Civil Nuclear Liabilities

HC Deb 28 November 2001 vol 375 cc990-1005 4.32 pm

The Secretary of State for Trade and Industry (Ms Patricia Hewitt)

I wish to make a statement about the future management of public sector civil nuclear liabilities. I would also like to inform the House of changes in BNFL's financial position and the outcome of work on the company's future strategy. I am sure that the House will forgive me for what will necessarily be a detailed statement on an important issue.

In the 1940s, 1950s and 1960s, the Government and the nuclear industry focused on the development and application of nuclear technology for civil and weapons purposes. Sellafield, Dounreay and most other major nuclear sites in the United Kingdom date from that period. Much was achieved and the nuclear industry now makes a significant contribution to the British economy. However, the early years of the industry created substantial liabilities in the form of wastes that needed to be treated and plants that needed to be decommissioned.

The industry operates within a rigorous, robust and transparent regulatory framework that insists on the highest safety, health, environmental and security standards. The proposals that I will outline this afternoon show our commitment to deliver a clear and focused long-term strategy to address the liabilities and set the course for the next hundred years. They make it clear that the Government's priority is to ensure that the legacy is managed safely, securely and cost-effectively in a way that ensures the protection of the environment.

Responsibility for the management of the legacy currently rests with two public sector bodies: BNFL and the United Kingdom Atomic Energy Authority. In undiscounted terms, BNFL's 2001 accounts estimated the total liabilities for which it was responsible at £35 billion. £28 billion of which was linked to those historic liabilities. In addition, the UKAEA, for its part, has management responsibility for more than £7 billion of liabilities. I should stress that those liabilities do not represent a financial obligation owed to creditors.

Instead, these nuclear liabilities are redundant radioactively contaminated facilities, equipment and materials which need to be dismantled and disposed of under demanding safety and environmental regulatory conditions. In the earlier years of the nuclear programme, the standards of environmental care and regard for long-term safety were not as stringent as those that we apply today. Only limited and often superficial records of what the facilities contained were kept. Indeed, the clean-up challenges involved were not recognised as such until well into the 1980s.

As a result, those dealing with the legacy today have to wrestle not only with significant technical challenges but with the basic problem of determining what exactly they are dealing with. I pay tribute—and I am sure that the whole House would wish to pay tribute—to those working in the nuclear industry for their efforts on our behalf. The work required to deal with the legacy extends decades into the future, and the costs involved are inherently uncertain. Over the next 10 to 15 years, the work is expected to cost approximately £1 billion a year, although the level of expenditure will decrease over time.

The work, which is incredibly important to all of us, involves huge technical and managerial challenges, but offers exciting opportunities for engineers, managers and scientists. Nuclear decommissioning and clean-up is an environmental programme that needs the same focus, intensity and technological innovation as the original nuclear development programme. We must face up to our responsibilities for that programme and not leave them to future generations.

Our priority is that the nuclear legacy is dealt with safely, securely, cost-effectively and in a way that ensures protection of the environment. We need to build on the best efforts of BNFL and the UKAEA and the real progress that they have made in recent years. We now need a revised structure that strengthens the emphasis on converting legacy facilities, and wastes, into forms that will keep them safe for decades to come, pending their eventual disposal. We need a structure that can provide the strategic direction and influence across the UK required to sustain a clean-up programme that will extend into the next century.

Eighteen months ago, my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), then the Minister for Energy and Competitiveness in Europe, announced that, as part of the wider quinquennial review of the UKAEA, Government would reconsider their ability under current arrangements to ensure accountability and efficiency in the control (and safe discharge) of nuclear liabilities. The reports on that review are being published today and I have arranged for copies of them to be placed in the Libraries of the House. That review and work on BNFL's future strategy both underlined the need for a sharper focus on liabilities management. We have therefore decided to make two fundamental changes to the present arrangements for managing public sector civil nuclear liabilities.

First, we are clear that it is only by managing the liabilities as a whole that we can achieve the necessary focus and strong strategic control and direction. I therefore propose to set up a Liabilities Management Authority responsible for Government's interest in the discharge of public sector civil nuclear liabilities, both BNFL's and the UKAEA's.

I see the Liabilities Management Authority as providing the driving force and incentives to get on with the job of systematically and progressively reducing the hazard posed by legacy facilities and wastes. It will have a specific remit to develop an overall UK strategy for decommissioning and clean-up.

The LMA will work in partnership with site licensees—at the outset, the UKAEA and BNFL—as well as the safety, security and environmental regulators, to achieve the most effective and safe means of discharging the liabilities. It will look to deepen the level and breadth of expertise in nuclear clean-up in the UK and to foster competition as a means of achieving that. Consistent with the need to ensure the highest safety, security and environmental standards, it will look to optimise the use of those skills by developing the opportunities for liabilities management, including the management of licensed nuclear sites.

