HC Deb 09 November 1989 vol 159 cc1180-8 4.31 pm
The Secretary of State for Scotland (Mr. Malcolm Rifkind)

With permission, Mr. Speaker, I wish to make a statement about the future of the electricity supply industry in Scotland.

The House heard earlier today a statement by my right hon. Friend the Secretary of State for Energy, describing the continuing uncertainties over the costs and longer-term liabilities associated with nuclear power. Those uncertainties are also relevant to the Government's proposals for the privatisation of the electricity supply industry in Scotland. I have therefore reassessed my plans for the restructuring and privatisation of the Scottish industry, and wish to inform the House of my conclusions.

Hon. Members will be aware of the important role that nuclear power plays in the Scottish system. The AGR stations at Torness and Hunterston B represent 25 per cent. of the generating capacity held by the Scottish boards. Hunterston A Magnox station is now approaching the end of its useful life, and is scheduled for closure in the near future. The SSEB's nuclear stations have an excellent record of safe performance, and I commend the management and staff of the board for their achievement in constructing and operating them.

Despite that successful operational performance, the Government have had to examine carefully the future cost uncertainties associated with the nuclear operations in Scotland, as elsewhere in the United Kingdom. After close consultation with the industry and our financial advisers, we have concluded that the full flotation could not be successfully achieved without wide-ranging and unequivocal indemnity from Government for future cost escalations. We do not consider that it would he in the public interest to confer such indemnity, and have therefore decided that the nuclear enterprise in Scotland should remain in the public sector.

We had already proposed that the nuclear assets should be held by a separate company, Scottish Nuclear Ltd. That company will now remain publicly owned, and will be responsible for the continued safe operation of the stations. The staff now engaged in nuclear matters will be employed by the new company, thus ensuring the retention of the essential expertise required to maintain safe and efficient operation of the stations for the continuing benefit of Scottish consumers. The company will enter into contracts for the sale of its output with the Scottish supply companies, Scottish Power and Hydro Electric. It is certainly our intention that Scottish consumers should continue to benefit from the large investment in nuclear capacity.

The industry north and south of the border has been investigating the economic case for upgrading the capacity of the interconnector between Scotland and England. There is a further opportunity, which we must now explore, to export Scottish output to England and Wales, thus contributing to the diversity of supplies there, and maximising the overall economic use of these major assets to the benefit of all concerned.

The greater proportion of the Scottish industry will be privatised.

Mr. Norman Hogg (Cumbernauld and Kilsyth)

The showrooms. [Laughter.]

Mr. Speaker

Order. Time is very short this afternoon.

Mr. Rifkind

This will consist of two highly successful transmissesion, distribution and supply businesses with strong local identities and a modern and diverse portfolio of generating stations. They will own around 75 per cent. of generating capacity and employ 14,000 of the total 16,000 staff in the Scottish electricity industry. It is our intention to prepare these companies for privatisation within the current Parliament, and my Department is assessing with our professional advisers and in consultation with the industry the detailed implications of the Government's decision to withhold the nuclear assets from the sale.

There will need to be detailed discussions with regard to the proper relationship of the nuclear company with the other parts of the industry. These will be made easier by our previous decision to place all of the nuclear assets in a separate company. I shall wish to ensure that the revised arrangements have no adverse effects on the economy and efficiency of operation of the industry in Scotland and that there will be no adverse implications for tariffs as a result of these changes.

It will be central to our plans to safeguard the position of the existing staff engaged in the nuclear company, and in particular their pension rights will be protected. The Government will also ensure that these staff will be able to benefit from the flotation of the other parts of the industry. We shall be discussing the detailed implementation of these proposals with the management and the trade unions. The Scottish nuclear company can look forward to a successful and productive future working in close co-operation with the other electricity companies in Scotland.

I believe that a proper and carefully balanced mixture of private and public ownership—[Laughter.]— will achieve our objectives and be of real benefit to electricity consumers. The nuclear enterprise will continue to play an important role in delivering a safe, reliable and competitively priced supply of electricity to the people of Scotland for many years to come. The two private sector companies, Scottish Power and Hydro Electric, will flourish in the private sector and deliver an improved service to their customers in the new environment.

