House of Commons Hansard Debates for 5 Apr 1989

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Thornton, Malcolm

Thurnham, Peter

Townsend, Cyril D. (B'heath)

Tracey, Richard

Tredinnick, David

Trippier, David

Trotter, Neville

Twinn, Dr Ian

Vaughan, Sir Gerard

Waddington, Rt Hon David

Wakeham, Rt Hon John

Walden, George

Waller, Gary

Walters, Sir Dennis

Ward, John

Warren, Kenneth

Watts, John

Wells, Bowen

Wheeler, John

Whitney, Ray

Widdecombe, Ann

Wiggin, Jerry

Wilkinson, John

Wilshire, David

Winterton, Mrs Ann

Winterton, Nicholas

Wolfson, Mark

Wood, Timothy

Woodcock, Mike

Yeo, Tim

Young, Sir George (Acton)

Younger, Rt Hon George

Tellers for the Noes :

Mr. Kenneth Carlisle and

Mr. David Heathcoat-Amory.

New Clause 3

British National Nuclear Corporation

A Crown Company, the British National Nuclear Corporation, shall be formed in which the power stations of the United Kingdom will vest on a date to be appointed by the Secretary of State.'.-- [Sir Trevor Skeet.]

Brought up, and read the First time.

Sir Trevor Skeet (Bedfordshire, North) : I beg to move, That the clause be read a Second time.

Madam Deputy Speaker : With this, it will be convenient to consider the following : New clause 10-- The British Nuclear Company -- (1) The Secretary of State shall direct the generating board to place all its property, rights and liabilities relating to nuclear power in a company designated as the British Nuclear Company. (2) The British Nuclear Company and all its property, rights and liabilities shall remain wholly owned by the Crown.'.

New clause 16-- Nuclear levy --

(1) It shall be the duty of the Director to publish annually and distribute to each of the Consumer Committees, a report showing the difference in that year between the price of electricity generated from fossil and non-fossil fuel.

(2) The Consumer Committees shall have a duty to publish the findings of the Director's report in a manner and form that may be easily understood by electricity consumers.'.

Amendment No. 148, in clause 30, page 24, line 13, leave out subsection (1) and insert--

(1) The public electricity suppliers shall take steps to ensure that the mix of fuel sources and generation technologies available to them is adequate to ensure the long term security of supply to their customers.

(2) The Director and the Secretary of State shall have powers to require, from time to time, that the pubic electricity suppliers demonstrate to them that their policies in fulfilment of subsection (1) above are adequately contributing to the long term security of supply.'.

Amendment No. 147, in clause 30, page 24, line 14, after suppliers', insert

and appropriate consumers' bodies including the consumer committees and independent consumer organisations.'.

Government amendments Nos. 31 to 34.

Amendment No. 160, in clause 61, page 45, line 8, at beginning insert

save for the nuclear power stations for which the Secretary of State shall make proper and reasonable provision for retention in public ownership.'.

8 pm

Sir Trevor Skeet : I make it clear that all the power stations dealt with in the new clause are nuclear. Being well disposed to the nuclear industry, I am disturbed that steps

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are now being taken to unsettle the industry. My experience has been that, for a good many years, particularly in respect of the nuclear waste repository which was scheduled for an area near my constituency, the public have not been ready for a transfer of nuclear assets to the private sector. The public have not had sufficient time or are reluctant to accept the risks inherent in nuclear power, particularly if it is outside the public sector. A Crown company could provide a high-quality assurance to a nervous public who still look to the state for the protection of the environment. I am certain that, in time, that attitude will change and that the nuclear sector will be fully privatised.

It is rather odd that the Opposition and myself will probably vote in the same Lobby tonight, but for entirely different reasons. I am pro-nuclear and Opposition Members are anti-nuclear and pro-coal. It is the irony of history that men of different persuasion must be honest and put forward the arguments. I propose to advance to the Secretary of State the arguments about why a serious mistake is being made in this Bill.

I pay tribute to the Secretary of State for being here tonight. After all, he has many obligations. Important personalities are in the United Kingdom at the moment, and he could be enjoying an important dinner elsewhere.