The LMA will look to develop a strong supply chain, and a skills base capable of sustaining the clean-up programme over the long time scale that is required. In doing so, it will build on the existing industry work force whose scientific, professional and engineering skills are widely and rightly recognised. It will operate in an open and transparent fashion.

Secondly, to enable the LMA to exercise its role across the whole public sector civil nuclear liabilities portfolio, the Government now propose to take on responsibility for most of BNFL's nuclear liabilities and the associated assets. The most significant of those will be the Sellafield and Magnox sites. Previous Administrations have accepted responsibility for all of the UKAEA's liabilities and financial responsibility for some 50 per cent. of BNFL's liabilities. Most of BNFL's liabilities represent the legacy of nuclear development programmes carried out before its establishment in 1971 and the operation of the Magnox stations in the public sector throughout the period. BNFL has currently earmarked funds for the majority of its liabilities. Our current intention is that those assets will be transferred to the Government when we take on responsibility for the liabilities. Responsibility for the assets and liabilities associated with BNFL's commercial fuel, reactor services and international clean-up businesses will remain with the company.

Expenditure on public sector civil nuclear liabilities already forms part of the Government's expenditure plans and covers non-discretionary public sector activities that Government will have to continue to finance one way or another. In other words, today's announcement will have no impact on the Chancellor's two fiscal rules. The aggregate effect on the overall public sector balance sheet will be neutral. Indeed, the new structure offers the prospect of a lower burden on the taxpayer.

The establishment of the LMA and the transfer of assets and liabilities from BNFL and the UKAEA will require primary legislation. We will introduce a Bill at the earliest opportunity. A White Paper to be published next spring will set out in more detail our overall approach to discharging the UK's public sector civil nuclear liabilities. It will spell out the role of the LMA and how it is expected to operate in practice, and address a range of associated issues. It will complement the consultation process on long-term waste management arrangements that is currently under way and draw on the responses to it.

Before the LMA is established, my Department will take steps to strengthen its existing capability for overseeing work on the nuclear legacy. That will include acquiring a more detailed knowledge of the legacy liabilities and their management, and of the Sellafield site in particular, and incentivising and monitoring performance against key performance indicators.

I should like to turn now to the future strategy for BNFL. Hon. Members will recall that the Government have been looking at the prospects of introducing a public-private partnership into BNFL's business. On 29 March last year, my right hon. Friend who was then the Minister for Energy and Competitiveness in Europe informed the House that problems with BNFL's business had resulted in a reassessment of the prospects of PPP. She explained that the earliest possible date for the introduction of any PPP into BNFL could not be before the latter part of 2002.

Also at that time, BNFL's new chairman, Hugh Collum, and its new chief executive, Norman Askew, set out to turn the company's performance around and to carry out a fundamental review of its strategy. They have already done a great deal to refocus the company. It has met all the recommendations of two out of the three Health and Safety Executive reports and made solid progress in implementing those of the third. It has reshaped its management structure to provide greater accountability, including the appointment of an overall site director for Sellafield and its management as a single unified site. It has begun to win back customer confidence and is committed to delivering the highest standards of safety and environmental performance.

The board has brought a greater emphasis to liabilities management and has endorsed the need for a sharper focus on nuclear clean-up. Under its direction, the company has, over the past 18 months, been reviewing its approach to tackling the most hazardous wastes at its sites. It agreed an approach to handling highly active waste with the HSE in February this year. It has also developed a new strategy for processing its intermediate-level wastes, which the board endorsed today. Under the new strategy, which the company has discussed in outline with all its regulators, it is proposed that the wastes will be removed from existing, ageing stores as soon as is reasonably practicable and will be treated and packaged to enable them to be stored safely for decades.

That new approach means that BNFL now estimates that it needs an additional £1.9 billion to provide for its share of the liabilities. On 31 March 2001, the company's accounts were already dominated by its provision for nuclear liabilities. As a result of the increase in provisions for liabilities, the current estimated value of the company's total liabilities now exceeds the value of its total assets by some £1.7 billion. The proposals that I have made for restructuring the industry more broadly, including removal of most of BNFL's liabilities and associated assets from the balance sheet, will address that situation.

I have been kept closely informed about the company's position, which has been monitored over the past year. BNFL's chairman informed me today that the company's board has concluded that its long-term liabilities are now estimated to exceed its assets, and also that the company will continue its operations because of its strong cash position. He stressed that the position as outlined in the company's last annual accounts, in July this year, still holds good today. The accounts stated that the Group had more than adequate resources to continue in operational existence and to meet all liabilities as they fall due for the foreseeable future and for a period of at least 10 years. The company has, however, called a shareholders' meeting, as it is required to do under section 142 of the Companies Act 1985. I have also been assured by the chief inspector of nuclear installations that BNFL's financial position will not in itself have any impact on the safety of BNFL's operations. He confirmed that the nuclear installations inspectorate would continue closely to monitor BNFL's activities to ensure that it continued to maintain and, as appropriate, improve its safety performance.

