HL Deb 03 April 2003 vol 646 cc1413-30

Report received.

Clause 1 [Expenditure relating to British Energy p.l.c.]:

Lord Ezra moved Amendment No. 1: Page 1, line 6, at end insert "in relation to qualifying activities

The noble Lord said: My Lords, in moving Amendment No. 1. I shall speak also to Amendment No. 6.

The purpose of the amendments, together with others which will be moved today, is to define and limit the expenditure under the Bill for its defined purposes. Amendment No. 6 is a reworded version of the amendment moved in Committee on 17th March. It is designed to take account of the Minister's remarks (at col. GC3 of Hansard of 17th March) that the purpose of the clause was not to deal with historic liabilities, which is how the original amendment was worded, but to cover ongoing operational expenditure while the restructuring plan was put in place, and in the event of administration should the restructuring plan fail.

These alternative proposals are being put forward for the company. They have been mentioned on several occasions by the Secretary of State, the Minister and others in public statements and that is confirmed in the Explanatory Notes. That being so, it is important that the operational expenditure referred to in Clause 1 should relate to these two alternative solutions to the company's problems. As this has been firmly reiterated by the Government on many occasions, it is surprising that it does not appear on the face of the Bill.

It is a simple amendment. It will help everyone to understand what the Bill is about and defines clearly what the expenditures allowed under Clause 1 relate to. I beg to move.

Lord Jenkin of Roding

My Lords, I intervene briefly to say that I warmly support the amendment. Before enlarging on that, I should point out that the Minister, the noble Lord, Lord Sainsbury of Turville, has gone out of his way during the past week to supply noble Lords who have taken part in these debates with extensive explanations of the Government's position. He also invited us to a meeting in his office last Tuesday. I should like to put on record that this has proved extremely helpful and may well shorten today's proceedings.

As to the point made by the noble Lord, Lord Ezra, there appears to be no limitation whatever on the extent of the operational support that the Government are prepared to give to British Energy in the circumstances in which it finds itself. In Committee, I mentioned that I had been involved, as a Treasury Minister, in the collapse of Rolls-Royce. I should add that I was not Chief Secretary but Financial Secretary at the time. I had forgotten that in that situation no figure, no limitation, was put into the Bill that authorised support for the Rolls-Royce Aero Engines operation and its nationalisation. When we met him, the noble Lord, Lord Sainsbury, made that point very clearly.

The Minister's argument is that this is a similar case. I am not sure that it is. Initially it is the Government's intention to support British Energy in the plight into which it has fallen to enable it to continue in operation and, as Ministers have repeatedly said, to continue to pay salaries and pensions and for the lights to remain on. We on this side of the House support that approach, but is it to be without limit?

The Minister's argument is twofold. First, there will be the normal constraints on public expenditure, exercised through the procedures which apply in another place, and the normal Treasury controls. I understand that. His second argument is that the support will have to be approved by the European Commission under the state aid provision. An application was made to the Commission last month for leave to give that support and we are told that the procedure will take many months to complete. In the mean time, the Government's support must continue.

I do not believe that this situation is the same as the one involving Rolls-Royce. One different aspect is that Rolls-Royce was absolutely essential to the defence of the country. The engines made by Rolls-Royce were used in a great many aircraft, ships, submarines and so on that were needed for the defence of the realm. One can well understand that in those circumstances the costs, whatever they may have been, had be met. Here one is dealing with a commercial operation which has failed, for reasons to which I may refer briefly when we come to the next amendment. Ultimately, there must be some limit to the operational support the Government are prepared to give, although it may be not right to insert a figure. I shall explain the reason for that when we come to the next amendment.

The amendment of the noble Lord, Lord Ezra, in seeking to define more closely the words that the noble Lord, Lord Sainsbury, himself used in Grand Committee, seems something that the Government could accept in order to reassure people that there will be some control. I remind the House that there has been a great deal of anger on the part of other electricity generators which believe that this is giving this company and this branch of the generating industry an unfair subsidy whereas they have to continue to operate against the stringency of the market without support.

I should have thought that the Government would be well advised to accept the amendments of the noble Lord, Lord Ezra, in these circumstances, if only to reassure the rest of the industry.

Baroness Miller of Hendon

My Lords, I associate myself with the words of my noble friend in thanking the Minister for the help that he has given us over the past week.

As the noble Lord will recall, I supported the amendment in Committee. I support it today, and my name is to it. I am well aware that the noble Lord, Lord Ezra, has worked extremely hard to make the qualifying activities more or less the words that the Minister used. But I am also well aware that at our meeting one of his officials suggested that he said more words than were in the amendment. I had intended to speak today purely to say that if there were a few more words, why did the Minister not put something extra in the amendment so that it would be acceptable? However, before I decided to do that I thought it wise to have a jolly good look at the other words and, having done so, I see very clearly why the Minister could not have added them to the amendment.