Mr. Donald Dewar (Glasgow, Garscadden)

This must be one of the most humiliating statements that the House has heard from a Scottish Office Minister for a very long time. The Secretary of State was extremely wise to try to turn it into something of a joke. The Government's central strategy for the electricity industry lies in ruins. The Secretary of State's attempt to present this shambles as a minor policy adjustment is as pathetic as it is unconvincing. In fairness to him, he seemed to be enjoying the joke when he argued that the AGRs represent only 25 per cent. of generating capacity. Is he afraid to face the fact that 60 per cent. of all electricity sold in Scotland comes from nuclear capacity and that for the South of Scotland electricity board it represents, in its latest available balance sheet, at £2.048 billion, some 80 per cent. of assets? What we have now is a rickety structure cobbled together in panic in a futile attempt to save face. Is not the truth that the nuclear arithmetic has gone horribly wrong and that the heart has been ripped out of the whole scheme?

How can the Minister have the brass neck to claim that he believes in a proper and carefully balanced mixture of private and public ownership when he has spent the last year denying in the strongest possible terms that there is any place for the nuclear industry in the public sector? Does he remember writing to me less than a year ago to say that There are no grounds for suggesting that the successful privatisation of the industry will be jeopardised by risks associated with the nuclear operating costs"? Does he remember that in this House last April his Minister of State, the hon. Member for Galloway and Upper Nithsdale (Mr. Lang), expressed his unshakable confidence that the Scottish industry, including its substantial nuclear assets, can look forward to a bright commercial future."—[Official Report, 5 April 1989; Vol. 150, c. 236.] I can only say to him that what he has announced today is neither proper nor balanced. It is a mixture, which many people would describe as a dog's breakfast.

Why has the Minister remained in such a state of ignorance, despite the persistent and wholly justified attack by the Opposition on these matters and the specific warning from the chairman of the South of Scotland electricity board in December 1988 that under the then current arrangements his company would be unsaleable? Why has it taken so long to discover—or, even more damaging, to admit—the painful truth? It is a tale of incompetence and dither.

How will Scottish Nuclear price the power that it produces? Is that possible at all if it is impossible to put a figure on the ever-escalating costs of decommissioning and reprocessing? The Secretary of State for Energy talked about the price being consistent with earning a return appropriate to public sector bodies. How does the Secretary of State intend to build into that pricing structure the end costs of decommissioning? Does the Secretary of State now agree with the Department of Energy that, if that is done, the true cost of nuclear power is at least twice that of conventionally produced power?

Is it not true that the whole exercise is designed so that the taxpayer will be left with the liabilities and the investors with the profits? Is the Secretary of State confident that Scottish Power and Hydro Electric can stand on their own? Will they survive as independent entities without the nuclear generating capacity, which the chairman of the SSEB recently described as the mainstay of his board's finances?

What has happened to the Minister's proud boast that the strength of his specially tailored Scottish solution was the merging of generation and distribution? Are not those claims now a joke? Does not today's statement show the folly of Ministers meddling in a complex industry that they clearly do not understand? If the so-called sale excludes the core of the industry, would it not be more honest, and more in the public interest, for the Secretary of State to admit his error and to abandon the whole misconceived exercise?

Mr. Rilkind

The hon. Gentleman seems not to have studied the industry terribly carefully. At the moment, approximately 16,000 people are employed in the Scottish electricity industry. Only 1,800 of them—about 10 per cent.—are employed in the nuclear industry. Some 90 per cent. of employees and 75 per cent. of the industry's capacity will go into the private sector. All the hon. Gentleman can take refuge in is the fact that the historic book value shows—not surprisingly, as Torness has only recently been completed—that a high proportion of assets on a historic book basis are of the kind to which the hon. Gentleman referred.

If the hon. Gentleman is concerned about people and the capacity to generate power, I should have thought that he would attach more importance to the fact that 75 per cent. of capacity and 90 per cent. of the employees will go into the privatised industry. Frankly, that accounts for more than the core of the industry.

The hon. Gentleman asks why that has come about, and why the Government did not have this view some months ago. One of the consequences of privatisation, whether in the electricity industry or in any other industry, is that it is only when one is contemplating privatisation that the industry and the public address themselves to the costs incurred by nationalised industries. Electricity privatisation revealed the true cost of many of the hidden subsidies and unknown factors that had always been there.

The hon. Gentleman asked about the views of the SSEB and the Scottish electricity industry. I remind him that the SSEB and the Hydro Board were fully behind the Government's proposals to privatise the whole industry. In the light of the information that is now available, they have said that they believe that the Government are right to go ahead in the way in which we are now proposing.