The company has been working on its future business strategy, the primary focus of which must be and will remain the management and discharge of liabilities at Sellafield. Without detracting from this, BNFL's strategy is to continue as a broad-based provider of nuclear products and services, exploiting for that purpose the strong nuclear scientific, technical and engineering knowledge base and resources that are the key assets of the business. Its strategy was developed to support its two groups of customers: Governments and nuclear electricity-generating companies. The company continues to carry out its strategy through its four business groups: fuel manufacture and reactor services; spent fuel and engineering; Magnox generation; and nuclear decommissioning and clean-up.

The company's strategy work reinforced the Government's own conclusion that a sharper focus on nuclear clean-up was needed. This is particularly the case at Sellafield, which will account for two thirds of the LMA's overall liability. Given the high level of safety, environmental and operational interdependencies, it is important that Sellafield continues to be managed as a single, unified site. The efforts of its dedicated, talented and skilled work force are key to ensuring that the site is managed effectively.

For now, BNFL remains responsible for the management of its liabilities and for the current decommissioning and clean-up programmes, including those at Sellafield. The proposals that I am outlining today will not affect the company's existing contractual commitments to its customers in any way. I know that the company is determined to continue to improve its performance and cost-effectiveness, including through greater use of private sector contractors when appropriate. The LMA will work towards placing those site management responsibilities on an incentivised basis, with appropriate performance targets.

Similar arrangements will be put in place for the management of the Magnox stations, Capenhurst, Drigg and the nuclear licensed sites for which the UKAEA is responsible. Performance will be kept under review by the LMA, in consultation with the regulators. Changes will be made where options for improving management arrangements are identified, which enhance safety and operational efficiency and secure better long-term value for money for the taxpayer.

Let me emphasise again that the Government's priority is the safe, secure and cost-effective discharge of liabilities in a manner that ensures protection of the environment. To achieve this we need to ensure that we are able to draw on the broadest pool of expertise possible, using the best of what the public and private sectors have to offer, and rewarding those who deliver. I know that the management teams at BNFL and the UKAEA share those priorities, and are determined to build on what has been achieved to date.

For BNFL as a business, it is now important that its management and staff have the opportunity to deliver on the good work already begun to improve the company's performance. Public-private partnership remains a target for the company. The Government, for their part, recognise that a PPP could, in the right circumstances, be right for BNFL's businesses and improve the management of liabilities at Sellafield. However, the company and the Government recognise that much has to be done if this is to be possible. In 2004–05, we will reconsider the scope for a PPP. In doing so, we will consider the overall performance of BNFL's businesses, advice from the LMA—which by then will have gained real experience in the best means of discharging liabilities—and the views of the industry regulators.

Management and work force have made considerable progress in their efforts to turn the company around—progress that I and, I hope, the whole House acknowledge today. They have responded positively to the challenges they faced over the past 18 months, but there is still more to do. We want a successful BNFL that performs better. The approach that I have outlined gives BNFL and its people the chance to demonstrate success across all its four businesses—in particular, in managing nuclear liabilities—and to seize the opportunity for PPP.

For the UKAEA, that approach provides a clear opportunity to build on its positive efforts to make progress in liabilities management. As with BNFL, it gives the UKAEA the chance to demonstrate that it can deliver the results and the performance that the LMA and the Government want to achieve. It will be incentivised to do so and its performance will be kept under review.

The proposals set out in the statement reflect discussions with BNFL, the UKAEA, the HSE, the environment agencies and the Office for Civil Nuclear Security. Much more work is needed to take the proposals forward, and further discussions are needed with those and other interested parties, including the European Commission.

The approach that I have outlined today shows that we are gripping the challenges posed by nuclear liabilities management. We have identified a way forward that will deliver the necessary strategic approach and overall control. It is a challenge for the industry, as well as for the Government, but I know that it is welcomed by the chairmen and chief executives of BNFL and the UKAEA.

The objective for us all is to ensure that this essential work continues to be carried out in a safe, secure and cost-effective manner that ensures protection of the environment.

Mr. John Whittingdale (Maldon and East Chelmsford)

I thank the Secretary of State for letting me have an advance copy of her statement. I also declare an interest in that my constituency contains Bradwell power station, the oldest commercial nuclear station, which is scheduled to commence decommissioning in just four months.

In principle, we broadly welcome the Government's decision to transfer the civil nuclear liabilities of BNFL and the UKAEA to the new LMA. As the Secretary of State said, the nuclear industry is unique in that the liabilities created by building and operating nuclear power stations stretch into the future for up to 100 years. As a result, any calculation of their size on a discounted basis is so dependent on assumptions that any figure is largely notional.