It has been very clear from everything that has been said, and from the notes, that the two alternatives are restructuring or administration. However, the Minister said at col. GC3, which I looked at carefully: Finally, it would also allow Government to continue funding the trading arrangements of the operating companies going forward should the restructuring deal fail and should they at any point come into public ownership".—[Official Report, 17/3/03; col. GC3.] The Minister was not talking about administration. This is the first time he has referred to coming into public ownership and, frankly, I am surprised at that. If that is really one of the options, it should have been made clear before. Anyway, I understand why he has not added that to the amendment.

I think that this is a very safe and wise amendment, and I hope that the Minister will accept it.

11.15 a.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, I thank the noble Lord, Lord Jenkin of Roding, for his kind comments. I will try to continue to be helpful this morning.

I do not think there is a radical difference between the Rolls-Royce situation and this one. In both cases there are compelling economic reasons to try to keep the company alive. I should say to the noble Baroness that public ownership in this context is really the same as saying "into administration" because we have made it clear there are no other circumstances in which we would take it into public ownership. We have also made it clear that we think it very unlikely that if it goes into administration a private owner will be found to take it over. So, effectively, I do not think there is any difference in those circumstances.

The amendments tabled by the noble Lord, Lord Ezra, seek to limit the expenditure that can be made under Clause 1(a) to "qualifying activities", defined as: the ongoing operational support to a British Energy company whilst a restructuring plan is being put in place or funding a British Energy company in the event of its being put into administration". Clause 1(a), as noble Lords will be aware, gives government the power to incur expenditure on BE in a number of eventualities. Some concern was expressed in Committee that the provisions in this clause were too open-ended. In fact, this clause has been drafted in such a way as to ensure that the Government have the flexibility to be able effectively to meet their policy commitments in relation to BE.

Amendment No. 6 seeks to impose certain restrictions on the activities on which government can spend money under Clause 1(a). I am aware that the noble Lord, Lord Ezra, in tabling this amendment, is referring to the clarification that I sought to give when dealing with a similar amendment in Committee. However, I think I should revisit what I said at that time, and place into context the words that the noble Lord, Lord Ezra, has used in his amendment. In Committee I stated: Quite simply, Clause 1 is there to cover other expenditure which is not covered by Schedule 12. Principally, this would concern ongoing operational support to keep BE going during the period when a restructuring plan is being put into place". I then went on to explain: The statutory authority provided by subsection (1)(a) could also be used to authorise Government to provide funding in the event of administration…Finally, it would also allow Government to continue funding the trading arrangements of the operating companies going forward should the restructuring deal fail".—[Official Report, 17/3/03; col. GC3.] It is worth reiterating the point that I made in Committee—Clause 1 is there to cover expenditure that is not covered by Schedule 12. Clause 1 will be used principally, but not exclusively, to provide operational support to keep BE going while the restructuring plan is put into place. Schedule 12 deals only with nuclear liabilities.

So there is a need to ensure that if the restructuring deal fails, the Government have the flexibility to incur expenditure on BE beyond the support for its nuclear liabilities, which would take place under Schedule 12. The potential activities on which the Government might need to commit expenditure include, but are certainly not limited to, the "qualifying activities" defined in Amendment No. 6.

We may need, as I stated in Committee, to continue funding the trading arrangements of the operating companies going forward should the restructuring fail and the companies come back to the public sector. If that happened, the Government may need to incur expenditure on BE's nuclear business in a way that we are not able accurately to foresee at this moment. It is important to remain aware of the fact that the restructuring plan has yet to be finally agreed by all parties—or, indeed, approved by the Commission. It would be imprudent to limit the Government's ability to act effectively if the deal fails.

But even assuming the restructuring is successful, there is reason to keep the flexibility of Clause 1. There is still a lack of clarity over the final detailed form of the deal. Although the principles behind the plan have been agreed, the detailed documentation necessary has not yet been finalised. We have said that the policy intention is that funding for the restructuring would be done under Schedule 12—that is the specific provision for funding nuclear liabilities. But the working up of the detailed documentation may bring to light the need for small items of expenditure to be incurred under Clause 1. For example, I have already explained how—as part of the precautionary measures to avoid handing over a blank cheque—the Government will reserve the right to take back BE's nuclear stations at the end of their life. So we might want to use Clause 1 to purchase the stations at that point, albeit for a nominal sum. Noble Lords should also be comforted by a point I made in Committee; that is, that any expenditure under Clause 1 will be subject: to parliamentary scrutiny through the annual Supply Estimates process.

It is perhaps also worth noting that Amendments Nos. 1 and 6 do not work as drafted as Amendment No. 1 appears to refer to British Energy's qualifying activities, and the "qualifying activities" referred to in Amendment No. 6 appear to be those of the Government in giving financial support to the company. In effect there is some lack of clarity as together the amendments appear not to match. I should emphasise, however, that that is not the main basis of our objection to the amendments.

