Energy Bill [HL]

– in the House of Lords at 4:21 pm on 22nd March 2004.

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Votes in this debate

Further consideration of amendments on Report resumed on Clause 27.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I beg to move Amendment No. 47 and speak to the other government amendments in this group. In seeking to advance the discussions that we had on the last amendment with regard to taxation provisions, I want to emphasise the following points. It was suggested during the course of our debate on the previous group of amendments that the Government were drafting legislation on the hoof and had not consulted widely on some significant features of this Bill until late in the day. I want to put the record straight. Noble Lords will recall that the Bill was preceded by a White Paper in the summer of 2002. The draft Bill was published in July 2003. We have been involved in detailed discussions with stakeholders throughout the whole of the drafting and presentation of the Bill.

Through the framework of these amendments I am addressing myself to the general case which the noble Lord, Lord Jenkin of Roding, put with particular force on the last group of amendments. There are some things that are quite impossible to sort out in advance. He will recognise that we are seeking to create a flexible framework that will last over a significant period of time. As we all recognise, we are dealing with an industry with very long timescale operations. We need to allow the NDA to decide how it wishes to operate. We need to give it room to respond to the developing market when it is in place. Therefore, this necessary flexibility and conditionality with regard to specified aspects of the work is bound to take a period of time.

I responded to the noble Baroness, Lady Miller of Hendon, by indicating that she was making a plea for regulations which are frequently requested at this stage of a Bill. I wanted to emphasise to her that this was no general response. I am genuinely not able to deal with detailed regulations until we are further advanced both with the NDA and the nature of the contracts to be established. These will determine the appropriate taxation arrangements.

I make these general points purely in the interests of progress on the Bill. I also want to ensure that the House is fully aware of the Government's argument so that we can address ourselves succinctly to the issues at stake. I particularly refer to this group of amendments that the Government have tabled in response to the debate in Committee and also in response to the developing situation as negotiations take place with important stakeholders.

Amendments Nos. 47, 48 and 49 revise in three ways the definition of relevant site licensee in Clause 27, principally for the purposes of the exemption of certain trading profits from corporation tax and also in relation to the transfer tax provisions applying to site licensee companies.

First, Clause 27(5) was drafted on the assumption that site licensee companies would be owned directly or indirectly by the NDA before being transferred to a contractor. Recent detailed discussions as to the likely contractual structure have made it clear that this may not be the case. These changes ensure that site licensee companies that have never been a subsidiary of the NDA may be a relevant site licensee for the purposes of Chapters 1 and 2, if they meet the other conditions, which are relaxed as I shall explain.

Amendment No. 48—the second proposed change—relaxes the condition that a site licensee company can only come within the provisions if there is a management contract in force for the site. The change means that the case where the SLC's responsibilities are set out in NDA directions may come within this provision, which could apply to the AEA and its subsidiaries. The detailed requirements will be the subject of regulations.

Thirdly, Amendment No. 49 relaxes the ownership requirement so that where the management contract is with the parent of the site licensee, the site licensee company need be only a 90 per cent subsidiary, rather than a wholly owned subsidiary. This is to allow for the NDA to retain golden shares in relevant site licensee companies.

Amendment No. 51 introduces a new clause to confirm that the income generating activities of the NDA will be taxed under Case 1 of Schedule D, rather than Case VI of Schedule D (by virtue of Section 18 of the Income and Corporation Taxes Act 1988). This is being introduced in case the contractual relationships between the NDA and site licensee companies are such that the income generating activities of the NDA would be taxable under Case VI under the general tax rules. Taxing significant activities, such as electricity generation, under Case VI would cause difficulties in two ways. First, the tax clauses in the Bill are drafted on the assumption that the NDA would be trading under Case 1. Also, Case VI does not have a comprehensive set of computational rules in the same way that Case I does, so it would not be appropriate to rely on Case VI for a significant activity such as electricity generation. Subsection (2) limits the scope of this provision to sources of income within Case VI, under the general tax rules mentioned above, relating to the functions specified in subsection (1) (a), (d) and (e) of Clause 3.

Amendments Nos. 127 and 129 are consequential amendments that are made necessary by new paragraph 26A introduced by Amendment No. 24. They ensure that paragraph 26A will take precedence over paragraphs 3 and 4 (for the purpose of corporation tax on capital gains) where site licensee companies are transferred as part of a nuclear transfer scheme.

Amendments Nos. 140 to 144 amend paragraph 26 of Schedule 9 and add two new paragraphs, 26A and 26B. They concern transfers of securities in relevant site licensee companies as defined in Clause 27. The amendments allow for transfers of relevant site licensee companies to or from the NDA, or between one contracting group and another, to be at such a price that neither a gain nor a loss arises for the purpose of corporation tax on capital gains. The overall effect is that the transfer of ownership of site licensee companies between different owners is tax neutral.

Amendment No. 146 adds a reference to the new Clause 26A at section 35(3)(d) of the Taxation of Chargeable Gains Act 1992, which is concerned with assets held at 31 March 1982 and lists other provisions allowing for disposals at no gain no loss.

Amendment No. 145 is a technical amendment to enable the NDA to be treated as a company for the purposes of the capital gains tax rules applying to groups of companies. Similarly, it enables the NDA to be a company for the purposes of the intangible fixed assets rules. The amendment confirms that the NDA is to be taxed as if it were an ordinary company—subject to the special rules that are in this Bill. I beg to move.

On Question, amendment agreed to.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 48 and 49:

Page 26, line 4, leave out paragraphs (c) to (e) and insert—

"(ba) in a case where there is in force a management contract relating to the whole or a part of the site to which that licence relates, or to an installation or facility in or on that site, the parties to the contract include either—

(i) the company in question; or

(ii) a company which owns directly or indirectly at least 90 per cent of the ordinary share capital of that company;"

Page 26, line 16, leave out from "conditions" to end of line 18 and insert "that are required by regulations made by the Treasury to be satisfied have been satisfied."

On Question, amendments agreed to.

[Amendment No. 50 not moved.]

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 51:

After Clause 27, insert the following new clause—

"TAXATION OF NDA ACTIVITIES CHARGEABLE UNDER CASE VI OF SCHEDULE D

(1) For the purposes of the Corporation Tax Acts so much of any activity of the NDA as—

(a) is an activity the profits and gains from which would (apart from this section) be chargeable to tax under Case VI of Schedule D, and

(b) is not excluded from the operation of this section by subsection (2), shall be treated as an activity carried on by it as part of a trade in respect of which it is within the charge to tax under Case I of Schedule D.

(2) Any activity is excluded from the operation of this section if—

(a) it is carried on by the NDA otherwise than in connection with something mentioned in section 3(1)(a), (d) or (e) of this Act; and

(b) the profits and gains from it would, in the NDA's case, be chargeable to tax under Case VI of Schedule D by virtue of an enactment other than just section 18 of the Income and Corporation Taxes Act 1988 (c. 1).

(3) All activities treated under this section as carried on by the NDA as part of a trade—

(a) shall be treated as carried on as part of the same trade; and

(b) may be treated as carried on as part of another trade carried on by the NDA.

(4) Subsection (3) is subject to any other provision made by or under the Corporation Tax Acts that requires an activity to be treated as carried on as part of a separate trade (with or without any other activity).

(5) This section is to be construed as one with the Corporation Tax Acts."