My first argument is that much of the industry will remain with the state following the passage of the Bill. The production of nuclear electricity and the fuel cycle that is dependent upon it, including the reprocessing and recycling of plutonium and uranium and the disposal of nuclear waste, should properly be retained in a single integrated company. I agree that that is not the CBI's view. At the moment, the whole industry is in the hands of the state and, subject to the passing of the Bill, the United Kingdom Atomic Energy Authority and British Nuclear Fuels plc will remain so. My simple argument is that we should keep all relevant parts of the industry together. It is logical and it makes commercial sense to do so. Secondly, many of the obligations to the nuclear industry--for example, those in schedule 12 and civil third liability--remain with the state. The obligations arising under clause 90 and schedule 12, comprising subsidies from the revenue for nuclear storage, reprocessing, waste disposal and decommissioning, should be monitored and scrutinised within the state system until the regulatory authority establishes its competence. It is an entirely new body, and we have no idea of how it will behave or perform. Further, third party civil liability for serious accidents remains the responsibility of the Government. Due to its extent, that liability is virtually unassignable to the private sector. The extent of liability remains covered by the Paris and Brussels supplementary conventions, which are multinational agreements.

The House should recognise that the nuclear option is also expensive for a private company. For example, I refer to construction overruns. The 450 MW Dungeness B took about 18 years to complete and had a load factor of barely 1 per cent., compared with the average of Magnox stations of 79.7 per cent. Hartlepool took 19 years to complete, and Heysham 1 took 17 years to complete. It is possible that construction overruns for contemporary stations will be reduced if not eliminated. I am glad to say that the work of some of the more recent AGRs has been praiseworthy.

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Planning inquiries are diabolically expensive--the Sizewell inquiry cost £20 million--but we can reduce it to £10 million apiece if the planning process can be simplified or rationalised. I stress that there is an increasing burden of BNFL reprocessing charges. They are escalating fast, well beyond the provisions made in schedule 12. Another point which the House should bear in mind is that on-going research and development is an essential ingredient of modern technology, and limited expenditure or economising tend to be counter- productive.

Energy remains a long-term strategy. The risks of a change in technology are enormous. It is unlikely that the market will provide the necessary investment in the formative and unprofitable stages. That is at least the lesson to be derived from the development of nuclear power in France. With the eventual rundown of fossilised fuels, fission or fusion will probably become inevitable, and Her Majesty's Government should now be in a position to direct it, as a long-term strategy, undisturbed by short-term considerations. Technology for the production of electricity may change dramatically in coming years, with extensive penalties for obsolescence, particularly in conventional thermal nuclear power. The fusion route, via the Torus model at Culham in Oxfordshire, could be abandoned in favour of the simpler Fleischmann-Pons process, using palladium electrodes at normal temperatures. It is certainly premature to make any judgment of that.

I emphasise to the Secretary of State that a more sympathetic approach towards the potential of the fast reactor for recycling reprocessed products and depleted uranium could substantially advance the energy yield of a given quantity of uranium. The THORP plant of BNFL makes sense only if it produces uranium and plutonium for recycling as fuels in fast reactors. It is regrettable that much of the research on that has been deferred or handed over to other nations to continue. Further research into magnetohydrodynamics could be valuable as a technology for converting thermal energy directly into electricity, thus avoiding the use of turbines.

The state cannot afford to be out of the race for the development of cheap fuels and, as we are in a technological sector--that is the nuclear industry--I maintain that it should be in state hands. The nuclear element could seriously embarrass the flotation. The flotation of National Power could be jeopardised by the nuclear element unless funds and guarantees are lavished on the company to eliminate risk. Those, of course, could be repudiated by a Labour Government making the company's position intolerable. For example, should the regulatory system be altered--as happened in the United States in the late 1970s--and the utility is obliged to absorb costs that would normally flow through to the consumer, all orders for nuclear power stations could cease to be economic. We recognise that at some time there will be a change of Government. Heaven forbid that that occurs on the next occasion or the occasion after that, but we live in a democracy.

I suggest to the Minister that the retention of the nuclear industry in a company with a franchise to operate granted to National Power could enable a package of nuclear assets to be assembled--within, say, a decade of flotation, when many of the major problems would have been overcome--and then a subsequent disposal arranged. In other words, it would be possible to segregate out of the

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present Bill the nuclear industry or the nuclear power complex and defer privatisation to a later date. I am not against its eventual privatisation.