To summarise, the flexibility that Clause 1 confers ensures that the Government stand ready to be able to act effectively in a range of scenarios. We do not believe that it would be prudent or sensible to limit an important part of the Government's contingency planning in relation to BE by accepting a restriction in primary legislation on their ability to incur expenditure on the company in the way suggested in the amendment tabled by the noble Lord, Lord Ezra. I therefore ask that the amendment be withdrawn.

Lord Ezra

My Lords, I thank the Minister for that detailed response. I also express my appreciation for the meeting we had the other day. I am a little puzzled, however, at his response to the particular point raised by the noble Baroness, Lady Miller, when he said that public ownership—I refer also to the remarks that he made in Committee—was indistinguishable from administration. If that is so, there can be no objection to my amendment. If the Minister says that effectively administration means that the assets would be in public ownership, that is fine. I refer to the wording of my amendment in which "administration" is used. Therefore, I am a little puzzled by the Minister's comment.

Lord Sainsbury of Turville

My Lords, I hope that I can clarify the situation. The point I was making was that public administration and public ownership do not constitute the same situation. I should perhaps have made clearer that public ownership will take place only after a process of administration. We do not think it likely that anyone would come forward at the administrative stage to buy the company. Therefore, there is not—as I believe the noble Baroness implied—some sinister agenda of circumstances in which we would take the company into public ownership where it had not been through the process of administration. That was the only point I was trying to make.

Lord Ezra

My Lords, it does seem therefore that the wording of the amendment would not restrict the Government in that situation. If what the Minister mentioned is all part and parcel of the administration process, it would be covered. I am still worried about leaving this matter absolutely open-ended. If the situation should change so dramatically that neither of the two solutions now being proposed were to be able to operate, I think that the whole matter should be presented once again to Parliament.

I should like to reflect on what the Minister said and consider whether some further amendment should be proposed at the next stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Jenkin of Roding moved Amendment No. 2: Page 1, line 13, at end insert— (1A) The aggregate of the expenditure incurred by the Secretary of State under subsection (1)(a) shall not exceed the sum of £700 million or such greater sum not exceeding £1,000 million as the Secretary of State may provide by order.

The noble Lord said: My Lords, in moving Amendment No. 2, which stands in the names of the noble Baroness, Lady Miller, the noble Lord, Lord Ezra, and myself, I suggest that the House might also discuss Amendments Nos. 3, 4 and 5. I say straight away that these are probing amendments. I do not intend to seek to persuade the House to go into the Lobbies in their support.

In Amendment No. 2 we have attempted to include some figures to constitute the upper limit of what the Government might spend in two alternative circumstances. The first alternative is that the restructuring works and therefore the company remains in being and the Government's operational support is a temporary phenomenon, as I believe they intend. By the end of the period of the restructuring the company would be solvent and able to meet its liabilities. The second alternative is that the restructuring does not work and the company has to go into administration. There should be some limit—obviously this would constitute a much greater sum—on what the Government would be obliged to spend in order to keep the power stations operating in administration.

The noble Lord may well ask—as, indeed, he did at our meeting—whether the figures are carefully worked out. I have to say that of course they are not. The first figure in the proposed new subsection (1A) is based on the original support of £650 million with a margin—it is £700 million—but with the power to increase that sum to £1,000 million if the situation demanded. The sum of money would have to be approved by an order in Parliament.

Much more at large are the figures for the expenditure in the case of the administration not succeeding. In the proposed new subsection (1B) we suggest a sum, of £2,000 million or such greater sum not exceeding £2,500 million as the Secretary of State may provide by order". One must look at the background of why this situation has arisen. I shall not repeat what I said on Second Reading or in Committee.

As the Minister said, clearly managerial mistakes were made by British Energy in the way it conducted its business. However, the underlying cause of what brought the company low was the operation of the new electricity trading arrangement (NETA) as applied by the regulator Ofgem. As the Government have frequently boasted, the wholesale price of electricity has been reduced by 40 per cent. At Second Reading the Minister explained that British Energy fell foul of that as it does not have a retail arm. Many of the other energy producers have a retail distribution business as well and can reimburse themselves for their generating losses by making sure that their retail customers make up the loss in the price. There have been very few significant reductions in price certainly as regards domestic retail customers.

Some industrial customers are large enough to get the full benefit of the 40 per cent reduction. I am sure that the noble Lord will have seen the report from the Chemical Industries Association which stated that it was doing very well out of that situation, thank you very much. That rings a bit hollow when one recognises that what it is doing well out of is a system that has driven the biggest producer of electricity into serious financial difficulties. One wonders whether the chemical industry would feel the same about a price effect which drove some of its large companies into Financial difficulties in circumstances where it could not perhaps expect the support which the Government have given in the situation we are discussing.

The point I want to make is that there is no sign yet of any let up in the downward price spiral of wholesale electricity prices. British Energy in its present state with the Government's support will have to continue to operate against the background of the extremely low prices it will obtain from its customers. As I said, it does not have a retail arm from which it can reimburse itself for those losses. The purpose of the amendments, therefore, is to ask the Government if they can now give the House some idea of what is likely to have to be spent over the next few years in order to support British Energy against the background of these extremely low prices, no doubt cheered on by trade associations such as the Chemical Industries Association.