On Question, amendment agreed to.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 52:

After Clause 27, insert the following new clause—

"DISREGARD FOR TAX PURPOSES OF CANCELLATION ETC. OF PROVISIONS

(1) This section applies where—

(a) a relevant provision is recognised in the accounts of a relevant company in accordance with generally accepted accounting practice;

(b) that provision relates to decommissioning or cleaning-up which the NDA acquires responsibility for securing by virtue of a direction under section 3; and

(c) that responsibility includes the financial responsibility under section 21.

(2) In computing the profits, gains or losses of the company for the purposes of corporation tax, no amount shall be brought into account in respect of a credit or debit to which subsection (3) applies.

(3) This subsection applies to a credit or debit if—

(a) it arises on the occurrence of an event mentioned in subsection (4); and

(b) it relates to the effect of that event on the relevant provision or the subject matter of the provision.

(4) The events referred to in subsection (3) are—

(a) the coming into force of the direction mentioned in subsection (1)(b); and

(b) a transfer of property, rights or liabilities of the company to the NDA or a subsidiary of the NDA in accordance with a nuclear transfer scheme authorised by section 36.

(5) In this section—

"BNFL company" means BNFL or a wholly-owned subsidiary of BNFL;

"relevant company" means a BNFL company that is publicly owned;

"relevant provision" means a provision for liabilities or charges as defined in paragraph 89 of Schedule 4 to the Companies Act 1985 (c. 6).

(6) This section is to be construed as one with the Corporation Tax Acts."

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, in moving Amendment No. 52, I shall speak also to Amendments Nos. 53 and 67. This group is a response to the NDA taking responsibility for decommissioning and clean-up. The provisions have been drafted taking into account the recent clarification of a number of issues that affect the provisions and related assets recognised for accounting purposes in the SLCs and NDA and the consequent likely tax effects. The issues include the likely effect of nuclear transfer schemes, the undertaking of financial responsibility by the NDA and the making of "directions" in relation to sites, installations and facilities.

Amendment No. 52 introduces a new clause that provides that the accounting entries made by a BNFL site licensee company arising from the initial recognition of the NDA's taking responsibility for nuclear clean-up and decommissioning liabilities would not be included in the tax computation; namely, a disregard. This disregard would apply only to the initial recognition of the NDA taking responsibility. This will most likely involve the recognition of an asset representing sums recoverable from the NDA when it first takes responsibility as a result of a direction under Clause 3 of the Bill. This asset would match the nuclear liabilities that had been provided for in the accounts of the BNFL site licensee.

Without this provision, the credit arising in these circumstances would generate a very substantial tax charge on the BNFL group of companies. The disregard would not apply to any subsequent change in the estimated value of the undertaking or the expenditure to which it relates. Subsequent changes would generate a corresponding credit or debit in the site licensee's accounts and so the accounting entries would match one another for tax without the need for a special rule.

Amendment No. 53 introduces a new clause for the NDA that mirrors the effect of the new clause introduced by Amendment No. 52 for BNFL. This disregard in Amendment No. 53 applies to the NDA so that the entries recognised in its accounts immediately for taking responsibility for BNFL's nuclear liabilities would not be brought into account for tax purposes. As for Amendment No. 52, this disregard would not apply to any subsequent change in estimated value of the expenditure to which it relates.

Finally, Amendment No. 67 introduces a new clause after Clause 40 that extinguishes BNFL's losses for tax purposes. This is a quid pro quo for the disregard mentioned earlier. The accumulated losses in BNFL companies that have built up over time largely arise, one way or another, from provisions made in BNFL's accounts for decommissioning and clean-up. The losses will be extinguished when the NDA takes responsibility for decommissioning and clean-up under Section 21 or when assets and liabilities are transferred from BNFL under Section 36, whichever occurs first. I beg to move.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative 4:45 pm, 22nd March 2004

My Lords, I thank the Minister for explaining this group of amendments. I was grateful that his explanation was somewhat shorter than previously, which made it possible to remember at the end what the Minister began with. I have a couple of small questions in respect of Amendment No. 67.

First, the amendment refers in subsection (4) to,

"a 75 per cent subsidiary of BNFL", which does not appear to be defined. Could the Minister say precisely what this means? Does it mean that BNFL has to own precisely 75 per cent of the subsidiary for it to be within the clause, which appears to be the literal interpretation, or does it mean a company which is owned to the extent of 75 per cent or more? And can he explain why a different definition, using 100 per cent ownership, is used in Amendment No. 53, which disregards some provisions for tax purposes?

Secondly, subsection (4) also refers to,

"a BNFL parent company", of which BNFL is a 75 per cent subsidiary. Apart from the same definition point I have raised, will the Minister explain why this is included? What plans do the Government have to place a holding company above BNFL and for what purpose?

Thirdly, could the Minister explain how this clause works if BNFL is only 75 per cent owned or if a BNFL company is 75 per cent owned? As I understand the definition of the trigger point in subsection (4), this will come into play in respect of the Section 21 responsibility if BNFL is a "publicly owned company". That is defined in Clause 34(3) as 100 per cent public ownership. So my simple question is: why have the Government introduced this complication of 75 per cent companies if the tax rules in the clause will operate only if BNFL or its subsidiaries are 100 per cent owned?

That leads me to ask the Minister why the definition of a trigger point in subsection (4) is so complicated as between paragraph (a) and paragraph (b), with (a) applying to 100 per cent ownership and (b) applying to 75 per cent ownership. Will the Minister explain what the practical impact of this convoluted drafting results in?

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am extraordinarily grateful to the noble Baroness, Lady Miller, for asking those questions. I shall first answer the straightforward one before getting into the more complex issue. With regard to the 75 per cent, it is simply 75 per cent and above. That figure is meant to be a minimum.

On the possibility of a parent company, looking forward over decades rather than years, we are not in a position to say whether within the Bill it would be wrong to make provision for a precise structure of the industry 10 or 15 years or beyond from now. In setting up the NDA and dealing with the future of the industry, we intend to maximise flexibility and to meet every conceivable development. Therefore, we are merely making provision within the Bill for possible change, although we have no plans or vision on precisely how the structure might develop. The noble Baroness will recognise that we are seeking to create a new framework in which there are a range of possibilities in the relationship between the NDA and the site licensee companies and with regard to BNFL and other companies.

As we see the position, the situation with BNFL will involve the development of the holding company with the consequence of the creation of site licensee companies to hold nuclear site licensees in operate sites. That is what the site licensee company is going to do. The rest of BNFL to which the noble Lady referred will be transferred to the new holding company and will contain non-UK clean-up businesses. It will be a management contractor function that will initially manage site licensees but its future structure in detail will need to have a degree of flexibility against changes in circumstances.

We expect the practical impact to be that BNFL will not incur a tax charge as the NDA takes responsibility, nor will it be able to carry forward its losses. We are seeking to create a tax position that gives some recognition of flexibility with regard to the future development of BNFL. We have a minimum position and, should BNFL fall below it, which is unlikely, it will not fall within the Bill's framework. My answer to the noble Baroness, Lady Miller, is to point out that we recognise that we need within the Bill's framework, and in relation to situations that no one can foresee with total precision, an element of flexibility that takes account of all possibilities.

Photo of Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer Shadow Minister, Environment, Food & Rural Affairs

My Lords, when the Minister refers to flexibility, will that mean more transparency for the public as to the true costs to the public purse of the generation of nuclear power were it to happen in the future? With the regime he envisages, were new nuclear power stations to be built—although I certainly do not support the idea—would the suggested scheme make all the costs that fall on the public purse more transparent, whether the tax is foregone or deferred?