I would further draw to the Secretary of State's attention to the fact that the obligation to build an additional four PWRs of more than 1,000 MW each could embarrass National Power subsequently. Although National Power is being mandated to build four additional PWR power stations of 1,175 MW capacity each, the trend is for the construction of smaller conventional plant and smaller nuclear power stations of 300 MW. The use of the safe integral reactor devised by the UKAEA, Rolls-Royce, Stone and Webster and Combustion Engineering is probably much the best illustration.

It is an interesting speculation whether the £6 billion programme upon which the Government now insist by building Sizewell B and C, Hinkley Point in Somerset and Wylfa in Anglesey could be abandoned if later National Power were to challenge the programme on economic grounds.

There is also a serious risk to the nuclear industry. New technology apart, Britain cannot afford a gradual rundown of the nuclear industry in the United Kingdom due to inaction, economic erosion or short-term energy market considerations. The price of fossil fuels will inevitably rise reversing the competition cycle. I say that because the coal lobby is having a great success at present because coal prices are low compared to what they were 10 or 15 years ago. That situation is likely to alter dramatically. In that case, all the tribute would go back to the nuclear side. There are also certain matters concerning carbon dioxide and sulphur dioxide that could cause nuclear power stations to be favoured.

8.15 pm

I will give an illustration of a lesson to be learnt from Sweden that appeared in the Financial Times on Thursday 22 February of this year. It said :

"Sweden faces the prospect of a doubling in the cost of its energy production as a result of the planned phasing-out of its nuclear power programme from 1995".

That is according to the country's state power authority's own estimates. That is rather significant. One cannot afford to ignore the possibility of that sort of thing happening.

The obligation for the generator to supply under earlier Acts is replaced by a series of contractual arrangements administered by the Director General of Electricity Supply, who in turn will monitor clause 30--that is the quota of non-fossil fuel electricity--and clause 31 on fossil fuel levy. The retention of a nuclear interest in a Crown company could facilitate and simplify those arrangements and more easily regulate the size of the nuclear industry.

I suggest to the Secretary of State that he bears this in mind. I understand that competition is the essence of the Bill under clause 3(1)(c) and that a broader basis of competition is now required. That could be effected with the emergence of at least three competing companies--National Power, PowerGen and British Nuclear. That development would not have to await the fruits of a decade of growth within the private sector.

Nuclear power could furnish the surplus capacity required to operate the privatised system. Both the Secretary of State and the director general are obliged under clause 3(1)(a) to keep the lights burning, which in turn implies the provision of significant reserve capacity to deal with shortfalls in electricity supply. Privatisation will

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require a much broader margin of capacity to operate the system than in a closely integrated structure. In the United States of America the figure is 33 per cent., in West Germany 50 per cent., and in Japan 49 per cent., as compared with about 20 per cent. in the United Kingdom. A Crown company would enable the Secretary of State to give a specific direction well in advance of likely shortages enabling the company and/or the nuclear industry to act as a "swing producer" for the system. The trouble with the contractual arrangements is that, although they may be subsequently litigated in the courts, they cannot guarantee immediate replacement or response, and a serious interruption in supply could occur. The citizens of New York have had some experience of that in recent years when their lights were extinguished.

It will be fairly obvious that to give a specific direction to any operator will be difficult under the Bill. Clauses 32 and 89 will take time to implement.

Mr. Ashton : It is clause 88, actually.

Sir Trevor Skeet : It is not clause 88, but clause 89. I shall correct the hon. Gentleman, who did not consider the Bill in Committee and therefore would not be expected to know very much about it.

Both clauses 32 and 89 will take time to administer and there may be procedural problems.

I do not want to take up too much of the House's time, but I must say that the idea of segregating the nuclear industry, temporarily at least, and keeping it in the state sector may appear to be an extraordinary idea to this side of the House, but there is a reason behind it.

Mr. Salmond : The hon. Gentleman should not bring his remarks to a close too quickly because the Opposition are an attentive audience. I hope that the hon. Gentleman will explain the relevance of his amendment to the Scottish nuclear industry, because he has spoken about the assets that will go the National Power. The hon. Gentleman correctly surmised at the start of his remarks that I am anopponent of the nuclear industry, but I recognise that technically the SSEB has a better track record than the CEGB. It is important for the hon. Gentleman to address his remarks and the relevance of his amendment to the Scottish nuclear assets.