Ofgem, the regulator, was put under an obligation by the Utilities Act 2000 to have regard to the long-term security and diversity of supply. Arguments have been put forward by Mr Callum McCarthy to the effect that one must not regard the possibility of British Energy encountering serious financial difficulties as in any sense his fault. In response, I said that it looks astonishingly different from the other end of the telescope. I do not believe that Mr McCarthy realised, while he was presiding over NETA and driving wholesale prices down, that the effect of that would have such a devastating impact on Britain's largest single electricity producer. Mr McCarthy sought to persuade me that he had regarded and given effect to the obligation. The House may remember that I tabled an amendment during the passage of the Utilities Bill in order to ensure that the chief executive of Ofgem should have regard to the long-term security and diversity of supply. I must say that I found his argument quite extraordinarily unconvincing.

For the purposes of this clause in the Bill, the fact remains that that is the background against which British Energy must continue to operate, certainly in the months and quite possibly the years ahead. Given that, the Government should give the House some idea of what the Minister and perhaps the Treasury have pencilled in as their likely liabilities over the period. I recognise that in the first instance the sales of Canadian and American assets will have enabled the company to repay some of the loan made by the Government, but it is extremely unlikely whether, in the short term, British Energy will be able to run its business profitably at existing electricity prices, bearing in mind—we shall come to this later in our debates—the payments it has to make in order to finance its nuclear liabilities.

Please could we be told what the liability is likely to be? What is the sum? The Government must have some idea of what they will have to spend in order to preserve the viability of this company. Before I sit down, perhaps I may remark that I see that Mr McCarthy has been tipped as the next chief executive of the Financial Services Authority. All I can say to that is, God help the banks. I beg to move.

11.30 a.m.

Baroness Miller of Hendon

My Lords, it is clear from all that my noble friend Lord Jenkin has said that he is an expert in this field. I can add nothing to his remarks, other than to say that of course I wholeheartedly support them.

Lord Ezra

My Lords, the House is indebted to the noble Lord, Lord Jenkin, for reminding us so clearly of the reasons why we are in this situation and why the Government have had to step in to help British Energy. There can be not the slightest doubt that it is the way the market has operated through NETA which has brought about this situation, not only for British Energy but, as was mentioned earlier in our proceedings, for many other companies as well. The safety net has not been extended to them.

It is therefore of compelling importance that we should be told what corrective actions the Government will take as a result of market developments due to the operation of NETA, what those will amount to and what the Government have in mind. As the noble Lord, Lord Jenkin, said, he has tabled a probing amendment with suggested figures to the best that he could calculate. They may or may not be the figures that the Government have in mind, but it would he helpful if the Minister could offer some clarification. Whether that should appear on the face of the Bill is another matter, but we would certainly like to be informed of the Government's thinking.

Lord Tordoff

My Lords, before the Minister replies, I wish to make a remark which I hope is not trivial. I congratulate the noble Lord, Lord Jenkin, on using the words "one thousand million" and "two thousand, five hundred million" rather than referring to those figures as billions, which they are not. On this side of the Atlantic, one thousand million is not one billion; it is one milliard. I am glad to see it used in your Lordships' House.

Lord Sainsbury of Turville

My Lords, I thank the noble Lord, Lord Jenkin, for tabling these amendments and for giving me the opportunity to clarify a little further our intentions in relation to this clause. I shall try to give him the best information that we have at this stage. However, I should say, first, that our recent support took the form only of a temporary loan. We are striving to achieve a restructuring of British Energy which, once the burden of the nuclear liabilities has been removed and alongside the restructuring of the company's debt, should mean that the company is financially viable, with no ongoing need of a subsidy for future operations. On that basis, British Energy's nuclear stations should be economic, even at the current low electricity prices.

I turn now to the detail of what we think government expenditure is likely to be. Amendment No. 2 refers to expenditure under subsection (1)(a). Perhaps it would be useful to remind noble Lords of the main areas in which we think we would use this provision and how we foresee it working.

The first area is in relation to our loan to the company while the restructuring plan is put in place. The figure of £700 million referred to in the amendment is, I think, a reference to the loan facility that we have in place with British Energy. This loan facility was previously subject to a limit of £650 million. That figure was always a maximum limit. There was no question of us simply handing over £650 million to the company to do with it as it saw fit. Rather, the loan facility was subject to various controls to ensure that the loan was the minimum necessary. Furthermore, following the sale of the company's stake in Bruce Power, it repaid the loan. We continue to make a facility available, but its total size has been significantly reduced to £200 million on a contingency basis in case of a requirement for further trading collateral or working capital.

The second anticipated use of the provision would be in funding an administration of the company if, for whatever reason, the restructuring plan failed. The Government have said previously that, under administration, they would make sufficient funding available to the administrator to enable him to continue running the company by providing a loan towards the working capital and collateral required for its electricity trading. Also, we would of course need to pay the extra costs incurred by the administrator in running the business.