The Minister is frowning, so clearly I am not making myself plain. One of the past difficulties has been that one price was quoted for the generation of nuclear power but the bills that eventually fall on the public purse kick in some years later and the true costs are much higher. Is the Minister confident that the clause as drafted will contribute to making the costs of nuclear clean-up and decommissioning more obvious to the public?

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

My Lords, before the Minister replies, will he confirm to the noble Baroness, Lady Miller of Chilthorne Domer, that if—we always stress that word—there were to be a new nuclear build it would be carried out not by the NDA or the Government, but by one of the major private sector companies, which would consider that the market had reached the position where it would find a ready market for its output? That would be a taxable operation and subject to all the normal rules affecting companies. With the greatest respect to the noble Baroness, I am not sure that this issue has much to do with that.

Photo of Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer Shadow Minister, Environment, Food & Rural Affairs

My Lords, I know that we are not in Committee, but with the leave of the House I am not under a misapprehension: the clean-up is part of the cost.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I hesitate to put my head above the parapet when two noble Lords are engaged in a most interesting debate. I am grateful to the noble Lord, Lord Jenkin, because he expressed exactly the points I would have sought to make but with greater eloquence and accuracy. These clauses are about the tax liability of NDA and BNFL as public companies. Of course I recognise the point in the longer run about aspects of tax impact on the cost of electricity, but the noble Baroness will recognise that we are seeking to identify how we deal with public companies, not translate them into a major operation in which they are making tax gains and losses that have to be computed in all their activities at enormous cost, when they all effectively come from the same pot.

My answer is that this part of the Bill is not directly concerned with the issues raised by the noble Baroness. The noble Lord, Lord Jenkin, is right that with the future generation of nuclear electricity, should there ever be a new build, that would be in response to the market and wider public considerations.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative

My Lords, I thank the Minister for his explanation. He did not answer my fourth point, which was about why the definition of the trigger point seems so complicated in paragraphs (a) and (b), other than perhaps in the general terms that everything has to be flexible because we do not know exactly what it is going to be. We understand all that, but it seems in relation to the other matters that we have gone a long way down the line of the Bill without any detailed answers about anything, even when we were talking earlier about regulations.

Although we accept what the Minister is saying, it seems that the Bill will go through Third Reading without getting any further. Anyway, it is a government amendment. All I was going to say to the Minister at this stage was that I am sure that my noble friend will read his explanation carefully and if she is not happy with it she will no doubt return to the matter at Third Reading.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, in moving the amendment I have a chance to express my sympathy with the noble Baroness, Lady Noakes. We recognise how sad it is that she is not with us today and the reason for that. We miss her contribution.

As it is a government amendment, when I sat down we had concluded proceedings on that part of the amendment.

On Question, amendment agreed to.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 53:

After Clause 27, insert the following new clause—

"DISREGARD FOR TAX PURPOSES OF PROVISIONS RECOGNISED BY NDA

(1) This section applies where—

(a) by virtue of a direction under section 3 the NDA acquires the responsibility for securing the cleaning-up of a site falling within subsection (2), or the decommissioning of an installation or facility in or on such a site;

(b) that responsibility includes the financial responsibility under section 21; and

(c) on the coming into force of the direction mentioned in paragraph (a), the NDA recognises in its accounts, in accordance with generally accepted accounting practice, a relevant provision that relates to that responsibility.

(2) A site falls within this subsection if—

(a) at the time the direction mentioned in subsection (1)(a) comes into force there is a nuclear site licence in force in relation to the site; and

(b) the holder of that licence at that time is a BNFL company that is publicly owned.

(3) In computing the profits, gains or losses of the NDA for the purposes of corporation tax, no amount shall be brought into account in connection with the recognition of the relevant provision in the accounts of the NDA.

(4) But subsection (3) shall not affect the amount (if any) to be brought into account in computing the profits, gains or losses of the NDA in connection with an adjustment at a time after the first recognition of the relevant provision in the accounts of the NDA.

(5) In this section—

"BNFL company" means BNFL or a wholly-owned subsidiary of BNFL;

"relevant provision" means a provision for liabilities or charges as defined in paragraph 89 of Schedule 4 to the Companies Act 1985 (c. 6).

(6) This section is to be construed as one with the Corporation Tax Acts."

On Question, amendment agreed to.

Schedule 4 [Supplemental taxation provisions for exempt activities]:

[Amendments Nos. 54 and 55 not moved.]

Clause 32 [Power to modify Chapter 1 of Part 1]:

Photo of Baroness Byford Baroness Byford Conservative

moved Amendment No. 56:

Page 29, line 38, leave out paragraph (b).

Photo of Baroness Byford Baroness Byford Conservative

My Lords, when I raised this issue in Committee in the form of a question as to precisely how the Secretary of State would amend Clause 11 without weakening it, the Minister said:

"The position is that we cannot possibly envisage a situation that would require us to change the constitution of the NDA".—[Official Report, 22/1/04; col. GC 419.]

I stress that the Minister used the word "constitution". Yet the Bill contains the measure that would allow for the possibility of a change even though its nature is not presently foreseeable. Clause 11 relates not to the constitution of the NDA but to its strategy.

I repeat my original question: will the Minister explain in what way Clause 11 on the strategy of the NDA can be changed without weakening it? I should also like to quote from his reply five days later to my noble friend Lord Jenkin of Roding, who had sought enlightenment on the transfer of information. The Minister said:

"Officials at our departments have spoken to BNFL and UKAEA and recognise that there is an anxiety in the background, but they can come up with no specific situation where such a claim from a third party is likely to arise in practice. It would be difficult to justify a statutory measure without being clear of the kind of situation in which it could possibly arise".—[Official Report, 27/1/04; col. GC 68.]

Surely I am not the only one who feels that those two statements are totally contradictory.

During Grand Committee when I moved the original amendment, the noble Baroness, Lady Miller of Chilthorne Domer, expressed her concerns about this clause. She said:

"I am worried that the clause, with sweeping powers to amend so much of Chapter 1, is included".—[Official Report, 22/1/04; col. GC 417.]

I was also supported by my noble friend Lady Noakes, who is not with us for reasons that have already been explained. She said:

"I cannot remember a power which makes such sweeping changes because we cannot think at the moment about what we might want to do in 10 years' time".

Later, when we were talking about the affirmative procedure, the noble Lord, Lord Whitty, said:

"It is less than primary legislation but nevertheless one House has the ability to [consider it]".

But my noble friend Lord Jenkin came back again and said:

"This entire set up requires a more regular scrutiny by Parliament than seems to be currently envisaged".—[Official Report, 22/1/04; cols. GC 419–20.]

Therefore, I do not apologise for returning to this issue because I consider it to be important. As I said, the two statements that I quoted suggest that there are different answers to two different issues—or, rather, to linked issues. I believe that it is difficult to justify a statutory measure without being clear about how the need for it might arise. In those circumstances, I believe that this amendment should succeed. If we leave the subsection in the Bill, we shall grant powers which the Government have accepted are unjustifiable. The Minister knows only too well how much I dislike measures being brought forward in regulations. I beg to move.

Photo of Viscount Allenby of Megiddo Viscount Allenby of Megiddo Crossbench 5:00 pm, 22nd March 2004

My Lords, I should inform the House that, if this amendment is agreed to, I shall not be able to call government Amendment No. 57.

