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Mr. Michael Spicer : I will write to the hon. Member for Cardiff, West (Mr. Morgan) on the final point he made about Wales--unless I discover the answer during the evening--because it is a technical and specific issue.
The hon. Member for Wentworth (Mr. Hardy), who has been interested in the campaign on this subject for a long time, should learn to recognise good news when he hears it. He is familiar with the bodies that are concerned with environmental matters. For example, I have before me a letter written to my noble Friend the Parliamentary Under-Secretary of State for Energy by Mr. David Astor, the chairman of the Council for the Protection of Rural England, in which he said :
"We are delighted that you have now accepted the underlying thrust of our arguments."
The deputy chairman of the Nature Conservancy Council, Sir John Burnett, wrote :
"It is excellent news that nature conservation requirements are now being given statutory force."
There is clearly a difference now--perhaps there always was--between the hon. Member for Wentworth, who is normally very much in touch with these events, and those who are directly responsible for representing the interests of nature conservancy and the countryside. The hon.
Column 610Gentleman might take note of, and place more emphasis on, what is being said outside the House about the amendments.
The hon. Member for Wentworth spoke at length about safety. The amendments with which we are now concerned are about the environment. There is a lot in the Bill about safety and I urge the hon. Gentleman to consider, for example, clause 3(3)(c) and (d). Those provisions explain the duties that the director and Secretary of State must take into account in terms of the safety of employees and, in subsection (3)(c).
"to protect the public from dangers arising from the generation, transmission or supply of electricity".
That came about as the result of an amendment made on Report, following much discussion on the issue in Committee. The hon. Gentleman should have recognised that.
Mr. Hardy : I have not seen the letters to which the Minister referred, from Mr. Astor or from the deputy chairman of the Nature Conservancy Council. People from the conservation bodies who spoke to me on many occasions at earlier stages of the Bill have not been back to me to express the more approving views to which the Minister referred. I am not casting doubts on the hon. Gentleman's integrity, but he might care to read the remainder of those letters to satisfy himself--and perhaps eventually the House--that the words, which may appear to be complimentary, used at the beginning of the letters are not later qualified by expressions of regret about continuing inadequacy. I did not wish to raise the question of safety. That note was injected into my speech as a result of an intervention by my hon. Friend the Member for Ashfield (Mr. Haynes).
Mr. Spicer : Leaving the final part aside, I regarded that as a noble intervention by the hon. Gentleman. He admitted that he was not completely up to date with the latest thinking on the part of those organisations. That was frank and honest of him and there seems to be little between us.
The hon. Member for Cardiff, West spoke in particular about amendment No. 7, which says that in conducting their duties under the Bill the director and the Secretary of State shall take account of the effect on the physical environment of their actions. It means precisely that, and to appreciate the effect of it one needs to consider the duties that they must perform and then read the entire Bill to see how those duties are carried out. As they wade through the Bill carrying out their duties--doing the various things that they can do under the measure--they will have to bear in mind the effects on the environment of those duties. That is not to say that the amendment introduces some great new interventionist facility. The points that the hon. Gentleman made about that come under the normal planning procedures. For example, the question whether Hinkley Point, as against some other construction, is to be built is a matter of detail and planning, and those planning laws are not affected by the Bill.
Mr. Morgan : I do not know whether the Minister misheard me or whether my direct questions threw him completely. I was not talking about the building of new nuclear power stations. That is clearly determined by normal planning inquiry procedures.
Column 611I asked about the decommissioning of nuclear power stations. Will the Secretary of State or the director general have the power to question and then to determine whether he is satisfied with a particular form of decommissioning and its effect on the environment? If it is proposed to cap a reactor with a concrete dome for 150 years, could he say, "I am not happy with that" and insist that it be taken away within 25 years? I was talking not about the building of Hinkley Point but of the removal of Berkeley.