The restructuring announced by the Secretary of State is a book-keeping exercise to the extent that it transfers liabilities from one state-owned entity to another. I would be grateful if she made it absolutely clear that there is no additional cost to the taxpayer, either now or in the future, as a result of that change.

Will the Secretary of State confirm that the principle set out under the Conservative Government that liabilities should remain with assets has not been breached? Will the nuclear liabilities remain with the Department of Trade and Industry budget, and how will they be treated by the Treasury under resource accounting procedures?

Will the Secretary of State give more details of the amount accumulated by BNFL to meet the future cost of liabilities that will also be transferred to the LMA? Will she confirm that it is about £8 billion and that, under current estimates, it should still be sufficient to meet about 80 or 90 per cent. of the cost of the future discharge of those liabilities?

On BNFL, will the Secretary of State confirm that the technical insolvency to which she referred results from historic liabilities that will go to the LMA and that the company should be able to operate profitably on a purely commercial basis? Will she make it clear that this is not another Railtrack and that the restructuring does not represent a handout to the company from the taxpayer?

Will the Secretary of State say what discussions have taken place with the European Commission about whether clearance is required for the changes under the rules governing state aid? Will she confirm that, having removed the liabilities from the company, there is no reason for it to remain in public ownership?

What is the justification for a public-private partnership? Does the Secretary of State accept that there is no longer any long-term strategic reason for the company not being 100 per cent. private sector owned? What is the long-term future for the UKAEA and might it, in due course, be transferred to the private sector?

Will the Secretary of State say why it was decided that the Sellafield mixed oxide plant and the thermal oxide reprocessing plant should also be transferred to the LMA? Will she state for the record that that is not related to the viability of those businesses, following the MOX data falsification problems in 1999?

What implications has the restructuring for BNFL's existing employees, many of whom are my constituents? If BNFL is to continue managing both the Sellafield site and the Magnox stations, will the employees remain employed by the company with no effect on either their conditions or their job prospects?

Will the Secretary of State confirm that the LMA will put the operation, management and eventual decommissioning of the Magnox stations and Sellafield out to competitive tender? Can she say whether that will apply to Bradwell power station in my constituency, which will stop generating in March?

Will the LMA operate on an independent basis? Does the Secretary of State envisage that it could become responsible for the whole nuclear waste inventory if British Energy chose to contract with it? Can she say what arrangements will be made to ensure proper financial accountability? Will the LMA also retain responsibility for proper third-party liability insurance against the possibility of a nuclear accident at one of the plants that it owns?

The Secretary of State will know that significant liabilities remain with British Energy, relating to the power stations operated by that company. Can she say what is the Government's attitude to British Energy's request that responsibility for the pre-1996 spent fuel and waste liabilities, relating to electricity generated when its nuclear plants were in Government ownership, should also be removed?

I understand that the energy review being conducted by the performance and innovation unit has not yet been completed, but does the Secretary of State accept that her statement has considerable implications for the whole future of nuclear power generation in this country? Does she accept that one aspect of that is the need to establish a common United Kingdom solution to the problem of waste management? Does she recognise that until it is established, no decision will be made on whether replacement nuclear power stations will be built? Does she accept that the seven-year time scale proposed by the Minister for the Environment for the radioactive waste management review is wholly unacceptable, and is being viewed as a means of blocking any future development of nuclear power, whatever the outcome of the PIU review?

Ms Hewitt

I shall do my best to respond to the hon. Gentleman's numerous questions.

I can readily confirm that, as I said in my statement, there is no change in the overall public sector liabilities. The liabilities will indeed be held on the DTI balance sheet. We will look at resource accounting and budgeting in more detail in due course. The assets and the liabilities will be transferred together to the LMA when it is created.

I can also readily confirm—although I was surprised that the hon. Gentleman raised the issue—that BNFL is certainly not Railtrack, and that we are not in the process of bailing anyone out. Let me add that, contrary to reports that I understand featured on the BBC this morning, this is not about privatisation. As I said in my statement, a public-private partnership remains a target for BNFL. We recognise the potential benefits of a PPP for BNFL's businesses and for liabilities management at Sellafield, but a great deal must be achieved if that is to be possible—which is why we will reconsider it in 2004–05.

We do not believe that state aid issues are implicit in the arrangements, but we are discussing that with the European Commission.

The hon. Gentleman mentioned the Sellafield Magnox plant and THORP, and whether they should be transferred to the LMA. We have considered that carefully. It is clear that it would be immensely damaging to our prime objective—safe and responsible management of the liabilities—for the Sellafield site to be split.

We are not prepared to compromise safety by splitting the site. Therefore, THORP and the Sellafield MOX plant will transfer to the Liabilities Management Authority.