Photo of Baroness Miller of Chilthorne Domer Baroness Miller of Chilthorne Domer Shadow Minister, Environment, Food & Rural Affairs

My Lords, I supported this amendment in Grand Committee and continue to do so. I believe that if the Opposition were to propose such wording, the Government would say, quite rightly, "This amendment is far too loose. We can't have this sort of wording on the face of the Bill". In the light of that, I offer the noble Baroness, Lady Byford, my continued strong support.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, in a moment I shall move government Amendment No. 57 in this group. Noble Lords will recall that it was the subject of some procedural discussion in Grand Committee. I apologised to the Grand Committee that the Delegated Powers and Regulatory Reform Committee had not had the opportunity to consider the amendment before we tabled it on that occasion. The committee has now had a chance to consider the amendment and has approved it. Amendment No. 57 does not indicate any change of policy but simply makes clear that the powers set out in Clause 32 to modify the provisions extend to both the strategy and the annual work plans, which are covered by Clauses 11 and 12.

The noble Baroness asked why we need this power in relation to Clause 11 of the Bill. The answer is that, although the detail that would be modified is in Schedule 2, Clause 11 introduces Schedule 2. Therefore, in order to provide for delegated powers, which I know the noble Baroness objects to almost in principle, we must mention Clause 11 as well. However, it does not mean that the powers could completely change the whole of Clause 11 as it relates to this provision.

Perhaps I may refer to the government amendment. I know that the noble Baroness is not keen on affirmative resolutions, but such resolutions provide a substantial parliamentary power in allowing some flexibility. At the same time, they provide Parliament with a means of control over the Executive. This provision relates mainly to the NDA's strategy. The Bill sets out in some detail in Schedule 2 the issues which must be covered by the NDA strategy, and that level of detail reflects our determination to provide a framework for the strategy over time.

However, as my noble friend Lord Davies said in respect of another amendment, here we are legislating for a function carried out by the NDA which will last for decades and, indeed, on occasion for at least a century. Over time, the situation is bound to change in ways of which we cannot easily conceive. Therefore, it is sensible to provide flexibility to make amendments in respect of issues where the strategy and annual plan would need to cover a change in circumstances.

In a sense, Amendment No. 57 would make good a gap in the original draft of the plan. The Bill already makes such a provision in respect of the annual plan in Clause 31(1)(c) but not in relation to the NDA's strategy. However, the intention was that the flexibility would apply to both. Before the noble Lord, Lord Jenkin, rises to say that this is muddled legislating, perhaps I may explain the logic behind it. During the course of revising the NDA provisions for introduction as part of the Energy Bill, the clause covering the strategy was divided into two but the consequential change required in Clause 32 was missed.

I apologise for that oversight, but the intention had already been made clear in the White Paper and subsequently. Therefore, I hope it will be recognised that the need to provide some flexibility in the content of the strategy and the annual plan and the provisions relating to parliamentary scrutiny through the affirmative resolution is appropriate. Indeed, it is also true that in future we shall have an additional procedure in relation to the Select Committee on the merits of statutory instruments. That may be of some comfort to the noble Baroness in any future application of this amendment. I hope that I have explained why the noble Baroness's amendment is not necessary and why, in a moment, I shall wish to move my amendment.

Photo of Baroness Byford Baroness Byford Conservative

My Lords, I thank the Minister. He did not answer my first point when I quoted what was said in Grand Committee. We are dealing not with the constitution but with the strategy. If that is the case, why was it a slip of the tongue when the noble Lord referred to the "constitution" when he was responding to questions of the "strategy"? I am not enormously happy with what he said and I wish to test the opinion of the House.

On Question, Whether the said amendment (No. 56) shall be agreed to?

Their Lordships divided: Contents, 110; Not-Contents, 127.

Division number 1 Private Parking: Ports and Trading Estates — Energy Bill [HL]

Aye: 108 Members of the House of Lords

No: 125 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the negative, and amendment disagreed to accordingly.

On Question, amendment agreed to.

Clause 38 [Recovery of property from private ownership]:

Photo of Lord Triesman Lord Triesman Lords in Waiting (Whips)

moved Amendment No. 58:

Page 36, line 2, after "applies" insert "in the case of a nuclear company ("the transferred company") all the shares in which were transferred for the purposes of a management contract to the contractor or to a subsidiary of the contractor"

Photo of Lord Triesman Lord Triesman Lords in Waiting (Whips)

My Lords, the aim of this group of amendments is to ensure that the recovery powers available to the NDA in Clause 38 are fit for purpose and cover all the situations we want them to cover.

Where a management contractor is in breach of contract, or where the contract is at an end, Clause 38 enables the recovery of shares in a site licensee company that were transferred to the contractor, together with other property, rights and liabilities which were transferred at the time in relation to that contract.

That is necessary because although ownership of the SLCs will be transferred for the duration of the site management contract, the SLCs will remain de facto assets of the NDA. So the NDA needs to be able to recover these assets if, as Clause 38 indicates, a site management contractor breaches its contract, becomes bankrupt or has its contract terminated.

In reviewing Clause 38 it became clear that its powers did not cover two situations in which we would want the NDA to be able to recover its assets. Amendments Nos. 58 to 65 therefore extend Clause 38 to cover these situations. The two situations are as follows: first, recovering any new shares that are issued by an SLC since it was transferred; and, secondly, new property that is acquired by the SLC during the operation of the management contract—for example, to replace property that was originally transferred by the scheme. In practice, such purchases are likely to have been funded by the NDA, and we wish to have powers to recover that property.

I hope I have made the principle behind the powers in Clause 38 clear. The amendments seek to ensure the proper application of this principle in all situations where we want the NDA to be able to recover its assets from site licensee companies. It corrects a gap in the original clause. I beg to move.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative

My Lords, I make a brief point about Amendment No. 58. I understand the Minister's explanation, but I must say that I find it quite extraordinary that such an important part of a clause was left out in the first instance.

Photo of Lord Triesman Lord Triesman Lords in Waiting (Whips)

My Lords, the provision should have been inserted in the first instance. The clause needed correcting and the amendment corrects it. I think that the clause is now in proper order and I hope it will now commend itself to your Lordships.

On Question, amendment agreed to.

Photo of Lord Triesman Lord Triesman Lords in Waiting (Whips)

moved Amendments Nos. 59 to 65:

Page 36, line 3, leave out "a contractor under a management contract" and insert "the contractor"

Page 36, line 5, leave out "a management contract" and insert "that contract"

Page 36, line 14, leave out paragraphs (a) to (c) and insert—

"(a) securities of the transferred company (whether transferred as mentioned in subsection (1) or issued afterwards);

(b) property, rights and liabilities to which the transferred company was entitled or subject immediately before the transfer so mentioned;

(c) property, rights and liabilities transferred for the purposes of the management contract, to the contractor, to a subsidiary of the contractor or to the transferred company or a wholly owned subsidiary of the transferred company;

(d) property, rights or liabilities to which the transferred company or a wholly owned subsidiary of the transferred company first became entitled or subject while that contract was in force."

Page 36, line 27, leave out "they" and insert "the property, rights and liabilities or the shares mentioned in subsection (1)"

Page 36, line 28, leave out subsection (5) and insert—

"(5) A transfer is authorised by this section notwithstanding that what is transferred has ceased, before the transfer, to be the property or a right or liability—

(a) of a person to whom anything was transferred for the purposes of the management contract mentioned in subsection (1);

(b) of the transferred company or of a wholly owned subsidiary of that company; or

(c) in the case of securities issued after the transfer mentioned in that subsection, of the person to whom they were issued."

Page 36, line 41, leave out "and"

Page 36, line 45, at end insert "; and

"transferred", in relation to shares, property, rights or liabilities, means transferred in accordance with a nuclear transfer scheme."

On Question, amendments agreed to.