Mr. Spicer : Well, it does not say an awful lot. I will read it out in a moment. It says that this is for the nuclear installations inspectorate, but I think that I can do better than that. The hon. Gentleman knows that the regulator, when he carries out his duties under the terms of the Bill, has to consider the price formula. We all have to consider that. When carrying out those assessments, the regulator, if the amendment is accepted, will have to bear in mind--and he can be challenged about it, because it will be in the Act if the House agrees to it--the impact of his decisions and actions on the environment. I think that that gives the hon. Gentleman a precise answer. We would have to debate and discuss the entire Act to see how it would impinge on the decommissioning that the hon. Gentleman raised.
This is an important amendment, which pervades the Bill. Every time the director general considers what he is doing he has to bear in mind the environmental impact.
I think it is perfectly right that the hon. Gentleman should ask these questions, but I think that Opposition Members have been, for want of a better word, churlish. The hon. Member for Wentworth has accepted that he is a bit out of touch with the latest thinking of conservation bodies. It was generous and proper of him to declare that. As I have now informed the House of the latest thinking of the conservation bodies, I hope that it will welcome these amendments with open arms and with approbation. They have been welcomed widely outside the House.
Mr. Morgan rose--
Mr. Morgan : With the leave of the House, I did not want to allow the word "churlish" to pass without some comment. There is a fundamental difference between writing a note to the Countryside Commission asking for a pylon to be moved half a mile to the left, which is one interpretation of the clause, and saying, "No, I am not happy with that nuclear power station being left under a concrete dome for 150 years, even if it costs an extra £1 billion on your cost formula to remove it after 25 years." Nor is that the same as saying that we must take account of the global warming threat, that we are worried that London will be under 6 ft of water and that the only solution is to try breast stroke. Those are quite different considerations.
Question put and agreed to.
Lords amendments Nos. 119 to 128, 130 to 139, 141 to 143, 11 to 13, 15 to 20, 115 to 117, 53, 54, 57 and 58 agreed to.
Lords amendment : No. 59 in page 35, line 33, leave out from "activities" to second "and " in line 34 and insert
"to which this subsection applies"
Mr. Spicer : The effect of Lords amendments Nos. 59 to 61 is to ensure that, in keeping under review activities connected with the generation, transmission and supply of electricity, the director general should also keep under review, in particular, activities connected with combined heat and power. This will help him in carrying out his other duties under the Bill, such as the duty in new clause 3 to promote competition in the generation and supply of electricity.
Placing the interests of combined heat and power in the Bill must be seen in the context of what the Government are also doing for combined heat and power. We are funding a number of research projects up to £750,000 in total and are giving statutory undertaker powers to CHP operators comparable with other forms of electricity generation. We are putting the rating of CAP on the same level as others. Above all, the Bill is making fundamental changes, taking away the grid from a single generator and giving CHP free and fair access to the system.
The Bill is doing a tremendous amount for CHP, but, to underscore that, we thought that we would accept the Lords amendments. I ask the House to accept them.
Mr. Barron : I do not intend to prolong the debate, but we should discuss these amendments for a few minutes. The Opposition are pleased that these provisions are to be included in the Bill. There were lengthy debates in the House, in Committee and on Report about the future of combined heat and power. I was fascinated also to see how the constitution could be so elastic in terms of the ability of the other place to carry on debating changes in our legislation. Although we do not have combined heat and power in the Bill specifically, as Lord Ezra wanted, I am pleased that there is a reference to cogeneration :
"heat produced in association with electricity and steam produced from and air and water heated by such heat".
That is exactly what has happened in this cycle. I do not want to go into the technicalities, but it is important to note that the Government are moving in the direction sought for many years by people working in the industry.
It will be one of the general functions under clause 45 that the director should "keep under review" the development of combined heat and power. That takes us no further forward than we have been since the Energy Act 1983, when the Government decided to review the
Column 613development of combined heat and power. Any advance since then has been despite the Government and not because of them.
