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Dr. Robert Spink (Castle Point): The initial endowments of £157 million and £71 million or£79 million from Scottish Nuclear have been called prudent by the independent actuaries. Is the hon. Lady challenging what the independent actuaries have said?
Mrs. Beckett: If the hon. Gentleman has had sight of the report from the independent actuaries, we would like
to see it as well, and so would the House. How does he know what the independent actuaries have said? It is not in the Library of the House. Can he cast any light on the matter? Is he claiming to have seen the report?
Dr. Spink: My information comes directly from British Energy.
Mrs. Beckett: I am not sure on what basis, as a Government Back Bencher, the hon. Gentleman has this inside track to British Energy. I am sure that other potential shareholders would be delighted to have the same information. He strengthened the case I was making to the Secretary of State for publishing the report. I am sure that the Secretary of State will be able to tell us that he intends to do so.
The prospectus shows that dividend payments from the privatised company may not be covered by profits after tax for a number of years. That brings me to the question of the return for shareholders.
It is hard to know what to make of the extraordinary decision to announce what first year dividend the company will pay, when the sale has not yet taken place. To announce also that the dividend will be about twice the rate of the most optimistic profits forecast for that year so far raises the question what the company is doing promising dividends on such a scale. What makes the whole thing utterly ludicrous is that the dividend is to be paid before potential investors will have had to cough up a second instalment of the price of their shares.
Harold Macmillan once said that selling off state assets was like selling the family silver. The nuclear industry looks like being almost the last item to go in the Tory car boot sale of state assets. As any hon. Member who has read the words of the prospectus carefully will acknowledge, what is on offer here may not be silver--in fact, it looks remarkably like fool's gold.
Mr. John Redwood (Wokingham):
The right hon. Lady seems to be rather pessimistic about prospects for the shares, and seems to be telling people not to buy them. Can she assure us that her investment advice will be better than that of the hon. Member for Birmingham, Ladywood (Mrs. Short), who told people not to buy Railtrack shares on the grounds that they would go down rather than up? Does she have any comment on that?
Mrs. Beckett:
If I were a shareholder in either of those industries, I would rather have a longer period over which to judge what might happen to the share price than the right hon. Gentleman seems to be taking into account, which, as has been pointed out, is exactly what the brokers are saying. If the hon. Gentleman is concerned about the advice that we are giving, or believes that the observations that we are making about this potential sale are unsound, I suggest that he takes a further look at what is being said about it in the City.
Dr. Spink:
Will the right hon. Lady give way?
Mrs. Beckett:
No, not again. I want to get on, and I do not want the hon. Gentleman to incur another disaster, as he did on his previous intervention.
The company made a loss last year and warns of making one this year, but it still offers a massive dividend payout that seems to have been financed by a bridging loan from Her Majesty's Treasury.
The prospectus suggests that the company's ability to pay dividends at all in future is by no means certain. The directors say in the prospectus that their dividend policy is "critically dependent" on six assumptions, which I shall paraphrase for the benefit of the House.
It is assumed that the pool price of electricity will not fall substantially and that any price review will not affect British Energy's performance; that there will be no major unanticipated station failures; that British Energy will meet its targets, including both extending the life of some stations--running them longer--and making cost savings; that there will be satisfactory returns from reinvestment; that there will be no wider changes in regulation that will have an adverse impact on British Energy; and that there will be no significant rise in inflation.
Those are hefty caveats. It is evident that the assumptions are not only unlikely to be all fulfilled, but that they are mostly entirely outside the control of the directors. The notion that there is unlikely to be any change in regulation or any adverse outcome from the price review is hardly borne out by what has happened with electricity or gas supply.
The hope that there will be no unanticipated station problems is highly dependent, as the legal review to which I referred earlier shows, on some of the technical issues. The prospectus makes it clear that it is possible that unforeseen events or changes in regulatory standards may require the lifetimes of stations to be reduced, yet the background to the dividend policy talks about half of them having their lives extended.
All the assumptions are most heavily dependent on the position in the trading pool in which the price of electricity is set. At present, nuclear power stations have preferential access to that pool. The regulator has previously acknowledged that, if he were asked--for example, by other generators--to review British Energy's access to the pool, he would have to do so. That may in part account for the statement in the prospectus that the regulator has been asked
The fact remains that assumptions about what will happen in the pool, and about the effect of its operation on the price of electricity, are crucial to the assumptions that are being made about the dividends that are said to be on offer to shareholders. Shareholders who read in the popular press references to the new opportunities that this sale offers to Sid should bear in mind what has happened to the original Sids, which was itself a direct result of changes in Government policy of which Sid was given no inkling when the Government sold him or her their shares in British Gas.
The sale contains wider and more profound risks than simply commercial ones. In the previous debate, we drew attention not only to the inadequacy of the insurance cover that is being required of the industry but to the fact that it was substantially less, even on the most generous
estimates, than that frequently required elsewhere in the private sector--in the chemical industry, for example. That point was made to the Select Committee by the CBI.
The Minister's response in our previous debate was to talk about the narrow nature of any potential liabilities for the industry, as if a major accident--that is what the insurance is all about--would not have a significant impact, because of the restricted nature of the industry. That argument is bizarre. I call on the Government again, as does the private sector, to re-examine the provision that is being made on that. As matters stand, it is yet another area of financial uncertainty--certainly for the taxpayer, and probably even for the shareholder.
Our motion describes this privatisation as "reckless and cynical". I believe that any impartial observer would agree that that description was well-merited. I suspect that the level of hostile comment, and the degree of reservation expressed in the financial sector, is as unprecedented as the nature of this privatisation. There are certainly hidden consequences for the taxpayer. There may well be hidden consequences for the shareholders.
The only clear beneficiaries are the directors, whose total remuneration, according to the prospectus, is to rise by 38 per cent. on average; and a Government who are desperate to raise revenues that they hope can be used to justify a short-term tax cut and who are entirely indifferent to the consequences for the shareholder or the taxpayer in the longer term.
To say that the terms of the sale of the industry are unfair would be a gross understatement. The expected sale price, which is now said to be about £1.7 billion, is about half the cost of building Sizewell B alone. The other power stations have been thrown in for free. It is a tenth of the £13 billion that taxpayers have already laid out from their own pockets to build reactors.
The President of the Board of Trade and Secretary of State for Trade and Industry (Mr. Ian Lang):
I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
"to avoid making any announcement during the offer of the sale--and for three months after commencement of dealings--other than in exceptional and unforeseen circumstances".
The prospectus also makes it clear that other regulators have been asked to avoid saying or doing things that might affect the price of British Energy shares.
'welcomes the publication of the Pathfinder prospectus for the sale of British Energy which confirms that the sale fulfils the Government's commitment to ensuring that liabilities follow assets into the private sector and is a good deal for the taxpayer who will benefit from equity proceeds, debt repayment and the permanent transfer to the private sector of responsibility for almost £4 billion of nuclear liabilities, for British Energy employees who will now have the opportunity to take a real stake in the future of their industry, for Magnox Electric which will be a robust public sector company capable of meeting its liabilities as they fall due; and further notes that the privatisation of British Energy serves the long term interests of the taxpayer, the industry, and consumers; and condemns the persistent attempts by the Opposition to undermine this and other privatisations.'.
Once again, the Opposition are parading their familiar themes of doom and gloom and of misconception. Time and again, we have listened to Labour Members criticise
any privatisation proposals. When will they learn that such scaremongering has never proved to be correct? The right hon. Member for Derby, South (Mrs. Beckett) quoted the words "reckless" and "cynical" from her motion. They are a good summary of her attempt to undermine the privatisation.
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