Clause 40 [Undertakings given by the Secretary of State]:

Photo of Baroness Byford Baroness Byford Conservative

moved Amendment No. 66:

Page 38, line 5, at end insert—

"( ) This section will apply to the Magnox undertaking.

( ) Should the Secretary of State consider that the section should be applied to any other undertaking he will lay the proposal before Parliament."

Photo of Baroness Byford Baroness Byford Conservative

My Lords, on 27 January I rose to move that Clause 40 should not stand part of the Bill. The Minister very kindly and clearly explained:

"Although Clause 40 is drafted in general terms its purpose is to allow the Secretary of State to extinguish what is called the 'Magnox Undertaking'".—[Official Report, 27/1/04; col. GC 76.]

He went on to state at col. GC 77:

"It is true that the Magnox undertaking is the only significant undertaking that may be caught by the clause, but others may arise in the course of time".

Perhaps I may remind your Lordships of the Minister's reply to my noble friend Lord Jenkin earlier that day. He stated:

"It would be difficult to justify a statutory measure without being clear of the kind of situation in which it could possibly arise".—[Official Report, 27/1/04; col. GC 68.]

I believe the amendment admirably covers the situation. It clarifies that Clause 40 deals with Magnox and allows for an unforeseen situation to require its application to something that is not Magnox, while ensuring that Parliament will have the right to approve that application.

During our debates in Grand Committee my noble friend Lady Noakes said:

"I completely understand the Magnox Undertaking and not paying it out when it is no longer necessary because of the restructuring. Why, then, is the clause drafted in this oblique way as though it is trying to catch all kinds of things".—[Official Report, 27/1/04; col. GC 76.]

I do not think we had a satisfactory answer to that. The noble Lord, Lord Whitty, responded at col. GC 77. He said:

"It is true that the Magnox undertaking is the only significant undertaking".

I wanted to bring back the provision because I think that we are dealing with future issues rather than present ones—something we have been saying throughout the various stages of the Bill. Whereas we can all understand what the Magnox undertaking is about, we do not understand the rest; that is, those things that apply in the future. Therefore, I have tabled the amendment again today in the hope of a slightly better response from the Minister. Surely, if we have all agreed that we understand what the Magnox undertaking is, we should not be laying down such great flexibility. In fact, the Bill becomes one of the Bills with so much missing—one that is left to the future and greater flexibility. I beg to move.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

My Lords, I have a horrid suspicion about the reason why the Clause is drafted in the way it is, with this extraordinarily wide provision, as my noble friend Lady Byford has said. I suspect it is because of the well-known legislative convention that if you seek to legislate in a public Bill to deal with a private right it is then open to those affected to insist on going through the private Bill procedure, with a committee to examine the Bill, and for it then to be reported back to the House.

However, I think it is being less than frank if the Minister does not actually tell us that that is the reason. It may be a clever wheeze to make the provision apply to any number of undertakings, which might or might not be given in the future in order to avoid that legislative trap. But I think that the principle of openness and transparency, to which Ministers so frequently appeal, requires them to tell the House whether that is the real reason.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, as we indicated in Grand Committee—and I then wrote to noble Lords opposite on 9 February—the purpose of Clause 40 is to allow the Secretary of State to extinguish undertakings given to publicly owned companies. That clearly includes the undertaking that was given to BNFL when it took over responsibility for the Magnox nuclear power stations; the so-called "Magnox undertaking". That is the obvious use of the clause.

There are two key reasons for the clause being drafted in general terms. First, we want to avoid any problems with similar undertakings that might be given in the future. Specifically, we want to avoid the possibility of government paying for nuclear liabilities that are no longer the financial responsibility of the company to which the undertaking was given. I think noble Lords would agree that the Government should not, as a result of passing responsibility for clean up to the NDA, be obliged in effect to pay twice for clean up.

Secondly, we need to allow for the possible renewal or novation of any undertaking with different companies. Restricting the scope of Clause 40 to any one publicly owned company—that is what the Magnox undertaking is—would severely hamper the ability of the Secretary of State to renew or novate the undertaking with a different company. Being too specific in Clause 40 risks the provision being overtaken by future events and being made redundant.

Those two reasons lie behind the formulation of Clause 40. It indeed has the additional benefit to which the noble Lord, Lord Jenkin, refers. Even without that, we need to draft the clause in more general terms than specifically referring to the Magnox undertaking as the noble Baroness's amendment would.

It is worth pointing out that, were the noble Baroness to press the amendment, the wording is probably defective. Its second part does not state what process Parliament would adopt in dealing with any undertaking. It says that the Secretary of State,

"will lay the proposal before Parliament".

There is no clarity on what procedure Parliament would then use. So, I think that there are good and strong arguments for accepting that the clause has to be drafted in general terms. However, the noble Baroness's amendment would not resolve the position even should she be unpersuaded and wish to restrict the provision to the Magnox undertaking full stop.

Photo of Baroness Byford Baroness Byford Conservative

My Lords, I am grateful to the Minister for his response. I am even more confused about the matter. I understand—though I may be wrong—that the provision would be restrictive as far as concerns the Magnox company anyway; and that it would not get a chance to go to Committee. No? Forgive me, I shall leave that point.

The Minister has said clearly that the provision would avoid similar and future liabilities. I obviously accept that. I am not happy if the Minister has said to me that he understands that I do have a point—which I think he has—but that it restricts the issue too much for the future. That is one matter. He went on to say that my amendment was defective. If it is his view that I have a point but my amendment is defective, I would be grateful if the Minister could consider whether the amendment has any merit, before Third Reading. If he says, "No, it hasn't", I am at the end of the line. Either I divide the House or not, and, having just divided the House, that might not benefit me anything at this stage.

I hope that the Minister will think about the amendment.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy) 5:30 pm, 22nd March 2004

My Lords, I must clarify my point. I said that I did not accept the amendment substantively, for the reason that I gave. It is too tight an amendment. The second part of the amendment would require further amendment to be effective, even if the House were to be convinced of the noble Baroness's argument. Therefore, I oppose the amendment substantively, as well as procedurally.

Photo of Baroness Byford Baroness Byford Conservative

My Lords, I thank the Minister for that clarification. I will read what he said, and, at this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

moved Amendment No. 67:

After Clause 40, insert the following new clause—

"EXTINGUISHMENT OF BNFL LOSSES FOR TAX PURPOSES

(1) In relation to accounting periods beginning on or after the trigger date, all the relevant losses of every BNFL company arising before that date shall be treated for the purposes of corporation tax as extinguished.

(2) The following are relevant losses of a BNFL company for the purposes of this section—

(a) losses incurred by the company in a trade;

(b) losses incurred by the company in a transaction a profit or gain from which would have been chargeable to tax under Case VI of Schedule D;

(c) excesses to be carried forward in the company's case under section 75(3) of the Income and Corporation Taxes Act 1988 (c. 1);

(d) Schedule A losses (within the meaning of section 392A of that Act) incurred by the company;

(e) losses to be carried forward in the company's case under section 392B(1) of that Act;

(f) any tax loss of the company falling within section 400(2)(d) of that Act;

(g) allowable losses (within the meaning of section 8 of the Taxation of Chargeable Gains Act 1992 (c. 12)) that have accrued to the company;

(h) deficits of the kind mentioned in section 83(1) of the Finance Act 1996 (c.8) to the extent that they are to be carried forward in the company's case under subsection (3A) of that section;

(i) excesses of the kind mentioned in section 260 of the Capital Allowances Act 2001 (c. 2) in relation to the company;

(j) losses of the kind mentioned in paragraph 35(1) of Schedule 29 to the Finance Act 2002 (c. 23) incurred by the company;

(k) unrelieved surplus advance corporation tax of the company (within the meaning of section 32 of the Finance Act 1998 (c. 36)).