Sir Trevor Skeet : I am obliged for that intervention, but the hon. Gentleman can make his own speech and I will make mine. The system prevailing in Scotland is rather different. How one approaches this matter rests on a question of understanding and judgment. The CBI is thinking along exactly the same lines as myself as it has suggested that nuclear power stations should remain in state hands. The CBI and Opposition Members may have special motives for saying that--we all have different motives-- but we are all searching for the truth. Some Labour Members cannot see the truth, but we are trying to prevent the Government from going straight ahead for the rocks and making problems for themselves. The Back-Bench Member can stand well back from the mountain and appreciate its height. Perhaps the Secretary of State, who is standing under the mountain, is in its shadow and cannot appreciate the height of the edifice. Therefore, it is up to us to point out some of the difficulties involved. Because nuclear power was included in the Bill, probably against the advice of some of my right hon.

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Friend's advisers, clauses 30 and 31 had to be introduced. They are hardly in line with market conditions, but one must attempt to reconcile the irreconcilable. Perhaps the Secretary of State has done that. Perhaps he has been able to box the compass in every way and achieve his purpose.

The success of Governments lies in the support that they command at a given time. Provided that they get their legislation through, it is years before the mistakes are noted. If the Conservative party is in power in the future, it will say that an error was made now which certain Back-Bench Members tried to avoid. On the other hand, if the Labour party is in power, it will move from crisis to crisis. It will be faced with so many crises to surmount, that it will be unable to establish the conditions that preceded those crises.

Mr. Ian Bruce (Dorset, South) : Does my hon. Friend accept that the CEGB--or Big G as it will be known--will ring-fence the nuclear industry, which will use the support of the main board and its experience? Therefore, to a certain extent, we shall have a separate nuclear industry. I have discussed this with the deputy energy Minister of the Soviet Union who is currently visiting this country. He told me that the people in the Soviet Union are extremely unhappy that the manufacture of nuclear energy and its regulation are all one and the same rather than those functions being separate. It is far better for the Government to regulate and for someone else to manufacture the power.

Sir Trevor Skeet : Our system is such that if one gets rid of a nationalised industry--I am glad about that because I support privatisation --one puts in its place regulations galore. There are so many regulations that an industry can hardly move.

Obviously things will settle down in future, but one must decide whether to have a plethora of agreements, negotiated between companies, or a national system with a small focal point. I prefer the agreement system, which I have witnessed operating abroad. We must be careful of some of the arguments advanced by my hon. Friend the Member for Dorset, South (Mr. Bruce). Simply because the CEGB will ring-fence the nuclear industry does not mean that the industry will rid itself of liabilities. Such liabilities will be passed down, virtually into perpetuity.

When the nuclear industry experiences some of the additional costs passed on from British Nuclear Fuels from reprocessing and when, in the next 100 years, it encounters problems as a result of decommissioning--such problems are not apparent yet--it will be a good thing for it to be ring-fenced. Ultimately, however, the nuclear industry will remain responsible for the liabilities that may have been created. At a later stage those controlling the industry may have to go to the Government to say that the financial assistance laid down in schedule 12 is not great enough and that it must be increased by a separate Bill. Almost every year we have seen that happen with the coal industry as its borrowing power has increased. Exactly the same may happen with the nuclear industry, and we may end up giving it a vast subsidy to prevent it from going under. I am not suggesting that that will happen because the management is good and it will do its best.

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As we pass through this period of great uncertainty, I would be much happier if we left the nuclear industry in the hands of the state. When we begin to understand and solve some of the problems, we will be able to go ahead and privatise and, on that occasion, the public will be behind us.

Mr. Tony Blair (Sedgefield) : I congratulate the hon. Member for Bedfordshire, North (Sir T. Skeet) on moving his new clause. When he described the purpose of his clause as protecting the long-term future of energy policy he unerringly put his finger not only on the weakness of this part of the proposal, but on the entire privatisation proposal.

Our amendment No. 160 is similar to new clause 3 as it seeks to take the nuclear industry out of the privatisation process. New clause 16 would oblige the director to publish the details of the difference between fossil and non-fossil fuels. Our other amendments relate to diversity of supply.