The amendment will not alter the position. I do not share the Minister's confidence that combined heat and power projects will have wide opportunities of getting into the system and being able to take part in the so-called "competition" that we have at present. CHP developments are at a critical stage, yet the Government still take little action. Despite their professed support for CHP, they have not taken the opportunity presented by the Bill to remove the blockages that exist and they have even invented new ones, such as the problem of CHP projects in getting electricity into the system. The electricity boards have failed to negotiate adequate purchase prices for combined heat and power schemes and the Government show no signs of taking effective action to ensure that the blockage is removed. On Report, the Minister told us how much money was spent on the Leicester combined heat and power scheme, yet the Government have not removed the blockage that could threaten the existence of the CHP scheme in Leicester. The other major threat to CHP from the privatisation of electricity is through the Government-sanctioned secrecy currently surrounding the contracts working party, which looks set to form a cartel. Many people in the Combined Heat and Power Association and people who have been working on CHP schemes for years believe that it will be designed to keep them out, as cartels were designed to keep them out after the 1983 Act had said that we would have the development of CHP schemes in Britain.
The Government's failure to make their intentions clear for CHP is not surprising. In the debates on CHP during the passage of the Bill, I have not been convinced that the Minister understands the issues involved. On Report, the Minister said :
"The Bill will not only give those wishing to engage in this form of technology free access to the system, but there will now be a duty on public electricity supply companies to buy from the most economic sources. Therefore, if CHP is the most economic source, that duty will take effect."
I am pleased to see that the hon. Member for Erewash (Mr. Rost) is in his place. During the debate, he brought up the point that had been argued for many years by people trying to get combined heat and power into the market place. He argued that the case for CHP was made not on the basis that it would generate electricity cheaply, but that :
"By using hot water from electricity production instead of throwing it away, we create more diversity, more energy efficiency and we reduce the greenhouse effect."--[ Official Report, 6 April 1989 ; Vol. 150, c. 443- 46.]
That argument is right, but we must recognise that the hot water is normally taken away from the generation before it would have been if one was just generating electricity. On that basis, the generation of electricity is likely to be more expensive than it would be from conventional plant. That is where the problems lie for CHP in breaking into a competitive market which does not understand the uniqueness of the technology we are proposing to use. As the hon. Member for Erewash rightly said, CHP has an effect on the environment as well. By the more efficient use of energy, it can go some way to help us in dealing with environmental problems.
Column 614The Energy Select Committee's recent report on the greenhouse effect highlighted the benefits that efficient power generation by combined heat and power could bring. According to the CEGB, some CHP plants could reduce greenhouse emissions by up to 60 per cent. British Coal is already showing the way forward. The planned circulating fluidised bed CHP schemes at Slouth Estates is a pathfinder. That commitment is far in advance of anything that the electricity supply industry seems prepared even to discuss. Not too many years ago, I had discussions with the chairman of the CEGB on this unique method of using energy in our communities. I shall never forget his remark that if British Gas were taken out of a place like Leicester, he would go in because he could sell not only electricity but water for space heating and domestic use. For years CHP has had problems getting a foothold in the market. Until we understand that and make special provisions for CHP schemes, we shall have problems developing it.
It is a great shame that the Government have failed to take the opportunity presented by this massive change in the electricity supply industry to give CHP the boost that it needs. I urge the Minister to turn his professed support into practical action in the not-too-distant future. The Bill says nothing more about this technology than was said in the Energy Act 1983. I hope that a future Secretary of State or director general will look seriously at CHP and find a place for it in the market so that it can develop as the amendment proposes.
The hon. Gentleman referred to the Leicester combined heat and power schemes. He may not be aware that this afternoon I received by fax-- telecommunications technology seems to be moving even into this place--the most alarming news that work on the Leicester project has been suspended. The 110 MW scheme by Leicester Energy has been the showpiece of CHP development. Apart from the Sheffield scheme, it is the only scheme going ahead. It involves a private enterprise consortium of six major companies and I declare an interest as a consultant to one of them. The project has progressed for the past 16 months and negotiations have now come to a conclusion. The talks have collapsed and work on the project has ceased because of the uncertainties surrounding the privatisation of the electricity industry, particularly the contract for the sale of electricity. I shall not bore the House with the technical details of why the negotiations have broken down, but I use this example to compare what is happening in this country with developments in towns and cities in western Europe. Over 300 already have CHP district heating schemes and many others are being developed. Such schemes have made a huge contribution to reducing fuel consumption and global greenhouse warming. Thermal efficiency has been doubled by using the hot water as well as the electricity from combined production.