(3) This section applies to the relevant losses of a BNFL company only if it is publicly owned on the day before the trigger date.

(4) In this section—

"BNFL company" means—

(a) BNFL;

(b) a company that is a 75 per cent subsidiary of BNFL at a time during the qualifying period; or

(c) a company (other than BNFL) that is a 75 per cent subsidiary of a BNFL parent company at a time during the qualifying period;

"BNFL parent company" means a company of which BNFL is a 75 per cent subsidiary;

"qualifying period" means the period beginning with 16th March 2004 and ending with the trigger date;

"trigger date" means whichever is the earlier of the following—

(a) the date of the first occasion on which section 21 operates so as to confer financial responsibilities on the NDA in relation to an installation, site or facility the person with control of which is a BNFL company that is publicly owned; and

(b) the date of the first occasion on which a transfer takes effect which is a transfer to the NDA or a subsidiary of the NDA in accordance with a nuclear transfer scheme authorised by section 36 of property, rights or liabilities of a BNFL company.

(5) This section shall be construed as one with the Corporation Tax Acts."

On Question, amendment agreed to.

Schedule 7 [Finances and accounts of transferee companies]:

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

moved Amendment No. 68:

Page 161, line 21, leave out from "corporate" to end of line 22 and insert "which is—

(a) a body corporate to which a transfer has been made in accordance with a nuclear transfer scheme; but

(b) not a subsidiary of the UKAEA."

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, in moving Amendment No. 68, I shall speak to the other amendments in the group.

Essentially, the amendments make two technical changes to the Bill. The first is to clarify the statutory powers on borrowing and issuing guarantees that will apply to UKAEA subsidiaries, such as any site licensee companies that might be created to facilitate the NDA's objective of promoting competition. As with other amendments, in reviewing the mass of past nuclear legislation, we have spotted a potential source of confusion that the amendments will remove.

UKAEA subsidiaries are already subject to the borrowing and guarantee powers in the Atomic Energy Authority Act 1986. Schedule 7 introduces a similar regime for transferee companies. The schedule was principally designed to update such provisions in respect of BNFL companies. As drafted, however, it will have the additional effect of incorporating UKAEA subsidiaries which are transferee companies as well.

On reflection, we considered it appropriate to maintain the existing borrowing and other limits for UKAEA subsidiaries from previous legislation, rather than roll them into the pool applicable to BNFL companies or the pool applicable to other transferee companies that are not UKAEA subsidiaries. To do otherwise would be to lower the overall total that applies to BNFL and UKAEA combined.

The second change made by the amendments is to paragraph 8 of Schedule 7. Paragraph 8 is a technical provision that provides that the vesting of assets and liabilities in accordance with a transfer scheme,

"shall be taken to have been effected immediately after the end of the last accounting year of the transferor".

That paragraph also enables a nuclear transfer scheme to contain valuations of any transferred assets or liabilities. The provisions are drawn from standard privatisation precedents to ensure continuity between the accounts of the transferor and transferee companies.

The amendments will apply the provisions of paragraph 8 to the statutory accounts of transferor companies, as well as those of transferees, thereby facilitating the transfer. We consider that the amendment would assist in the maintenance of continuity between the two sets of accounts. I beg to move.

Photo of Lord Higgins Lord Higgins Conservative

My Lords, I intervene briefly. This is an enormous group of amendments—something like 47 or 48.

Noble Lords:

It is not this group.

Photo of Lord Higgins Lord Higgins Conservative

My Lords, I see. I am sorry.

On Question, amendment agreed to.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

moved Amendments Nos. 69 to 73:

Page 161, line 27, after "if" insert ",without being a subsidiary of the UKAEA,"

Page 164, line 34, leave out "not a designated BNFL company" and insert "neither a designated BNFL company nor a subsidiary of the UKAEA"

Page 166, line 2, leave out "a transferee company" and insert "each of the following—

(a) a transferee company;

(b) a subsidiary of the UKAEA to which a transfer has been made in accordance with a nuclear transfer scheme;

(c) a company that is the transferor in relation to a transfer in accordance with such a scheme to a company falling within paragraph (a) or (b)."

Page 166, line 4, after "company" insert "mentioned in sub-paragraph (1)(a) or (b)"

Page 166, line 5, leave out "a" and insert "the"

On Question, amendments agreed to.

Schedule 8 [Pensions]:

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, we are now at the enormous group of amendments, for which I apologise. The group has two straightforward aims. It ensures that the coverage of the pension provisions in Part 1 is appropriate, and it ensures that the drafting of Part 1 is consistent. We want to be clear in our drafting and in our definition of those to whom the provisions apply.

Discussions in Grand Committee showed that there was broad support for our approach to protecting the pensions benefits of existing employees who were transferred as a result of the restructuring of the UK nuclear clean-up industry. We take workforce conditions and the retention and development of nuclear skills and expertise seriously, and that is what Schedule 8 is about. However, it is important that we achieve appropriate coverage of the pension protections afforded by the Bill.

Probably, the most significant amendments in the first batch are Amendments Nos. 91 and 125, which safeguard the position of employees of the new BNFL—the restructured BNFL—who are currently members of the UKAEA pension scheme. The amendments will enable the UKAEA pension scheme to be extended to designated new BNFL companies while such companies are publicly controlled. Such extensions will enable UKAEA scheme members who are transferred to those companies to remain members of the UKAEA scheme.

With regard to BNFL employees who are members of the BNFL group scheme, Amendments Nos. 80, 83 and 85 clarify the ability of the NDA to modify that scheme. We may wish the NDA to take control of the BNFL group scheme. In particular, we wish the NDA to have powers to modify the scheme rules, so that existing members of the scheme will be able to remain members, even if they are transferred to a different employer or their current employer is no longer eligible, under existing rules, to be a participating employer in the scheme. However, as drafted, the Bill pre-dates the conclusion of the joint BNFL strategy review, so we need the amendments to ensure that the provisions of paragraph 2 of Schedule 8 do their intended job of allowing the NDA to modify the BNFL group scheme.

Those are the two main amendments, but there is a significant number of technical amendments to ensure appropriate coverage of the Bill's provisions and consistency of drafting. I shall go through them.

Amendments Nos. 89, 90 and 92 make it clear that certain pension provisions apply to non-employee officers and directors of a company who might otherwise have been excluded by constant references to "employees". Amendments Nos. 74, 75 and 99 make provision for the application of the pension protections during the early stages of the restructuring of the nuclear clean-up industry. They also make it clear that the protection is afforded only to public sector employees.

Most of the rest of the amendments—Amendments Nos. 76 to 79, 86 to 88, 90 and 95 to 122, I think—deal with a potential loophole in the Bill's pension provisions. There may be one or two gaps in that list. Amendments Nos. 110 and 111 are excluded. Amendment No. 109 deals with the same thing. I am receiving clarification from the noble Baroness from a sedentary position. I am sure that she is right.

Photo of Baroness Miller of Hendon Baroness Miller of Hendon Conservative

My Lords, I beg the noble Lord's pardon; I was trying to be helpful. It was just that Amendment No. 111 is not in the group, and the noble Lord said that it was. Amendment No. 109, which he thought was definitely in the group, is not his amendment but is in the name of the noble Lord, Lord Lea of Crondall. I was trying to be helpful to the noble Lord, but I beg his pardon and that of the House.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, I am clear that Amendment No. 111 is not in this group. Amendment No. 109, which is on my list, probably should not be, so I apologise to noble Lords and in particular to my noble friend Lord Lea.