It is difficult to put a precise figure on the cost involved in an administration. Key factors would be the length of time that the company was in administration and the complexity of the task. Clearly, it is our intention to try to minimise the costs as much as possible. That is one of the key reasons why we wanted to bring forward the provisions set out in Clause 1(1)(b) and (c) and in Clause 2. The better prepared we are for the possibility of acquiring the British Energy nuclear business from an administrator, the quicker the administration could be concluded and the lower the costs of administration. However, the fundamental economic position would still be the same; that is, that the nuclear stations themselves are economic to run. Our support would still take the form of a loan, ultimately repayable by the company once it was back on its feet.

The third anticipated use of the provision in subsection (1)(a) would be in funding a British Energy company if it had been acquired as described in paragraph (b)(i). At this point it is probably worth bringing in Amendment No. 3 since there is a close parallel. Amendment No. 3 deals with subsection (1)(b) and (c) which are contingency provisions aimed at ensuring that we have parliamentary authority to incur expenditure on acquiring British Energy's nuclear business and running it if that proves to be necessary. The power in subsection (1)(c) is analogous to the power in subsection (1)(a), but ensures that we could fund the company's nuclear business if we bought it through an asset purchase, as foreseen under paragraph (b)(ii).

Of course we have already made clear that the Government would contemplate acquiring. British Energy's nuclear business only if the restructuring plan failed, the company went into administration and no other private sector purchaser came forward.

How much do we expect that to cost? In relation to the first element—the acquisition cost—I should point out that the administrator would be under an obligation to the creditors to achieve fair value in any sale of the subsidiary companies or their assets. I do not intend to be drawn on a specific price, as that would inevitably be a matter for negotiations of a commercial nature with the administrator if it ever happened. However, I point out that in our view the fair value of the nuclear business would be low, given that the nuclear power stations currently have significant nuclear liabilities attached to them.

The second element is ongoing funding for the nuclear business if it were acquired back into the public sector. We would see that as a contingency measure. If it proved necessary to acquire the nuclear business, we would still need to develop a proper restructuring plan for it. I expect that that would be based on support for the historic nuclear liabilities of the business, similar to that currently envisaged. I explained in Committee that British Energy's estimate of its nuclear liabilities was £5.2 billion, discounted at 3 per cent, of which £2.1 billion is for the historic spent fuel.

That support is likely to be most suitably given under Schedule 12 to the Electricity Act 1989 rather than Clause 1 of the Bill, as it would be about nuclear liabilities. Even though the company might be in the public sector, the intention would still be that it should pay its own way going forward. It would be our intention that any support for the company under Clause 1 would be of a short-term nature, to allow the company to keep trading until the restructuring could be implemented. The amount would depend on the circumstances, but I expect that it would be along similar lines to the loan facility that we put in place in September. I would certainly hope that it would not require funding at the level anticipated in Amendment No. 3.

That is about as much information as I am able to give at this stage. I hope that the noble Lord feels that his probing has produced the information that he wanted and that, on that basis, he will withdraw his amendment.

Lord Jenkin of Roding

My Lords, will the Minister give the House his view—it can be no more than a view—as to whether British Energy will be able to operate profitably with electricity at the price of about £16 per megawatt hour?

Lord Sainsbury of Turville

My Lords, I thought that I had covered that. It is our view that the nuclear stations will be economic even at the current low electricity price.

Lord Jenkin of Roding

My Lords, my amendment has produced much more information from the Government than we had hitherto. I am grateful to the Minister for that, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 3 to 6 not moved.]

Clause 2 [Removal of restrictions on capacity to acquire certain securities]:

Lord Jenkin of Roding moved Amendment No. 7: Page 2, leave out lines 16 to 18.

The noble Lord said: My Lords, grouped with Amendment No. 7 is an amendment that I tabled yesterday, Amendment No. 7A.

The point is quite a simple one. As we argued strongly both at Second Reading and in Committee, the use of the words "of any company" at the end of subsection (1) appears to leave it open to the Government to buy up any company that they wish in the industry. In Committee, and subsequently in correspondence and at our meeting on Tuesday, the Minister explained at great length that the provision would not be interpreted by the court as having that meaning. He also went on to make it very clear that the Government have no intention of buying up any other companies. Coming from him, we accept that that is their present position.

The provision is still open to the possibility that it may he misinterpreted, however. Amendment No. 7A is an attempt, following our discussion on Tuesday, to make it clear that the subsection is there to avoid the doubt that the repeal of the two sections of the 1989 Act could somehow have altered the Government's overall position as a purchaser of last resort. I will not press Amendment No. 7, but I want to move Amendment No. 7A. I beg to move.

11.45 a.m.

The Chairman of Committees (Lord Brabazon of Tara)

My Lords, I should point out that if Amendment No. 7 were agreed to, I could not call Amendment No. 7A.