Surely when we debate the privatisation of the nuclear industry we debate the most remarkable and inconsistent element of the Bill. The nuclear industry will be privatised, but be subject to no competition. It will be sent to market without market forces. The consumer will be under an obligation to buy a fixed amount of electricity from nuclear sources and, for the privilege of being shackled in that way, pay an additional special tax on his bill. This is not so much privatisation as a rather crude form of economic gerrymandering. The privatisation of the nuclear industry is the achilles heel of the Bill because only a Government whose mind was so gripped by doctrine that they had completely banished common sense could contemplate as hare-brained a scheme as the one that they are entering into now.

Mr. Mans rose --

Mr. Blair : I shall give way in a moment.

The Government's insistence on the privatisation of nuclear power has dictated the terms of the privatisation throughout. It has been the driving factor behind the privatisation proposals. The proposed structure of the industry means that we will have Big G and Little G--70 per cent. of power stations in one company. The Secretary of State admitted to the Select Committee that that proposed structure resulted from the proposal to privatise nuclear power.

The Bill contains a special nuclear quota designed to protect the nuclear industry from competitive pressures because it cannot cope with the market as it is. There will be a special levy or tax on consumers to pay for the new generation of nuclear power stations that private investors will not undertake. When it comes to the decommissioning of existing nuclear power stations the taxpayer will be asked to underwrite the risk of existing nuclear power stations even though the profit from the industry has passed into the private sector. In short we have all the disadvantages of the private sector without even the one benefit it can offer from market forces. As a result of our debate on new clause 3 and associated new clauses and amendments, we appreciate the dilemma in which the Secretary of State has got himself--it is a fairly incompetent position in which he finds himself. As he attempts to tell investors that the nuclear industry is an industry that can be sold, he offends consumers, but, as he attempts to placate consumers, angry that the industry is

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being sold with them guaranteeing the risk, he of course offends investors. For that reason there is a contradiction written into the Bill between the idea of privatisation and the reality of the special ring fence to be built around nuclear power.

We know--not from a leak that emanated involuntarily from the CEGB but from one that appeared in the Financial Times last November that seems to come directly from the CEGB rather than indirectly as did some of later leaks-- that Mr. Baker now believes that the new PWR programme cannot be justified unless the costs are underwritten by the consumer. Similar statements were made by Mr. Miller in relation to the Scottish nuclear industry. Since the Government have introduced a nuclear quota, stipulating that a certain amount of power should be bought from nuclear sources, and since only National Power--at least in England and Wales--can build new nuclear stations--the Government have left themselves in a position where National Power can demand that the costs should be underwritten by the consumer. In the provisions that they have introduced, the Government have effectively acceded to that request.

8.30 pm

On report, we are now hearing about the idea of a nuclear tax to pay for the additional costs of nuclear power--in particular, for the new generation of nuclear power stations. My hon. Friends will remember that that tax was at first denied by the Secretary of State. Then we were told that it had existed all along. Finally, in Committee, we received an admission from the Minister that, at present, it amounts to about £500 million a year, which is about 10 per cent. extra on consumers' bills. Even if all went well, it would be down to only 3.5 per cent. or 4 per cent. on consumers' bills by the end of the century.

The Secretary of State must answer the following question. Once this levy has been introduced, once the new generation of PWRs starts to be built by the privatised industry, what will happen if, contrary to the hopes of Ministers, the costs of nuclear power are greater even than the 10 per cent. extra that they now place on consumers' bills? Is there any limit on the levy or tax that will be paid? The answer is, of course, that there is no limit at all. As a result of the structure introduced by the Secretary of State, we will be obliged to pay this nuclear tax, or levy, irrespective of what it adds to consumers' bills. Although at one stage in the proceedings, he attempted to suggest that the position would be reviewed by the turn of the century and perhaps then the levy could be taken off, it is difficult to see that happening when the levy exists in order to build a new generation of power stations that will exist well into the next century. The Secretary of State has locked us into a system whereby we have effectively given an open-ended commitment to fund a new generation of nuclear power stations without any ability to subject that commitment to the consumers' considerations.

Mr. Mans : Does the hon. Gentleman agree that, as we discussed in Committee, the so-called, possible nuclear levy exists largely to cope with ongoing costs of existing nuclear reactors which will be there regardless of whether the nuclear industry is in the public or private sector? If he is suggesting that existing nuclear power stations should be shut down, the cost to the consumer would be greater rather than less.

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