The rest of the group, which I will not repeat, deals with a potential loophole. There may be instances when an employee is not transferred but his employer—the site licensee company, for example—changes ownership. That could lead to employees having to leave their nuclear pension scheme. As previously drafted, the Bill's protection may not have been triggered in that case, and we want to make sure that it is.

Employees' pensions should be protected when they are transferred, as the Bill says, "for NDA purposes"—that should include such people—and when ownership of their employer is transferred, for example, following a competition for site management. The amendments are also intended to clarify the definition of "for NDA purposes" to ensure that it does not catch transfers which are unrelated to the NDA's own functions.

Finally, Amendments Nos. 151 and 152 simply make minor amendments to the Civil Nuclear Constabulary pension provisions in Schedule 10 to ensure that they, too, mirror the relevant provisions in Schedule 8.

As I have explained, therefore, the amendments are intended to ensure that the provisions of Schedule 8 do exactly what we want them to do—to protect the future pension benefits of staff who are required to transfer for NDA purposes. I beg to move.

Photo of Lord Higgins Lord Higgins Conservative

My Lords, I apologise to your Lordships for intervening too quickly. When I used to be preoccupied with athletics, on the running track it was three false starts and you were out. At present, it is down to two false starts, and the Minister very nearly got himself disqualified. Be that as it may, we are grateful to him for explaining this huge group of amendments. Am I right in thinking that none of them actually arises as a result of the discussions which took place in Committee on 27 January? These are all changes which have resulted either from subsequent reflection by the Government on the loophole the noble Lord mentioned or because the original drafting was wrong. It seems quite extraordinary that at this stage of the Bill, which has been through the Committee stage, these amendments are before us now rather than earlier. Perhaps the Minister could clarify why we did not have a chance of debating them in Committee.

On the loophole, if I understand it correctly, the Government are saying that people who are at present employed by a company may not be protected if the employer moves but the employee remains in his present post. That would certainly seem appropriate.

While we are obviously very keen that the present position of the existing pensioners should be protected, are these largely final salary schemes, are they contributory and, in particular, are they index-linked? There is an increasing concern at the burden which public sector pensions are placing on the economy and the fact that they are in a privileged position. We might wish to return to the matter at Third Reading, and it would be helpful if the Minister could tell us whether a final salary scheme is being transferred to this new structure, whether it is contributory and whether it is index-linked.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy) 5:45 pm, 22nd March 2004

My Lords, on the first point, the amendments arise partly through drafting errors at an earlier stage which clearly needed tidying up, but also because the original form of the Bill pre-dated the review of the so-called BNFL strategy review. Therefore, further changes in Government policy needed to be reflected in how we were treating the current members of BNFL schemes in the context of some being transferred to the NDA and some being left in BNFL companies and what is provisionally being called new BNFL. So it is not so much an error in the original drafting as Government policy becoming clarified on the future of BNFL.

In relation to whether these amendments reflect discussions in Grand Committee, the honest answer is "only tangentially". Concerns were expressed, some of which were covered by subsequent amendments, which dealt with the position of employees who were being transferred at various stages and how far the guarantee continued down the various transferors through the change in the site management position.

As for the nature of the current UKAEA and BNFL schemes, as I understand it, they are final salary schemes and they are contributory. However, I think I should set out in a letter the rest of the detail that the noble Lord wants.

New starters in these schemes will have three choices. They can enter a final salary scheme within the overall nuclear clean-up pension scheme which would effectively reflect the previous schemes; they can enter a defined contribution—stakeholder—benefit within the nuclear clean-up pension scheme; and the new employer, or the employer entering the situation, could offer a good quality employer scheme which was the equivalent benefit. So a number of schemes could result from these various transfers, and a number of options could be available to companies and employees in the future. However, I shall set out in correspondence the nature of the existing schemes, beyond what I have already said.

Photo of Lord Higgins Lord Higgins Conservative

My Lords, I would be grateful if the Minister would write. He will be aware that in the private sector, many companies are closing their final salary schemes to new entrants and some of them are closing them for existing potential pensioners. Will the guarantees that are now being given ensure that such a change cannot be made by the companies concerned under this Bill?

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, as long as they are public companies, the Government's general commitment in relation to public pension schemes continues to apply. Therefore, the continued guarantees to the individuals through the system would continue to apply. New starters would have a choice and their employer could offer them a different scheme, which was a good quality scheme. However, the guarantees would reflect the Government's current commitments to existing staff regarding the existing guarantees on their BNFL or UKAEA pension.

On Question, amendment agreed to.

Photo of Baroness Byford Baroness Byford Conservative

moved Amendment No. 81:

Page 168, line 29, leave out "to any extent"

Photo of Baroness Byford Baroness Byford Conservative

My Lords, we return to an issue that I raised in Committee. This amendment was discussed at great length in Committee, when a number of your Lordships indicated that its use was not calculated to inspire the average ex-BNFL employee with confidence that his or her pension rights would be fully protected. After some discussion, the Minister stated that,

"on the question of the words 'to any extent', I shall take further advice".—[Official Report, 27/1/04; col. GC 82.]

Would he now tell us what that advice is, and whether he is prepared to drop the phrase from the Bill? If he is not prepared to do so, how does he propose to ensure that it does not,

"dilute the commitment in any way, and no less favourable treatment will be given to those employees"?—[Official Report, 27/1/04; col. GC 82.]

In Committee, I was supported by the noble Lord, Lord Gray of Contin, the noble Lord, Lord Ezra, who expressed his concern about the threatening tone of this section, and by my noble friend Lady Carnegy of Lour. I beg to move.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, the noble Baroness and others made this point in the course of the previous debate in Grand Committee. I have taken further advice on this, and the conclusion is that the lawyers would take the opposite interpretation of 'to any extent', in the sense that deleting the phrase would dilute the provision. It could be held to deprive the scheme members of the absolute guarantee we are trying to give, that the NDA could not deprive the scheme members of pension rights that had accrued to them. Our advice is that, without these words, there would be a risk that an employee whose pension rights were reduced, but not utterly extinguished, could not be protected. Deleting the phrase would actually make the employees more vulnerable, rather than less. I can understand that in common parlance there is a certain ambiguity in the words 'to any extent', but nevertheless I have the firm opinion from parliamentary counsel that the inclusion of the phrase is a greater protection than its deletion. I therefore hope the noble Baroness will not pursue this amendment.

Photo of Baroness Byford Baroness Byford Conservative

To be honest, my Lords, I find the Minister's response surprising. If he thinks that removing the phrase 'to any extent' would weaken the thrust behind my amendment, then I would question whether the words were necessary in the first place. Why do they have to be included? Could it not just have read straight through? The Minister has given his response to that, and obviously I will have a look at it in the light of his response. It is a pity that he or his legal colleagues did not write to me to give me some indication, having said they would do so at Committee stage. I will look carefully at their response and seek advice myself. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

moved Amendment No. 82:

Page 168, line 30, after "him" insert "whether by virtue of service rendered, contributions paid or any other things done"

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My Lords, the purpose of this group of amendments is to try to secure protection for transfer of accrued rights. In July 2002, the White Paper, Managing the Nuclear Legacy—A Strategy for Action, recognised that, on transfer to a contractor, employees,

"who opted to transfer their accrued pension would be protected by way of a Bulk Transfer Agreement. This would be a contractual condition for any potential site licensee company and would allow staff who chose to do so to preserve the link between their final salary and their past service".