Lord Sainsbury of Turville

My Lords, I thank the noble Lord for explaining his thinking behind the amendment. I also welcomed the opportunity to discuss informally with him and other noble Lords the concerns around Clause 2(1). I hope that I am right in saying that we have now come to a clear understanding about what we intend with the provision.

I shall make it absolutely clear. The Government will not gain any powers of compulsory purchase through the provisions in Clause 2(1). The creation of such powers would require a very clear and explicit provision. The purpose of lines 16 to 18 of page 2 is simply to clarify that the natural powers that the Government were able to exercise before the introduction of the Electricity Act 1989 are properly restored once its Sections 72 and 74 are repealed. However, we understand the noble Lord's concerns that that intention is not as clear as it might he in the Bill.

Amendment No. 7 would remove the clarification given by lines 16 to 18, and we would not agree to that, so I hope that it will be withdrawn. On the other hand, Amendment No. 7A simply serves to clarify our policy intentions. Although I do not think that it is strictly necessary, I recognise that it might help to meet the noble Lord's concerns and I am therefore content to accept it.

Lord Jenkin of Roding

My Lords, I am deeply grateful to the Minister for that concession, which goes a very long way to meet the concerns voiced in this House and in another place about the effect of lines 16 to 18. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Jenkin of Roding moved Amendment No. 7A: Page 2, line 16, at beginning insert "for the avoidance of doubt

On Question, amendment agreed to.

Lord Sainsbury of Turville moved Amendment No. 8: Page 2, line 19, after "order" insert made by statutory instrument

The noble Lord said: My Lords, I made it clear in Committee that we accepted in principle the amendment to change the scrutiny procedure for the delegated power from negative to affirmative resolution. I have tabled two amendments, Amendments Nos. 8 and 9, which together provide the correct technical drafting for that purpose. Amendment No. 8 makes it clear that the order to be made would be a statutory instrument, and Amendment No. 9 sets out the procedure for approval of the order. The noble Baroness, Lady Miller, expressed concern that that procedure should ensure that both Houses of Parliament had their say, and the amendment of course does that. I hope that she will not move Amendment No. 10. I beg to move.

Baroness Miller of Hendon

My Lords, we are most grateful to the Minister for tabling Amendments Nos. 8 and 9, which we are very happy to accept.

On Question, amendment agreed to.

Lord Sainsbury of Turville moved Amendment No. 9: Page 2, line 24, leave out subsection (4) and insert— (4) Such an order may not be made unless a draft of it has been laid before, and approved by a resolution of, each House of Parliament.

On Question, amendment agreed to.

[Amendment No. 10 not moved.]

Clause 3 [Amendment of Schedule 12 to the Electricity Act 1989]:

Lord Jenkin of Roding moved Amendment No. 11: Page 2, line 37, at end insert— (5) The Secretary of State, in making any grants or loans from time to time under this Schedule (as amended) shall impose such conditions or provide such incentives (or both) as he may in his discretion consider are necessary to ensure that the British Energy company operates its nuclear stations as if it were exclusively responsible for the discharge of nuclear responsibilities.

The noble Lord said: My Lords, the amendment is tabled in my name and that of my noble friend Lady Miller and the noble Lord, Lord Ezra. We have been very concerned by the apparently open-ended liability that the Government are taking on for the handling of the nuclear liabilities of British Energy. That has given rise to a good deal of debate, both in this House and in another place.

The Minister went a long way to persuade us that the restructuring could not be sustained if the other bodies involved—they include the banks, of course, and a great many other people—could not be confident that the tab would be picked up by the Government as British Energy's nuclear liabilities matured. The noble Lord, Lord Sainsbury, argued that the restraints and limitations that we sought to oppose in Committee might threaten the restructuring. We on this side of the House have no intention whatever of doing that and have not repeated our amendments that would put a limit on the amount.

However, the noble Lord, Lord Sainsbury, assured us in Committee that the Government were determined that the underwriting of the nuclear liabilities of British Energy should not be seen as an open cheque. He was repeating words which have been used more than once by his right honourable friend the Secretary of State for Trade and Industry, who has been clear about that.

The Minister spelt out in Grand Committee the method that he intends to use in steering British Energy's handling of its nuclear liabilities. He said, the Government propose to put in place a series of controls and incentives to ensure that BE runs its nuclear stations as though it were it were exclusively responsible for the discharge of nuclear liabilities".—[Official Report, 17/3/03; col. GC 31.] It is relatively easy to say that, but there could be some difficulties and perhaps some reluctance on the part of the people involved to put that into effect. We therefore propose that those words should be written into the Bill. That is the purpose of the amendment.

We have added three extra words—"in his discretion"—so that Government may have some flexibility—that is a favourite word attic noble Lord—as to how the provision should be applied. We believe that it is important that all concerned should see on the face of the Bill that that is what British Energy has to do so that the nuclear liabilities taken on by the Government are kept within bounds.