Finally, the hon. Gentleman asked me about the way in which pricing would be determined. I said in my statement that today's announcement would have no adverse consequences for tariffs. The Government are committed to the principle of tariff continuity. [Interruption.] When the contracts between Scottish Nuclear and the two private sector companies are entered into, the pricing which will be agreed will enable the tariff consequences to be the same as they were under our original proposals.

Several Hon. Members


Mr. Speaker

Order. I shall allow questions on the statement to run until 5 o'clock and then I shall call the hon. Member for Livingston (Mr. Cook) to move his motion. I intend to give precedence to hon. Members who represent Scottish constituencies because this statement refers to Scotland.

Mr. John Home Robertson (East Lothian)

Whereas the Secretary of State for Energy has the excuse that he has been dropped into this midden, the Secretary of State for Scotland has no such alibi. He has been responsible for this tacky business right through from beginning to end.

Will the Secretary of State confirm that his announcement today means that the two power stations in my constituency, Cockenzie and Torness, will be under totally separate ownership and management? One will be in the public sector, the other in the private sector. I give a guarded welcome to the fact that the climbdown means that Torness will be kept under public control.

Will the Secretary of State tell us what he will do to restore coal production capacity to meet future needs in Scotland? Will he comment on the report that failure to recommission refuelling machinery at Torness may lead to the two reactors there being shut down throughout most of this winter?

Mr. Rifkind

The hon. Gentleman is correct. It was always intended that Torness would be under Scottish Nuclear Ltd. and Cockenzie under Scottish Power. I am happy to confirm that.

In my statement, I gave details of the latest situation and its implications for coal. It has long been understood that the best prospects for coal depend on the opportunities that the Scottish industry finds to export surplus capacity. I said that the cumulative effect of what has been announced by the Government underlines the need to upgrade the interconnector, the purpose of which is to maximise the export of surplus Scottish electricity. Today's announcement is helpful to the Scottish coal industry's prospects.

In view of the enormously complex arrangements necessary for the safe handling of fuel in nuclear power stations, it is essential to ensure that every aspect of its operation is fully tested during the commissioning process at Torness. I understand that full commissioning of the fuel route is expected to take place in time to allow refuelling to occur in January, subject to all the necessary steps being completed to allow safe, reliable operation of the plant.

Sir Hector Monro (Dumfries)

For clarification's sake, would my right hon. and learned Friend say what will be the status of Chapelcross nuclear power station, which is in my constituency? It is owned by British Nuclear Fuels, but it has to sell power to Scotland or to England. Is my right hon. and learned Friend certain that that condition will be retained, in the interests of the 650 employees there? Subject to inspection by the Health and Safety Executive, will Chapelcross have a life of at least 10 more years?

Mr. Rifkind

I am happy to assure my hon. Friend that today's announcement has no implications for Chapelcross. I recall that it has successfully agreed a contract which enables it to export some electricity south of the border.

Mrs. Ray Michie (Argyll and Bute)

The Minister should have ended his statement by saying, "Three cheers for the mixed economy." Does he agree that everything he has said this afternoon has vindicated our repeated assertions that privatisation of the electricity industry is unworkable in Scotland, and that the Government's pretence of cheap nuclear power is in tatters? Can he say who will pay for the upgrading of the interconnector between Scotland and England? If those boards are to be privatised, when will flotation take place?

Does the Secretary of State agree that this is another shambles created by the Government and that the whole idea should be scrapped forthwith?

Mr. Rifkind

I am happy to confirm that the flotation will still take place in this Parliament. We have no reason to review its timing. It has always been intended that the upgrading of the interconnector would be the responsibility of the relevant companies north and south of the border. It is a commercial arrangement whereby they will sell surplus capacity to distribution companies in England, so the financing arrangements will not be affected by today's announcement.

Mr Bill Walker (Tayside, North)

My right hon. and learned Friend is to be congratulated on reaching what must have been a tricky and difficult decision. Does he agree that his statement clearly reveals how much England and Scotland are interrelated in energy matters and that one cannot consider them in isolation? The interconnector is a vital and important part of the entire operation, enabling Scotland to continue to sell its produce to consumers in England. One of the most important factors in my right hon. and learned Friend's statement is that a substantial part of the Scottish electricity generating industry is being taken out of the public sector borrowing requirement. Those of us in the hydro areas will welcome that because the hydro company will be very viable and profitable.