I hope that my hon. Friend the Minister will look at the letter that he will have received a couple of days ago from the Leicester combined heat and power company explaining the difficulties that it is having in getting this project further progressed because of the uncertainties of the electricity contract. I hope that he will use this as a reason for giving further thought to the amendment that
Column 615my hon. Friends on the Front Bench have proposed to the Bill. I welcome the amendment because it at least opens the door and obliges the director general to monitor progress on combined heat and power. However, monitoring will not be enough when one of the two major projects has come to a halt. What will he monitor? We need a stronger amendment. I regret that none of the three efforts of the other place to change the Bill in this respect have been accepted by the Government. I regret, with a personal interest, that the amendment that I moved on Report was not accepted either.
The Government will have to come back to this, simply because the contribution that the more efficient generation of electricity can make to electricity prices and the environment will oblige them to assist in solving the major problems affecting large-scale city combined heat and power projects. These projects are marginaly economic, but they are more economic than nuclear power. Nuclear power is getting a special and open- ended subsidy in the Government's strategic policy, as is renewable energy. I do not complain about the special help to these two sources of energy, but, like energy efficiency, combined heat and power can make an important contribution not just to strategic diversity of supply but to the relief of environmental pollution and the greenhouse effect, as it is doing increasingly in other countries. It should have been given a more important promotional opportunity in this legislation, as it needs Government help to help it to overcome the high up-front infrastructure costs of laying district heat mains.
Industrial combined heat and power projects are going ahead fast, and all the projects that were held up previously are suddenly taking off. The Government deserve full credit for that because it would not have happened without the privatisation of electricity. This is giving industry the power to set up its own combined heat and power generation by allowing it to get a fairer price for the surplus electricity. These projects are going ahead with a pay-back period on the investment of about three years.
There are still enormous problems with the larger scale schemes, and I hope that the Government will either take note now, or accept that these problems will have to be solved with their help if we are to make a contribution to energy efficiency and the global warming effect.
While I welcome the Lords amendment, it would have been more beneficial if the Government had gone a little further and accepted one of the three amendments that the other place tried to introduce, as they would have given more power to the promotion of this most important technology, which other countries have adopted, which is economic and cost effective and which needs a stronger market stimulus than it is getting at the moment.
Mr. Michael Spicer : My hon. Friend the Member for Erewash (Mr. Rost) has been persistent and effective in arguing the case for combined heat and power. Perhaps my hon. Friend was temporarily away from his place when I explained why the Government wished to accept the amendment which will introduce into the Bill the interests of combined heat and power. That is an important addition.
Column 616My hon. Friend mentioned the Leicester scheme. The Government invested £250,000 of taxpayers' money in the initial preparations for that scheme but it would appear that the scheme is not now to go ahead because the contracting parties find that they cannot contract at an economic level. There is nothing much that the Government can do about that.
We certainly believe that--the hon. Member for Rother Valley (Mr. Barron) quoted me correctly--combined heat and power should compete fairly with other forms of electricity production. At the beginning of my opening speech I listed the things that the Government have done to ensure that CHP can compete fairly, which it could not do hitherto because of rating, statutory undertaker arrangements and the way in which the industry was structured to inhibit new entrants such as CHP.
Part of the case for CHP must be that it is competitive and economic. That is why it has been so successful in industry, and why it currently produces 2 GW of electricity. We know of a number of schemes for the industrial use of combined heat and power which may result in its producing twice that amount in future.
CHP ought to be able to compete freely and fairly and stand on its own feet --
Mr. Rost : My hon. Friend referred to the Leicester scheme and suggested that work had been suspended because the economics were not proving as good as had been expected. I assure my hon. Friend that that is not the case. The brief sent to his Department by Leicester Energy will confirm that. The problem is not that the econonics are not robust but that Leicester Energy needs a long-term contract to make the scheme bankable. The area board is not prepared to offer a long-term contract based upon an escalation clause in respect of the price of gas, although it is a gas turbine scheme. The problem arises from the lack of a long-term contract.
