said that the Government were
"not aware of any credible private sector interest in acquiring BE if it were to end up in administration."
He has repeated that view in a slightly different way this afternoon. In fact, he has gone even further, asking why the Opposition had not come up with a purchaser for the business. I felt that he had rather missed the point. If what the Minister said is coupled with the failure to publish the White Paper and to show potential buyers what will happen in the sector and what kind of marketplace will exist, what rational person would want to be a buyer? Could it be that the Government are, in effect, killing the market so that they can buy the assets back on the cheap if restructuring fails?
Again on Second Reading, the Minister noted:
"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."—[Hansard, 27 January 2003; Vol. 398, c. 588.]
On the face of it, that is absolutely right. I cannot take issue with it. However, in practice, the argument is nonsensical. The Government can manipulate the market, and may have done so already. That being the case, if the Government were to put the provisions that we are discussing into effect, how could they reach a fair valuation if they were to buy British Energy or parts of it? It would be impossible, and it would give clear cause for shareholder or creditor class action.
From reading many of the speeches on Second Reading, I saw clearly that there had been a general misconception of what administration involves. Most hon. Members seemed to believe that administration could lead to the sale of British Energy, either to a third party or to the Government. The possibility of such a sale is contained in clause 1(1)(b). However, in practice it is rare that administrators will sell assets in the form of shares, because purchasers coming to an administrator want to cherry-pick. They want to choose the assets that they want to buy. In most cases, they will not accept taking all the assets. Even if they do, they will not want to take all the liabilities. As far as possible, they will leave the liabilities with the company in administration. Clearly, that means that buyers may wish to acquire individual power stations rather than the whole lot. Of course, they will do that only if they are not scared off by the Bill, the lack of a White Paper and the threat of nationalisation. They are undermining the whole process.
When the Trade and Industry Committee conducted an inquiry into the security of energy supply, one feature that shone through when we considered the gas market was that the key to its success—it is generally considered to have been successful in recent years—has been its freedom and the adaptability that results from the freedoms that it has. Rather than providing for nationalisation and greater inefficiencies in the market, why cannot we now draw a line on intervention and accept that the market will eventually have its own way and that intervention will fail?
I want to say just a few words in this debate, which is essentially about the implications of the possibility of public ownership and the effect that that could have on the industry.
I do not want to dwell on the history of privatisation, but the truth is that it is a very mixed story. The privatised company got its assets at an almost ridiculously cheap price, having written down not just the decommissioning liabilities but almost all the capital as well. Private ownership contained a positive story in respect of plant management, and Mr. Blunt was right to draw attention to that. However, it was coupled with enormous strategic errors in plant acquisition, failures to diversify and unseemly short-sighted greed. Even at this very late stage, the departing chief executive is scrambling over the terms of his terminal contract in a way that belittles the whole episode.
I do not have dogmatic views about public ownership in general. In some cases, it is probably the most effective and appropriate form of organisation. That would be true in the case of a national network monopoly, and the railway system is the most obvious example of that. However, the energy industry is not that type of industry. It is competitive and there is no particular reason for the Government to own nuclear power plants any more than they should own gas-generating plants, chemical plants or steel factories. There is no reason for that whatever.
Although I do not agree with everything that the hon. Member for Reigate said, he was absolutely right to stress the fact that private ownership has at least the merit of transparency. Companies have to report to the market. Under the listing rules, it is clear when a company is trading profitably and when it is not. He raised the valuable point about the Magnox reactors, which we have not mentioned enough in the debate. They are older and less efficient, but they are happily plodding along while British Energy has been forced to the brink of bankruptcy. That is very odd, and it relates to the way in which the public sector organisation is funded.
The hon. Gentleman rightly said that the position of the Liberal Democrats is not the same as his, but perhaps a double negative is involved. I do not hold a doctrinal view about the future role of nuclear power. From what we know at present, the economics of nuclear power under its present technology is not attractive and does not make sense. That is why I have argued in the past for a tougher approach to the bail-out. I have also said that there may be an argument for premature closure. I do not, however, push that as a matter of dogma, but Mr. O'Neill hinted at why that argument might apply. As plants approach the end of their lives, safety and other costs tend to rise.
If a new set of technologies comes along that enables the private sector to produce nuclear power competitively and cleanly in the long term and to internalise all the decommissioning costs, good luck to the companies in that sector. I would certainly not try to ban them on doctrinal grounds. My concern is much more with the public sector. If the industry goes into the public sector, it is much more likely that the economics of new nuclear power will be fudged and that we will have a new generation of nuclear power stations for bad economic reasons. In that sense, I take the opposite view to the hon. Member for Reigate. None the less, the essence of his argument is valid, and I will support the amendment if it is put to a vote.
This brief debate illustrates clearly the point made earlier by Mr. Chaytor about the cross-currents between pro-and anti-nuclear spokesmen. I very much agree with what Mr. Drew said, but from the opposite angle. It seems to me that there is a logical inconsistency in the position adopted by the Opposition in calling for the company to go into administration and opposing the prospect of it then being taken into public ownership. Inevitably, if the company goes into administration, as I said previously, the liabilities, at least, of British Energy would fall to the Government. I reiterate that the Public Accounts Committee report on the state of British Energy in 1999 confirmed that the taxpayer is the guarantor of last resort, and that if the company falls, the Government must pick up the pieces. Again, the Library research paper states categorically that if British Energy goes into administration, all its nuclear liabilities would fall to the Government.