Mr. Rifkind

My hon. Friend is right about the hydro company and Scottish Power being extremely profitable and viable companies. As for the interconnector, my right hon. Friend's announcement about the future of the PWR programme south of the border enhances the prospects for successful exports of surplus electricity from the Scottish electricity industry, and we shall need to address that.

Mr. David Lambie (Cunninghame, South)

May I remind the Minister that, although the Government intend to privatise the water industry in England and Wales, they are not doing the same in Scotland? Given his announcement today that more than 60 per cent. of the sales of electricity in Scotland will be from plants remaining within the public sector, is it not time that the Secretary of State for Scotland spoke up for Scotland and stated that a public SSEB should remain and should compete on favourable terms with a private industry in England and Wales?

Mr. Rifkind

I am afraid—no, I am not afraid, I am delighted—that the hon. Gentleman's views are not the views of the Scottish electricity industry. The SSEB is looking forward to privatisation and has been encouraging the Government to bring it forward as quickly as possible.

Mrs. Margaret Ewing (Moray)

Will the Secretary of State accept that many of us never cease to be amazed by his chameleon-like qualities as he moves from one policy change to another? In that context, can he advise us what has happened since his statement to the Select Committee that he regarded nuclear energy as likely to be much cheaper than any fossil-fuel-generated energy and dismissed any questions about the high costs of decommissioning and reprocessing? What has happened in the intervening months to make him change his mind? In regard to the interconnector, can he tell us exactly what proportion of the investment will be paid for by Scottish consumers?

Mr. Rifkind

On the last point, I cannot inform the hon. Lady as that will be a matter to be discussed between the various companies north and south of the border. As for the hon. Lady's earlier remarks, the question does not concern the precise level of costs, but the uncertainty of not knowing what the costs of decommissioning will be, given that decommissioning may not take place for many years to come, although clearly an investor in the industry would need to take that into account. That is why the industry sought a total indemnity on these matters and the Government took the view that that would not be responsible or in the interests of the taxpayer.

Mr. Ian Bruce (Dorset, South)

Does my right hon. and learned Friend agree that his announcement and the announcement by the Secretary of State for Energy today spell disaster for Dounreay and the jobs there? Is it not correct that now that we appear to have decided not to proceed with pressurised water reactors and we have already decided to cut back on the fast breeder programme there will be no research work available at Dounreay, Winfrith in my constituency or Harwell? Will he give an assurance that those matters had been considered before today's statements were made?

Mr. Rifkind

I do not accept that there will be consequences at Dounreay to which my hon. Friend refers. The research in which the staff at Dounreay are involved relates to matters other than the PWR programme south of the border or the public or private ownership of the electricity industry. Of course, Dounreay has particular problems and difficulties which are known to the House, but I do not believe that they have been increased as a result of today's announcements.

Mr. Gavin Strang (Edinburgh, East)

Is it not misleading for the Secretary of State to continue to insist that the South of Scotland electricity board favours privatisation when he knows that at least 90 per cent. of the work force and the management are totally opposed to it? Given that it must throw current plans into total disarray, is it not irresponsible to insist on suggesting that the industry should be privatised before the next election?

Mr. Rifkind

I do not accept for a moment the hon. Gentleman's premise. When the Government originally announced that Hunterston A, the Magnox station, would not be privatised, the staff were anxious to be assured that they would have the same opportunities to take part in the flotation as staff elsewhere in the industry. That flies in the face of the hon. Gentleman's suggestion.

Mr. Tam Dalyell (Linlithgow)

As an admirer of the technical achievements of the SSEB, referring to paragraph 4 of the statement, may I ask what figure the financial advisers have given to the Secretary of State's wide-ranging and unequivocal indemnity? People who talk about a wide-ranging indemnity must have a figure in their brief or it is meaningless.

Mr. Rifkind

On the contrary, it is precisely because that figure could not be identified—[HON. MEMBERS: "Ah."] We are talking about potential decommissioning costs which may not be incurred for 100 years. Precisely because such a figure could not be identified a total indemnity was requested from Government irrespective of what the figure might turn out to be. Neither the financial advisers nor anyone else has sought to put a figure on that sum. Precisely because of that uncertainty an unqualified indemnity was requested and for the same reason it would be improper to give one.