I am sure that the hon. Gentleman will agree that employees' skills and expertise, and the efforts that employees are making in the company, are hugely valuable and admirable. No change for the staff at BNFL arises from the proposals, except perhaps the prospect of greater work as the company develops its business. We shall set out in the White Paper to which I referred our proposals on the detailed operation of the LMA. However, when the LMA is placing contracts for work, I should expect that to be on the basis of competitive tendering.

The hon. Gentleman raised the issue of British Energy. It is in a different position, and the issue of its liabilities was settled before it was put into the private sector some years ago.

Finally, on the broader issue of the United Kingdom's energy needs and our future strategy, we are undertaking in the PIU study a comprehensive review of the UK's energy objectives and how those are best met. The question of any new nuclear power stations will of course be for the generators. As I understand it, none of them has yet come forward with proposals for new nuclear build. However, the overall strategy will be considered by the Government in the light of the PIU energy review and its report.

Dr. Jack Cunningham (Copeland)

I warmly welcome and strongly support my right hon. Friend's important statement, which at long last begins seriously to address issues that have been neglected for too long. Her statement will be widely welcomed in west Cumbria, not only on the Sellafield site by employees of BNFL and of the United Kingdom Atomic Energy Authority, but much more widely across the north-west of England—in Lancashire, Greater Manchester and elsewhere—where many of the very large contracts placed by BNFL employ many thousands of engineering workers.

I welcome the decision to create a Liabilities Management Authority as an important step forward in this policy development, but I have two questions about the move. First, what nature does she envision for the authority? Will it be a public limited company or an executive agency, or will it have some other public body status? It is important that we make that decision very quickly. We certainly do not want a hiatus in the considerable improvement in dealing with those problems of historic wastes at Sellafield and elsewhere.

Secondly—this is a fairly important question as we know what Chancellors of the Exchequer are like—will the investment fund and the income that it earns be ring-fenced for the sole use of the authority? It is important that we make that clear, too.

My right hon. Friend is absolutely right to resist suggestions that management authority on the Sellafield site should be divided. We have been down that route once, with the previous board of the company, and as we all know that was disastrous. She must retain a unified management structure there. She must ensure that none of the changes undermines the increasingly successful management and operation of the Sellafield site, where continuing improvement is necessary.

Ms Hewitt

I am very grateful to my right hon. Friend for his welcome for the proposals and also for his reference to the workers not only in his constituency but across Cumbria and the north-west. I hope that the assurance of their future will be particularly welcome in the light of the devastating effect that foot and mouth disease has had, in particular, on the economy in Cumbria.

I am also grateful to my right hon. Friend for his question on the precise status of the Liabilities Management Authority. It will be neither a plc nor an executive agency, but a statutory non-departmental public body that will be accountable to Ministers, and through us to Parliament, for the management of the liabilities.

The funds currently with BNFL for meeting the cost of the liabilities will transfer with other assets to the LMA, and they will indeed be ring-fenced as my right hon. Friend has requested.

Mr. Andrew Stunell (Hazel Grove)

I thank the Secretary of State for her statement, which was complex and comprehensive. She confirmed that the THORP and MOX plants form part of the assets that are to be transferred to the LMA, perhaps in an implicit admission that they are liabilities rather than assets, but there is also an operating nuclear plant on that site. Is it her intention that it should also be taken over by the LMA? Would not that give the LMA a range of functions that would be inappropriate given its strategic direction?

I note that, in essence, the statement said that any plans to privatise even part of BNFL have been delayed for two years. The Liberal Democrats welcome that delay and hope that it will be extended. Our view is that BNFL has been a huge and expensive nuclear dinosaur. It made big losses last year and it has massive liabilities. Does the Secretary of State agree that she is fattening up the balance sheet of BNFL by taking away those liabilities and defying a central tenet of environmental policy—that the polluter pays for the mess that they create? Does she further agree that her proposals will give a massive subsidy to the nuclear industry at a time when UK energy policy is in the middle of a fundamental review? Will not any subsidy or write-off of debts now undermine that review and also possibly breach EU competition rules?

Are the liabilities now being transferred intended to be joined by additional liabilities created in the future, either by BNFL, by the UKAEA or by a future nuclear programme? Will we obscure the transparency of waste-generated costs in the future? Will the public have to bear the liabilities incurred by the Sellafield MOX plant in their entirety? In what way will the economics of the MOX plant be translated—perhaps I should say distorted—by taking them out of BNFL and putting them into the LMA? I remind the Secretary of State that the start-up of that plant will instantly generate a huge amount of additional nuclear waste that will need to be dealt with in due course.

Who does the Secretary of State intend should bear the liabilities for any additional nuclear plants that are built in this country? Will those liabilities be translated straight to the LMA or will they form part of the economic and business cases of those schemes when they come forward for consideration? Our view is that the statement should have been made after the energy review was published. Does the Secretary of State accept that once again the true cost of the nuclear industry is being lost and disguised and that the statement undermines the fundamental energy review for which we are waiting?