To use the Minister's own words, our proposal would give "additional discretion". I hope that he accepts the amendment. I beg to move.

Baroness Miller of Hendon

My Lords, there is no purpose in adding the same words as my noble friend. We agree with every word that he said. The Minister was very helpful in trying to address our deep concerns. He has been extremely generous. As my noble friend said, the words that have been put into the amendment were used by the Minister himself, but we added the opportunity for the Secretary of State to use "his discretion", because we are all aware of how much the Minister needs, as well as likes, flexibility.

Lord Sainsbury of Turville

My Lords, the noble Lord, Lord Jenkin, tabled an interesting amendment, which moves the issue on from the discussion in Committee. This amendment refers to an important principle; that is, that the Government, in providing support to BE for its nuclear liabilities, should not take away the economic incentive for BE to operate its stations in a responsible way that would minimise the size of those liabilities.

We fully support that principle, as we have pointed out on several occasions. However, I do not believe that it would be appropriate to try to convert that principle into detailed legal drafting that would apply through primary legislation.

The Government are working intensively on the precise details of the undertaking that it will give to British Energy. That binding undertaking would come into effect at the moment the restructuring takes place and will then have long-term effect; that is, over many decades. We are going out of our way to build a number of very detailed controls into this undertaking. There is a whole stream of work on this issue and departmental officials are being advised by external experts on the management of nuclear liabilities. That is all sensible, prudent planning for protecting taxpayers' interests. Having gone to all this trouble, we are not going to change our mind and hand BE a blank cheque telling it that it can have the money with no strings attached. The company itself has agreed to the principle of the conditions which we wish to impose.

I do not believe that it is necessary to go into this degree of detail in primary legislation. It is clearly right for Parliament to have some form of scrutiny over the Government's management of this process, but that could be properly handled by the existing arrangements of the National Audit Office and Public Accounts Committee. I am sure that something as significant as this undertaking will receive early scrutiny. I hope, with that reassurance, that the noble Lord will withdraw the amendment.

Lord Jenkin of Roding

My Lords, I am grateful to the Minister for that careful reply, which amplifies what he told us when we met him. I certainly understand the points that he made.

Before I withdraw the amendment, perhaps I could make one extra point. In the very full letter that the Minister wrote to me, which was dated 28th March, he answered the question I had asked in Committee about the Nuclear Liabilities Fund. He spelt the matter out much more clearly there than it had been in any document that I had read. It concerned not only the Nuclear Liabilities Fund, but also the Nuclear Decommissioning Fund. The page and a half of his letter was very illuminating and I think it should be in the public domain. I do not believe that there is anything confidential about it. If I were to submit a Written Question asking about this matter, would the Minister reply—it would be a long answer—setting out what he has set out in his letter to me?

Lord Sainsbury of Turville

My Lords, there would be no difficulty in that. If a Written Question is asked, we will certainly seek to put all that information in the public domain.

Lord Jenkin of Roding

My Lords, I am most grateful for that. It is a matter of wide concern as to how those liabilities will be handled, not only to British Energy, but to the public sector as a whole. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Miller of Hendon moved Amendment No. 12: Page 3, line 24, at end insert— ( ) This Act (except for sections 3 and 4) shall expire five years after it receives Royal Assent unless it has been extended from time to time for periods not exceeding two years by resolution of both Houses of Parliament.

The noble Baroness said: My Lords, this amendment is what is colloquially known as a "sunset clause". We believe that it is necessary because this Bill empowers the Government to spend large sums of taxpayers' money—in some cases, uncapped sums—on the nuclear industry.

As your Lordships will have seen, we have accepted—sometimes with some reservations—the need for the Government to have such powers. However, in an interview on BBC news on 5th September last year, the Secretary of State expressly disclaimed any intention of seeking a blank cheque from taxpayers for the benefit of British Energy and its shareholders.

In Grand Committee, the noble Lord the Minister explained the ongoing nature of the commitment that the Government were either having to undertake or underwrite. It is essential that Parliament should have the opportunity, from time to time, to review what has been going on. I also had some general reservations about the Bill as a whole, because the powers that the Government are taking in theory enable the Government to undertake a backdoor process of re-nationalisation. However, the noble Lord has given us quite a lot of comfort today.

However, the Minister for Energy and Construction admitted in another place: It is true that repealing"— Sections 72 and 74 of the Electricity Act 1989— could, in theory, permit the Government to acquire shares in…other electricity companies where we cannot currently do so, but I stress that we have no intention of doing so".—[Official Report, Commons, 27/1/03; col. 589.] The noble Lord made it clear that where possible he has tried to clarify that it is not quite as bad as we thought.

As I told your Lordships at Second Reading, and as I repeated in Grand Committee, while I accept what is said to be the Government's present intention, I really would have liked to have put temptation irrevocably out of the Government's way. However, having reached this stage of the Bill, the best I can do is to try to insist that the Government periodically come back to Parliament to account for their actions.