This is of course government policy, as set out in the Fair Deal paper from the Treasury, in respect of all staff who are transferred from the public to the private sector. However, it is a matter of policy rather than a legal requirement, and experience demonstrates that this policy is not always achieved in respect of second-generation transfers. Given that it is a statement of policy, we believe that the proposed amendments are necessary to make the provision of bulk transfer terms a legal requirement.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, these three amendments relate to the protection of pension rights accrued by staff who are required to transfer their employment for NDA purposes. I want to stress at the outset that, as I said in Grand Committee, the Government do not intend to use employees' terms, conditions or pensions as a means of driving down costs. Instead, we intend to protect the existing employees and their future benefits in circumstances where, as a result of a decision by the NDA, they are required to transfer either to new employers, for example the newly created site licensee companies, or to the private sector, for example if a private sector contractor won a contract to manage an NDA site.

Amendment No. 82 seeks to qualify the way in which members of a pension scheme can accrue pension rights under that scheme. I can assure my noble friend that the first two qualifications suggested, "accrual by service rendered" and "contributions paid", are not needed, because the concept of accruing pension rights by its nature includes those means of accrual. That does not need to be stated on the Bill.

The third qualification that my noble friend puts forward suggests accrual by "other things done". That is, frankly, a bit open-ended. I am not entirely sure what "other things done" would be in these circumstances, and this could lead, for example, to an argument that a statement of intent on the future of a pension scheme of itself creates an accrued right, because it is another thing done. However, it is not normal to include anything that is not formally part of the pension scheme in terms of the accrued rights, and therefore I do not think I can accept that third part of his Amendment No. 82.

The other two amendments, Amendment No. 109 and what is now Amendment No. 118A, seek to extend statutory protection of pension benefits under the Bill to accrued benefits of existing pensions that are required to be transferred for NDA purposes. As I said a moment ago, we intend to protect the future pension benefits of existing employees during this restructuring, and that essentially means employees of AEA and BNFL who are required to transfer to a new employer by the NDA. This policy is applied to a whole host of comparable systems where public sector workers have been required to transfer to a new employer, or to the private sector. There is well established documented guidance on that.

However, because the Government recognise how important are the skills of the people who make up the NDA workforce, we have taken the rather exceptional step of underpinning in statute the policy to protect the future pensions benefits of transferred staff, with careful drafting of the Bill. This is based on experience of previous examples of transfers within the nuclear industry, and does not of itself impose an excessive regulatory burden. In my view, it is not appropriate to go further than the terms now in the Bill, and to extend the protection offered under the Bill to the accrued benefits of staff transfer for NDA purposes. We simply cannot attempt to pin down in statute the whole range of complexities involved in bulk transfer agreements relating to accrued benefits. I am told by the experts in the Government Actuary's Department that each bulk transfer is unique, and that they need the flexibility to deal with that.

As my noble friend said, there is an existing and well established government policy in this area, published in 1999, in the document, Fair Deal for Staff Pensions. For transferred staff who are required to be early leavers of a public sector scheme, the policy is that there should be an agreement between that scheme and the new employers' scheme, giving staff the option to transfer their past service into the new scheme on preferential terms. Such a bulk transfer agreement should allow transferred staff,

"to secure credit for their past service in the new pension scheme on a day-for basis (or the actuarial equivalent if the differences between the schemes are significant".

That remains government policy. Given that we have made the exceptional step of protecting in statute future benefits provisions of existing employees in the nuclear clean-up industry, which we have not done for other situations, and given the longstanding government policy protecting accrued benefits for transferred public sector staff, I cannot accept the amendments. They would need to be spelt out far more than they are in any case, and would result in great complexity, because almost every accrued benefit package is a unique package to that particular employee. Therefore, the policy stands, but I cannot accept my noble friend's amendment.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour 6:00 pm, 22nd March 2004

My Lords, I thank my noble friend for putting on record that useful clarification. My noble friends and I will wish to study carefully what the Minister said, but I believe that we have made progress on the matter, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

moved Amendment No. 84:

Page 168, line 33, leave out "the trustee of the scheme" and insert—

"(a) the trustee of the scheme; and

(b) such persons as appear to the NDA to represent the employees likely to be affected by the modification"

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My Lords, given that pension provision in this industry, as in many others, is by common consent of key concern to the staff who work in it, this group of amendments would secure a statutory right to consultation with regard to any actions taken under the Act in respect of pensions schemes. While certain provisions in the Bill relating to pensions place on the NDA and/or the Secretary of State the duty to consult employee representatives in respect of pensions issues, that is not consistently the case.

For example, Part 4 of Schedule 8 gives the Secretary of State the power to modify an NDA pension scheme. We consider that, before exercising that power, there should be a statutory duty to consult the representatives of the employees who would be affected. Writing into the Bill a statutory duty to consult employees on all such matters would not only make the Bill internally consistent but bring it into line with the Pensions Bill, which is expected to include a statutory duty on an employer to consult trade unions or other elected workplace representatives in respect of changes to pension schemes. While amendments to that effect clearly do not provide any guarantees in respect of the outcomes—the substance of the matter that is being consulted about—they at least provide an assurance to staff and their representatives that the due processes will be followed and that there will always be a route through which concerns can be properly considered. I beg to move.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

My Lords, I assure my noble friend that the Government have no intention of taking any steps that would significantly impact on employees without there being a full engagement with their representatives, especially the trade unions. On a wide range of issues, we shall develop a stakeholder engagement framework that will set that aspect, together with others, into a standing procedure for consultation. It is not possible to lay down in statute every particular instance in which consultation should arise.

However, I accept that on pensions issues, especially with modifications to pension schemes, it is important that we ensure that the trade unions and employees are kept informed and are fully consulted. The Bill already requires the Secretary of State and the NDA to consult extensively before making modifications to the UKAEA pension scheme and before making a transfer scheme or transfer arrangement for NDA purposes, which would require employees to leave their current scheme.

The amendments before us seek to create similar consultation requirements for any modification made under paragraph 2 of Schedule 8, which relates primarily to the BNFL group scheme. The modifications envisaged by those paragraphs are expected to be made as a result of the transfer scheme—for example, when staff are transferred to the site licensee companies. They would be caught by the requirement in paragraphs 9 and 11 of Schedule 8 to consult on transfer schemes and arrangements made for NDA purposes that force employees to leave their current nuclear pension scheme.

There are provisions already in the Bill that would cover most of the areas on which my noble friend is expressing his concern in moving the amendment. However, in order to absolutely clear that employees and their trade unions will be consulted before anything is done and to reinforce the commitment that we have made generally in protecting pension rights, I will consider his amendments further and see whether there are any minor changes that the Government might introduce to make clear the position in relation to the circumstances in which he expresses his concerns in the amendments.

Photo of Lord Lea of Crondall Lord Lea of Crondall Labour

My Lords, employees in the industry will be very glad to hear the remarks just made by my noble friend. I am sure that there is no great point of policy at issue here, but to have the provision in the Bill will be a very great reassurance. At this stage, therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Whitty Lord Whitty Parliamentary Under-Secretary, Department for Environment, Food and Rural Affairs, Parliamentary Under-Secretary (Department for Environment, Food and Rural Affairs) (Food, Farming and Sustainable Energy)

moved Amendments Nos. 85 to 108:

Page 168, line 39, leave out paragraph (b) and insert—

"(b) a nuclear pension scheme designated as a relevant pension scheme for the purposes of this paragraph by an order made by the Secretary of State."

Page 169, line 2, at end insert—