Ms Hewitt

I regret the tone as well as the content of the hon. Gentleman's response to the statement. I shall stress again that BNFL is a publicly owned company. We are transferring what are existing public sector liabilities, which can never be anything other than public sector liabilities, from one part of the public sector to another part of the public sector in, order that they can be more transparently, rigorously and effectively managed for all our benefits in the future. Those are historic liabilities, as took some pains to explain. They arise from the early part of the civil and military nuclear defence industry.

By explaining to the House what has happened in the company in terms of the change in the valuation of those liabilities, and by proposing to transfer the liabilities and the corresponding assets to a separate Liabilities Management Authority, we will increase the transparency and accountability of the responsibility for those liabilities.

The operation of the Sellafield MOX plant was approved on its merits. The economic case was thoroughly assessed earlier in the year by independent consultants, who concluded that the plant's operation would have a clear and positive net present value, and that no additional risk would be imposed.

The hon. Gentleman also asked about future policy. That is an important matter, and it will be considered in the energy review.

Mr. Martin O'Neill (Ochil)

I welcome the announcement by my right hon. Friend the Secretary of State. The fact that she has been able to make it today is due in no small measure to the work of the new management and staff over the past two years. It is now possible to assess properly the extent of the liabilities.

When the Select Committee on Trade and Industry, of which I am Chairman, tried to make some sense out of the books of the UKAEA and BNFL, we discovered that there had been severe operational problems and more than a suggestion of smoke and mirrors about the conduct of bookkeeping in the past. Neither company will have anywhere to hide now that the liabilities are to be placed under an appropriate authority. However, probably for the first time in their existence, both will now have a clear role and clear financial accountability.

In some respects, the LMA will be a shell operation, and the work will be performed by the same people who have performed it hitherto. Will my right hon. Friend assure the House that the LMA will not become another regulator in the industry? At present, as well as the local authority regulators, there are inspectorates covering the environment, health and safety and nuclear installations. All go about their business quite correctly, but it would be unfortunate if a layer of bureaucracy were to be laid on top of the activities of companies that are beginning to make their way in a positive sense. We must guard against that from the outset, so that the people who have done so well see today's announcement as a vote of confidence, and not as a question about their future capability.

Ms Hewitt

I warmly welcome my hon. Friend's remarks. We have been very grateful for the work that his Select Committee has done in the investigation of these matters. I also entirely agree with what he said about the enormous work done by the new management and staff to deal with the sorry situation that they inherited.

I agree, too, that the regulatory apparatus for the industry is complicated, but the need to ensure safety, security and environmental protection means that it has to be so. However, I assure my hon. Friend that the LMA will not be another regulator in addition to those that already exist, and neither will it be another layer of bureaucracy. It will be a customer for the effective management of nuclear liabilities.

Mr. Michael Jack (Fylde)

I am sure that the BNFL workers in my constituency will welcome the Secretary of State's kind words about the quality of the work force, and that they will also welcome today's announcement.

Will the Secretary of State say a little more about who will determine the performance criteria and rules for the LMA? Will she also make it clear that income from the transferred assets will continue to be reinvested in the facilities necessary to carry on the work of disposing of waste nuclear material?

In addition, will she respond to the question posed by my hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) about the incompatibility between the time scale of the inquiry by the Department for Environment, Food and Rural Affairs into the disposal of radioactive materials, and the pace at which the right hon. Lady understandably wishes the LMA to work?

Finally, will the right hon. Lady say a little more about how the additional liabilities worth £1.9 billion identified by BNFL will be covered? Will that be the sole responsibility of BNFL?

Ms Hewitt

First, there is no conflict between the time scale for the consultation on nuclear waste management initiated by my right hon. Friend the Secretary of State for the Environment, Food and Rural Affairs, the energy review, and the work that we are setting in train to establish the Liabilities Management Authority. As I said earlier, there are no immediate proposals from any of the nuclear generators for new nuclear power stations. It therefore makes sense for the Government to consult on the appropriate measures to be taken in future for waste management arising from nuclear electricity generation. As I said in my statement, the responses to that consultation will help to inform the White Paper that we will publish next year on the LMA.

We will have more to say about the income of the assets that will be transferred and the establishment of performance indicators for the LMA, its accountability to Ministers, and thereby to Parliament, when we publish the White Paper.

Mr. Tam Dalyell (Linlithgow)

May I strongly welcome the fact that the Government are grasping the nettle of civil nuclear liabilities? I also welcome their recognition of the clear difference between the UK's national legacy of nuclear waste arising from the early days of weapons and civil programmes in the 1940s, 1950s and 1960s and that from current operations. Is it not now clear that waste policy must reflect the fact that the knowledge to deal with such material already exists? Waste policy must make the distinction between the national legacy and the arisings from current operations. In fact, does not today's statement make it possible to have a proper economic assessment of the value to the economy and, indeed, the environment of the new nuclear stations at Sizewell, Hinkley and Hunterston, in which I, for one, passionately believe?