Mr. John McAllion (Dundee, East)

The Secretary of State will be aware that the reorganisation of the hydro-electric board has reached a very advanced stage in the proposed merger between the Dundee and South Caledonian divisions. That reorganisation is being carried out on the assumption that the hydro-electricty will have a nuclear component. Can the Secretary of State make any assessment of the likely impact of his announcement this afternoon on that reorganisation and the level of employment within Hydro Electric?

Mr. Rifkind

I have had one discussion with the chairman of the Hydro-Electric Board who does not appear to believe that any significant problems will arise as a result of today's announcement. That is a matter of some reassurance. Obviously we will keep an eye on that matter to see whether it needs to be revised, but that was the view expressed at this stage.

Dame Elaine Kellett-Bowman (Lancaster)

I wish to ask about the spent fuel from the advanced gas-cooled reactors. My constituents will welcome my right hon. and learned Friend's emphasis on the fact that health and safety will be paramount in AGRs. Will he assure me that the same safety criteria will be borne in mind when storing the used fuel from AGRs, and will encourage storage at each individual AGR site rather than allowing it to be brought to Heysham for storage?

Mr. Rifkind

My hon. Friend refers to wider issues, but I can assure her that the Government will continue to give maximum priority to ensuring that safety requirements are complied with fully in any decisions that are reached on these matters.

Mr. Ron Brown (Edinburgh, Leith)

Does the Secretary of State accept that the part of the country that he and I represent, the Firth of Forth is heavily contaminated by radioactivity? That has been confirmed by the river purification board, whose comments are important to me, to the Secretary of State and to the people who use the Firth of Forth. It is so bad sometimes that even the fish swim around in lead-lined bikinis. That speaks volumes and shows that Torness is not so clean as you suggest. Does the Secretary of State accept that you should close down not just Torness but all the nuclear stations in Scotland——

Mr. Speaker


Mr. Brown

You should open up the entire industry, which is environmentally friendly in comparison—[Interruption.] Let us face it——

Mr. Speaker

Order. The hon. Gentleman has put his question.

Mr. Brown

That would be preferable, and, if the Secretary of State understands Scotland, he knows that.

Mr. Rifkind

I do not accept that the river Forth is polluted in the way that the hon. Gentleman suggests. The fact that I have caught and consumed fish from the river Forth and survived to tell the tale is an adequate response to the hon. Gentleman. All the evidence suggests that Torness has a superb safety record. The hon. Gentleman and his constituents can be reassured on that point.

Mr. Brian Wilson (Cunninghame, North)

Is not the true ideological motivation of electricity privatisation revealed if jobs and the social interest are to be sold off—the SSEB vans and Hydro Board dams—in spite of the fact that the substance of the industry is unsaleable? Will the Secretary of State assure the House that flotation, if that is not too strong a word, in Scotland will not be forced to the head of the queue to prevent the embarrassment of the Department of Energy? Has the Secretary of State's sterling defence of the mixed economy been cleared today with his loyal junior Minister, the hon. Member for Stirling (Mr. Forsyth)? In the light of this latest fiasco and the undermining of his credibility, should not the Secretary of State consider resignation?

Mr. Rifkind

I am always cheered up when the hon. Gentleman speaks from the Dispatch Box. As to whether the substance of the industry is being floated, I remind the hon. Gentleman that total generating capacity in Scotland is 11,000 MW, of which only 2,800 MW is derived from nuclear power. On that basis, I am entitled to say that three quarters of the capacity will be privately floated. Therefore, the hon. Gentleman should welcome these matters, as will those who work in the industry.

Mr. Speaker

I now call the hon. Member for Livingston (Mr. Cook)——

Mr. Roger King (Birmingham, Northfield)

On a point of order, Mr. Speaker. My point of order arises from Prime Minister's Question Time. You, Mr. Speaker, may recall that my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh) asked my right hon. Friend the Prime Minister whether she had received any complaints from London Weekend Television staff about the difficulty of getting the Leader of the Opposition to appear on its programme——

Mr. Speaker

Order. The whole House knows the rules. The Prime Minister must be asked questions on subjects for which she is responsible. The House could hear that that was not a matter for which she had responsibility.

Mr. King

With respect, Mr. Speaker, the Prime Minister was asked whether she had been approached in that way. Surely she is entitled——

Mr. Speaker

Order. I can only offer hon. Members an opportunity to put a question to the Prime Minister. It is up to them to get their question in order, but that question was not in order.