Your Lordships will notice that in my amendment I have proposed a lengthy initial period—five years—and for extensions for two years at a time. That would not impose any undue strain on the parliamentary timetable. In the Explanatory Notes to the Bill the Government conceded that, In the main, Part 2 [of the 1989 Act] has served its purpose and the provisions no longer apply or are now irrelevant". I believe that in time, if British Energy manages to extricate itself from its present problems, this Bill too may no longer apply and may become irrelevant. For that reason it is essential that this Bill should have a "use by" date on it.

I believe from his response to my amendment in Grand Committee that the Minister is not entirely unsympathetic to what I am trying to achieve. But he did have some reservations, if the Act did expire, about the knock-on effects that that might have on Clauses 3 and 4 lapsing at the same time. He particularly singled out those two clauses. While I agree that the tax clause, Clause 4, has to be protected, I am not so sure if it will be a great loss if the highly technical provisions of Clause 3 were to go when the need for extended financial provision ceases.

However, cutting the Gordian knot, I am offering in this revised amendment to try to take into account all the concerns of the Minister to save both Clauses 3 and 4 from the effects of the sunset clause. If that does not entirely resolve the Government's reservations—I hope it will, in particular because the Explanatory Notes refer to Clause 2—perhaps I may suggest that as the Government's drafting facilities are much more extensive than mine they could put the matter right at Third Reading. However, the principle of my amendment remains. It is essential that the Bill, by its very nature and aims, should have an expiry date. I beg to move.

Noon

Lord Sainsbury of Turville

My Lords, I am grateful to the noble Baroness for taking into consideration the points I made in Committee about the earlier amendment that was tabled seeking to time-limit the Bill. My comments then related to the difficulties in the application of that amendment as drafted to Clauses 3 and 4 of the Bill. Based on that the noble Baroness has now focused her amendment on Clauses 1 and 2.

Unfortunately, there are still difficulties with this amendment. I hope I did not give the wrong impression in my earlier discussion of the amendment which was perhaps a little brief as it was the last amendment under consideration. My remarks about Clauses 3 and 4 were meant as examples of the problems a sunset clause would cause. I specifically prefaced the explanation with the words "for example". I did not mean to suggest that any concerns related only to Clauses 3 and 4. So while I am grateful to the noble Baroness For clearly taking the trouble to adjust her amendment in the light of the earlier debate, It am afraid that this amendment still creates problems.

Let us first consider Clause 1. This clause provides specific authority to incur expenditure on British Energy companies. We have already discussed this clause a little today. I am hopeful that there will be no need for this clause in five years' time. But I am not comfortable with putting in such a restriction on the clause, particularly at this stage when we are still working up the precise detail of our legal undertaking to the company. I believe that it is important to retain flexibility here.

I have stated that our restructuring support to the company will be in relation to its nuclear liabilities and that as a matter of policy this funding would be done under Schedule 12 to the Electricity Act. That remains the case, not least because we have put in place a tax disregard provision that applies to this schedule. But the existence of Clause 1 provides an important safety net. It provides legal certainty that we have statutory authority for our restructuring support to BE, avoiding doubt over whether some element of this support might not be covered by specific authority because it is not quite clear whether or not it falls within Schedule 12. For example, I have already mentioned that having Clause 1 available gives us certainty that we have authority for paying a nominal sum to acquire BE's stations at the end of their life—one of the conditions of our support to BE that we are insisting on in order to protect taxpayers' interests.

One last point on this clause is that any repeal of Clause 1 would need to be supported by detailed savings and transitional provisions to address liabilities, obligations, and so on, that have been already incurred under that clause. We cannot be sure at this stage what those provisions would need to address.

I turn to consider Clause 2. The substantive repeal in the first part of subsection (1) would not be affected by a sunset provision as it is clear that a repealed provision remains repealed. The saving provision in the second part of subsection (1) is there, as we have already said, only for the avoidance of doubt and so it should be acceptable there too.

It may be possible to have a sunset provision on the power to make an order by statutory instrument, but I am not sure it is worth a sunset clause on such a narrow basis. I would also point out that although we would intend to use the delegated power to repeal Part 2 soon, there is always a chance that the need for a consequential provision in respect of such repeal might come to light only later on.

I know that the noble Baroness is not a fan of the Government's desire for flexibility. Governments are always more in favour of flexibility than are opposition parties, and civil servants value flexibility above all else when they are dealing with such issues. However, I hope that in this case she will understand our desire to retain this flexibility and that she will be willing to withdraw her amendment.

Baroness Miller of Hendon

My Lords, I hope I did not misunderstand—not today—the fact that the Minister had sympathy with the clause; I thought he did. However, now that I have left out Clauses 3 and 4 we seem to have come back to Clauses 1 and 2. So, perhaps I slightly misunderstood in the same way that he may have misunderstood that I do not oppose the Government having flexibility; I am trying to give flexibility but I do not want it to be too wide.

On that basis, I shall again consider carefully the Minister's comments. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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