Ms Hewitt

I entirely agree with my hon. Friend about the need for waste policy to distinguish between the historic liabilities—which we can do nothing to get rid of but must manage as effectively as possible and ensure that the environment is protected—and the current liabilities arising from continuing operations. As I said in my statement, there will be no transfer to the LMA of the liabilities that arise from BNFL's commercial operations. That transparency, along with the continuing work to estimate the real costs of these liabilities, will assist better policy making in future, as my hon. Friend has suggested.

Mr. Michael Weir (Angus)

On behalf of the Scottish National party and Plaid Cymru, I give a guarded welcome to the statement. I say "guarded" because we would like to know more about the role of the LMA. The Secretary of State promised to publish a White Paper in the spring. She was asked earlier whether the LMA would be completely independent, and I do not think that she really answered the question. Can she confirm that it will be completely independent of BNFL and the United Kingdom Atomic Energy Authority?

The Secretary of State said that it is proposed that current wastes will be removed from existing, ageing stores as soon as reasonably practicable and will be treated and packaged to enable them to be stored safely for decades. She will be aware, as the Minister for Industry and Energy certainly is, of the problems at Dounreay and the uncertainty about what is in the shaft. Is it proposed to remove waste from the sites to other areas or will it be re-stored in new stores on the existing nuclear sites?

Ms Hewitt

I am grateful for the hon. Gentleman's welcome for the statement, even if it is guarded. He is right to ask me about the status and independence of the LMA. I apologise for not dealing with that earlier.

The intention is that the LMA will act on behalf of Government but that it will operate at arm's length from Government. We will exercise strategic control, but the running and development of the LMA will be down to its board and management team, which will be independent of the companies with which it will contract. A framework agreement will define the authority's aims, objectives and responsibilities, and its relationship with Government. We will have more to say about that in the White Paper.

On the question of Dounreay and other sites, I was describing the future strategic intention of BNFL when it comes to dealing with historic wastes. There are no immediate proposals of the kind to which the hon. Gentleman referred.

Tony Cunningham (Workington)

I very much welcome the Government's decision to reconstruct the UK's public sector nuclear liabilities. Does my right hon. Friend agree that the assets of BNFL lie very much in its work force, thousands of whom live in my Workington constituency? They have a unique technical, scientific and engineering knowledge base. The decision will mean that BNFL will be able to use the tremendous skills of its work force to the absolute maximum.

Ms Hewitt

I entirely agree with everything that my hon. Friend has said. The real assets of BNFL are, indeed, its people and their extraordinary technical expertise. That expertise is recognised world wide and the management has succeeded on building on it in the period since the earlier, rather unfortunate, incidents took place. The statement and the new arrangements will give the company and its work force the chance to build on their recent successes.

Mr. Nick Gibb (Bognor Regis and Littlehampton)

Is not the truth that the statement provides a bail out of an insolvent BNFL? It is insolvent because of the transfer of Magnox Electric to BNFL in 1998; insolvent because of BNFL's bad performance in the United States; insolvent because of the Government's appalling handling of the MOX data falsification, which wrecked relations with customers in Japan; and insolvent because of the inordinate delay in the approval of the MOX plant.

Now that all the strategic decision making about reprocessing and MOX lies at the Department of Trade and Industry, with BNFL as a mere contractor, will the Secretary of State tell the House what the intentions are? Does she want more reprocessing contracts or does she want to concentrate solely on managing the liabilities and minimising the expense to the taxpayer? Will she commit herself to keeping the House informed about the profitability or otherwise of the commercial operations—namely, the THORP and the MOX plant operations—that will be taken over by the LMA, so that any losses generated by those operations are not simply obscured in the overall nuclear liabilities taken on?

Ms Hewitt

My hon. Friend the Minister for Industry and Energy was recently in Japan, where he met not only Ministers but representatives of BNFL's customers. I do not think that they would recognise the hon. Gentleman's description of our current relations with the Japanese Government and with BNFL's customers there.

On the future operations of BNFL and the LMA, I have already said that the new arrangements will provide much greater transparency of the liabilities and the assets. I shall, of course, continue to keep the House fully informed.

Paul Flynn (Newport, West)

Is not the statement an attempt unfairly to rig the energy market in favour of nuclear power to the detriment of other power producers? Although the military legacy is certainly a national legacy, the civil nuclear industry has always been an economic basket case and has never been viable without public handouts. If we are to discharge the nuclear industry from the legitimate legacy of the past, will we charge it for the new legacy that has arisen since 11 September?