Mr. Spicer : My hon. Friend has made the point that I sought to make. The contractual arrangements and negotiations have broken down on the basis of the price that was being requested. The area board took the view that the price was unacceptable. That must be a matter for the contracting parties. If the Government went along with every single proposal put to the area board successor companies, ultimately they would increase the price to the consumer, and the Opposition would be the first to groan and complain and, in this case, they would be right to do so. The industry must take into account the economics of producing energy.
Mr. Barron : Will the Minister tell us why he is prepared to ringfence electricity and to guarantee billions of pounds of taxpayers' money, not just in the flotation but in years to come, to clean up the mess that it creates, but he is not prepared to help protect the Government's investment in the combined heat and power scheme in Leicester? The Minister must know that the cost of electricity on a CHP scheme is more expensive than if the industry were just using steam turbines to generate electricity per see. Does he not understand the technology?
Mr. Spicer : It is precisely for the same reason that we ringfenced coal at the cost of £10 billion over the past few years. We believe that nuclear power is a fundamental addition to the range of energy supplies which we wish the country to have in order to ensure that the consumers'
Column 617interests will not be put at risk, as they have been on previous occasions through disruptions in the coal industry--
Mr. Spicer : The hon. Gentleman made the point himself--Arthur Scargill. I was not going to mention him today to save the hon. Gentleman's blushes. As he has said that, I am quite happy to agree with him when he says that Arthur Scargill is part of the history of the matter, as are some of the disruptions to our oil supplies and the price of those supplies from other countries.
The question of the security of energy supply in this country is fundamentally a different question. That is why we have protected the coal industry so heavily for so many years and why, as a result of protecting it and putting so much money into the industry, it is now, for the first time, able to face competition with some confidence. That is good and something that we have achieved for the coal industry.
I understand the points made by my hon. Friend the Member for Erewash. He has made them coherently and cogently over many months and years. His labours have borne fruit because the Bill has on its face the recognition of the importance of CHP, not to mention the panoply of actions that we have taken to ensure that CHP competes fairly in the future in a way that may not have happened up to now. I hope that my hon. Friend and others will accept these Lords amendments.
Question put and agreed to.
Lords amendments Nos. 60 and 61 agreed to.
Lords amendments Nos. 66 to 77, 144 to 153 and 174 agreed to.
Lords amendment : No. 154, in page 112, line 23, leave out second "of ".
Motion made, and Question proposed, That this House doth agree with the Lords in the said amendment.-- [Mr. Michael Spicer.]
"Transactions effected in pursuance of section (Transfer Schemes under sections 63 and 64) (2)(c) 4A.--(1) Sub-paragraph (2) below applies to any disposal (within the meaning of the Capital Gains Tax Act 1979) which is effected, and sub-paragraphs (3) and (4) below apply to any lease which is granted, in pursuance of a provision included in a transfer scheme by virtue of section (Transfer schemes under sections 63 and 64) (2)(c) of this Act.
(2) A disposal to which this sub-paragraph applies shall be taken for the purposes of the Capital Gains Tax Act 1979
Column 618to be effected for a consideration of such amount as would secure that on the disposal neither a gain nor a loss would accrue to the disponer.
(3) Subsection (6)(a) of section 37 of the Finance Act 1978 (capital allowances ; long leases) shall not prevent the application of that section in any case where the lease is a lease to which this sub-paragraph applies.
(4) Where, in the case of any machinery or plant which is a fixture and on the provision of which for the purposes of the transferor's trade the transferor incurred capital expenditure, a lease of the relevant land (with or without other land) is a lease to which this sub-paragraph applies--
(a) the lessor shall not be required to bring the disposal value of the machinery or plant into account in accordance with section 44 of the Finance Act 1971 (writing down allowances and balancing adjustments) ; and
(b) so far as relating to the bringing of disposal values into account, that section and Schedule 17 to the Finance Act 1985 (capital allowances for fixtures) shall have effect as if-- (
(i) the capital expenditure incurred by the transferor had been incurred by the lessee on the provision of the machinery or plant wholly and exclusively for the purposes of the lessee's trade ; and (
(ii) the machinery or plant had become a fixture, immediately after the grant of the lease.