The effect, therefore, of removing paragraphs (b) and (c) would be that if the restructuring failed and the company went into administration, the liabilities would fall to the Government, but they would not be in a position to pick up the assets and renationalise the company. That would be a shame because, from my point of view, as I said earlier, nuclear stations should be gradually run down and decommissioned at the end of their lifetime. The best way to do that is in public ownership rather than private ownership. I will therefore oppose the amendment.
My one worry about paragraphs (b) and (c) is that it is not stated that the companies would be nationalised. Furthermore, the Government are given the option—Mr. Djanogly had a point in this regard—to take over shares in the company, not from an administration, although it is correct that the administrator would try to sell off assets, but before the company goes into administration. The Government could buy shares in British Energy or one of its subsidiary companies and, in effect, provide more cash aid by the back door. Instead of doing so through clause 1(1)(a), they could take a stake in the company and leave it in the private sector, but invest Government funds in it. That would be undesirable.
On balance, I would be in favour of the company coming back into public ownership to be wound down, and I will oppose the amendment.
I sense a degree of intellectual confusion, if that is not too strong a term, on the Opposition Front Bench. We do not want to renationalise British Energy. We want it to be successfully restructured within the private sector. We have spent most of the afternoon discussing amendments tabled by all the Opposition parties that are specifically opposed to our preference for restructuring in the private sector. Only if those amendments had prevailed, and we had gone down the chosen path of administration while ruling out restructuring within the private sector, would the dread spectre of renationalisation, which was raised by the Opposition spokesman—or public ownership in any form—arise. They are the authors of the scenario—their preferred scenario—of administration, which would be the prerequisite for what they now say that they oppose: the public sector becoming the owner of the company.
That is not the case at all. Is the Minister saying that if the company goes into administration, there are no assets to be put back into the private sector by an administrator? We know that the plants generate both power and cash sitting on their own. Of course there are assets to sell to the private sector. That is what an administrator would do. We are then into a discussion about what liabilities the Government take on, liabilities implicit since the company was formed and put into the private sector, and now being made explicit since the company had to run to the Government for a loan.
The hon. Gentleman has not helped his case. There is no dispute about the fact that if the company is in administration, there is either a public sector direction or a private sector direction for it to go in. Indeed, I would say that if it were in administration, we would still prefer a private sector outcome. The Government as owner would be the last resort, at present the most likely resort, as I do not see queues of prospective buyers forming.
The intellectual inconsistency of what the Opposition are proposing is that those options would not arise if our preferred option of restructuring within the private sector—while always keeping the administration route as an alternative—prevailed. There is no dubiety about this. Only if the administration route is followed does the possibility of public ownership even arise.
When other companies go into administration the Government do not rush to the House to ask for authority to buy their shares and take them into public ownership. They let the administrator get on with it. Why cannot that happen in this instance?
Because nuclear is different. If the hon. Gentleman does not understand that at this juncture in our deliberations, I despair. Other companies, even other power companies, can go to the wall. Though it is sad when jobs are lost, one can turn the key and walk away if nobody buys them, and that is the end of the story. In nuclear power generation that is the one thing that cannot be done. There must be an owner.
The real alternative implicit in the amendment is that if there were no private sector buyer and no Government buyer, the administrator would run the company to the year dot. Of course, that would depend on the views of the nuclear regulators. We cannot just let any old administrator run a nuclear power company. For all those reasons, we return to the argument that we need maximum flexibility to allow for all the options that may arise in the weeks and months ahead.
The daftness of all this is that I agree with many of the premises that the hon. Member for Reigate put forward before drawing entirely the wrong conclusion. I agree, of course, that it would be foolish to close down the nuclear option. I agree entirely that if at some stage there is nuclear new build, it is the private sector that must invest in it. Therefore, there is no vested interest from my perspective in the renationalisation of the company.
I also entirely agree with what the hon. Gentleman says about the performance and efforts of the work force in the nuclear power stations. I hope that we all agree that whatever the problems of British Energy, they are in no way attributable to those who work in the plants.
For all the reasons I have given, the fact that 22 per cent. of our electricity comes from nuclear, and because we have the obligation to maintain the entirely safe operation of the stations, we need flexibility in order to respond to the full range of circumstances.
I return to the point that I made in the previous debate and on Second Reading, that this is in no way an ideological Bill. It is a pragmatic Bill, responding to a set of circumstances that are not of our making and not of our desire. We deserve the Committee's support in giving ourselves the ability to respond to all eventualities.
Would it increase political uncertainty and discourage private sector investment if we took this power to respond to the eventuality of the Government having to take over? I do not think that it would. We have said that we stand ready to step in and acquire British Energy as owner of last resort in the event that a private sector buyer does not come forward. The market—the private sector—understands full well that we are not pursuing a hidden agenda to renationalise British Energy. There is no such signal to interpret.
I was asked whether administration and public ownership would spell the end of private sector investment, so making nuclear new build impossible. Taking British Energy into public ownership, even in the short term, would not preclude private sector involvement in the future. As my hon. Friend Mr. Drew explained, there are models abroad, specifically in north America, of nuclear stations that are owned by the public sector, which are managed and operated by the private sector. There is no sharp dividing line, as the Opposition implied, between public and private sectors.
Amendment No. 1 and consequential amendments would remove the explicit authority that we require to respond to the full range of eventualities. That would send out the wrong signals. Paragraphs (b) and (c) represent prudent contingency planning by the Government. They are not part of an ideological drive to renationalise the company, but form part of a package of measures that will ensure that the Government are prepared for every eventuality.