We know that France has installed surface-to-air missiles in its power stations and that jets have been scrambled near Sellafield after an emergency there. An agency in France has claimed that if an 11 September attack took place on a nuclear-powered processing plant such as that at La Hague or Sellafield, it would produce 60 times the amount of caesium that was released at Chernobyl. Who will pay for the additional costs of defending those sites? What would we have to pay to insure against 60 Chenobyls?

Ms Hewitt

The nuclear industry in the United Kingdom provides about 25 per cent. of the electricity on which all of us—both domestic consumers and business—depend. I think that the industry has served the economic needs of the country very well.

The historic liabilities that were the subject of my statement are there regardless of the future of nuclear power generation. They have to be managed in the most effective and environmentally responsible manner possible. I hope that my hon. Friend will agree that the arrangements that I set out in the statement are a real step forward in that direction.

My hon. Friend also raises the important issue of the security implications that arise from the atrocity on 11 September. We and the director of civil nuclear security have reviewed security procedures in the light of that attack, although for obvious reasons I do not propose to go into the detail of those arrangements. Each country makes its own judgment of the measures that are necessary to ensure the security of its infrastructure, including nuclear power stations. The RAF certainly maintains a high state of readiness in support of the air defence of the United Kingdom, and that readiness was reviewed in the light of the attack on the United States.

John Thurso (Caithness, Sutherland and Easter Ross)

May I welcome one aspect in particular of the quinquennial review? It relates to the UKAEA pensions office located in Thurso in my constituency. I understand that the review praises the office for being particularly efficient and effective. As it has been the subject of two quinquennial reviews, could the Secretary of State give it time out from the next quinquennial review, because it has clearly done such a good job?

On Dounreay, significant changes will clearly be made as a result of the announcement of the new statutory body, but they should not alter the practical priorities for the UKAEA. Will the Secretary of State assure me that the Dounreay site restoration will proceed as planned, in a full and effective manner?

Ms Hewitt

First, I agree with what the hon. Gentleman says about the excellence of the pensions administration for the UKAEA. The office will continue to operate out of Thurso. Secondly, one reason for the recent change at Dounreay was to ensure that it was possible to focus more effectively on the management of the liabilities. I am sure that the hon. Gentleman would join me in welcoming that.

Mr. David Chaytor (Bury, North)

I welcome the statement and congratulate my right hon. Friend on getting to grips with the issue so early in her term of office. My only regret is that the statement was not made 30 years ago. Had that been the case, we might have had a better understanding of the economics of nuclear power generation and avoided some of the worst public policy mistakes of the past 50 years.

First, is it not the case that the liabilities to which my right hon. Friend referred are not the totality of historic liabilities? The sum of £42 billion—£35 billion for BNFL and £7 billion for the UKAEA—constitutes only a minority of the total sum of liabilities and decommissioning costs in the United Kingdom, which stands at £85 billion. The additional £43 billion is presumably primarily for decommissioning costs and the liabilities of British Energy. Will my right hon. Friend assure the House that there will be no Government bail out of the liabilities of British Energy or other private nuclear establishments?

Secondly—

Mr. Speaker

Order. The hon. Gentleman has done very well indeed.

Ms Hewitt

I am grateful to my hon. Friend for his remarks. I agree that it would have been better had we understood 30 years ago the scale of the problems and the challenges that were building up. Our knowledge of the liabilities and the technical possibilities that are available to manage them change with each generation. The board has delivered the best available current estimate of the liabilities, which we have put before the House today. No doubt the estimates will continue to change, especially in the light of new technical expertise.

My hon. Friend is right that the liabilities that I propose to transfer to the LMA represent only part of the total liabilities of the industry. I readily confirm, as I said earlier, that there is no proposal whatsoever to transfer the liabilities of British Energy, which were dealt with when the company was privatised, to the public sector.

Dr. Stephen Ladyman (South Thanet)

May I also express my support for my right hon. Friend's excellent announcement? In response to the few voices raised against it, will she make it clear that the nuclear power industry, alone among energy producers, has to take account of its lifetime costs, including the cost of decommissioning, in working out its figures? We have a legacy liability today because that industry alone contains and manages its environmental waste while other energy producers are allowed simply to throw it into the atmosphere and ignore it.

On a point of clarification, if the new authority is to contract for services from BNFL, how will the prices for those services be set, given that there is no market at present to set them?

Ms Hewitt

My hon. Friend raises two extremely important points. I hope that one of the outcomes of the performance and innovation unit energy review will be an analytical base for a better understanding of the real costs of different energy sources, so that future decisions between energy sources can be made on a true comparison of those costs.

My hon. Friend's second point, on the non-existence of a market in the management of nuclear liabilities, is very important. Part of the remit of the LMA, and of my Department before the LMA is established, will be to try to encourage the development of a growing market in the management of nuclear liabilities so that we get a wider choice of operators and a better sense of what the price would be.