(5) In sub-paragraph (4) above "the transferor" means the transferor under the transfer scheme in question and expressions which are used in Schedule 17 to the Finance Act 1985 have the same meaning as in that Schedule ; and in construing that sub-paragraph the provisions of section 511(2) of the 1988 Act and the corresponding earlier enactments shall be disregarded."
Amendment (a), to the Lords amendment, to leave out sub-paragraphs (1) and (2).
Lords amendments Nos. 156 and 157.
Mr. Hardy : I shall not detain the House for long, Mr. Speaker, but, as you know, I am interested in the protection of the rare species. When I saw the word "disponer", which I had never seen in a Bill before, I thought it reasonable to table an amendment to the Lords amendment to give the Minister the opportunity of explaining it. However, I also have a suspicious mind and the other day I asked a supplementary question when the Minister told the House that he had saved the public a lot of money by prosecuting people who had disgracefully and fraudulently falsely claimed unemployment benefit. I suggested that the same resources and the same energy would have yielded a greater harvest if the Government had gone after the tax dodgers. When I read Lords amendment No. 155 and saw a reference to capital gains and the proposal that the disposal should produce "neither a gain nor a loss",
it occurred to me that sometimes a capital gains loss is an asset. I hope that the Minister will find my illustration interesting. Let us suppose that a writer of modern novels manages to produce one which is sufficiently salacious as to become a best seller. That property may be purchased for film rights, in which case there is a substantial capital gain. If the writer is allowed to set that capital gain against a loss, which could be an entirely notional loss, as a result of this privatisation exercise, he could be a considerable gainer, whether he were a disponer or not.
I shall not seek to press my amendment to a vote, but the Minister should offer us some reassurance and explanation. I have tabled the amendment partly because I want to know why the word "disponer" is included in Lords amendment No. 155 and partly because I want the Minister to give the House an assurance. Since those who
Column 619have wished to evade income tax or many other forms of sometimes burdensome taxation have received a great deal of assistance during the past 10 years, I want to be absolutely sure that the privatisation of electricity will not also be possibly helpful in the longer term to those who are fortunate enough to select the small number of boards that might be successful and make a capital gain at the same time.
As I have said, I do not wish to detain the House or to force a Division on this matter, but we are entitled to a degree of reassurance and explanation from the Minister, which I am sure that he would wish to offer in view of the possibility of self-interest arising.
Mr Michael Spicer : It is perfectly fair game for the hon. Gentleman to start picking up words with junior Ministers at this time of night and to ask what they mean. That is a well known and legitimate game, and it is fine. The answer to the hon. Gentleman's questions may be coming from the Box, but I think and hope that I know it before it does.
These provisions are all about the transfer of assets and about disposals. They relate to people receiving new assets because of the schemes that will be coming forward. Through these technical and very neutral amendments, in which there is no question of tax breaks or of anybody gaining, the Government are allowing the transfer schemes made by the Central Electricity Generating Board, the Electricity Council or the Scottish boards to impose on one successor company an obligation to enter into agreements with another. In the case of the CEGB, I refer, for example, to a long-term lease in respect of land within the perimeter of a power station. The purpose of the amendment is simply to ensure that the fulfilment of such an obligation is tax neutral. The implications of that are dealt with in detail. If the hon. Gentleman is worried that gains could be set off against some future losses, the answer is that that could not happen. There is no question of any clever tax manipulation being permitted. The total effect is tax neutral.
That, at this day's sitting, the Electricity Bill may be proceeded with, though opposed, until any hour.-- [Mr. John M. Taylor.] Question again proposed, That this House doth agree with the Lords in the said amendment.
Question put and agreed to.
Lords amendments Nos. 155 to 157, 80, and 163 to 167 agreed to. [One with Special Entry.]
Lords amendment : No. 91, before clause 99, insert the following new clause -- Amendment etc. of Electricity Supply Pension Scheme-- " . The provisions of Schedule (The Electricity Supply Pension Scheme) to this Act (which provide for amending the Electricity Supply Pension Scheme and for giving special protection to certain persons who have or may acquire rights under that scheme) shall have effect."
Motion made, and Question proposed, That this House doth agree with the Lords in the said amendment-- [Mr. Lightbown.]