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6 Feb 2003 : Column 494—continued

The First Deputy Chairman of Ways and Means (Sylvia Heal): With this it will be convenient to discuss the following amendments: No. 2, page 1, leave out lines 18 and 19.

No. 5, in page 2, leave out lines 1 to 3.

No. 9, in title, line 1, leave out

', or the acquisition of any securities of or any part of the undertaking or assets of'.

Mr. Blunt: We now turn to the issue of public ownership. The purpose of the amendment is to try to prevent the Government from going down a disastrous path—taking the company back into public ownership. The Minister said earlier that no one had come up with a better way. In fact, a better way would be that suggested by my hon. Friend the Member for Huntingdon (Mr. Djanogly)—a framework for the future of nuclear energy. There is no White Paper or other kind of framework on which people can form a judgment about the future of the industry. Indeed, as far as I am aware, there has been no unequivocal statement about the merits of nuclear energy from the Labour party for 25 years.

It is against that background that the industry is faced with such appalling uncertainty. Absolutely the worst outcome would be for the company to end up back in public ownership. Let me explain why that is plainly the case. The option of public ownership is simply not required. There is no threat to the security of supply from the power stations and no practical safety issue. If the company goes into administration, there will be an asset to be sold out of administration, because the stations and their workers generate not only power but cash, even at today's electricity prices. The Government have already said that they will take title to the liabilities under the rescue package that they are putting together with British Energy to keep it as a rescued entity in the private sector. That is a poor option, but public ownership would be a catastrophic option.

Do the Government really think that if the company goes into public ownership they will run it any better? That goes against all the evidence about public or private sector ownership over the past two decades. Aside from British Energy's commercial strategy, its operating performance—the performance of the work force, from plant manager downwards and of the plants themselves—has been very good. Indeed, some people would say that because British Energy has been so efficient at producing more power out of resources and reducing its cost base, it has contributed to the electricity industry's wider problem by producing more electricity into the market at lower cost, which is partly why the electricity industry now faces the problem of too much supply and not enough demand. Those people would argue that British Energy would have been better off investing its resources differently instead of driving its costs down. However, its work force have done everything that has been asked of them to improve their plants' output and operational performance. It cannot possibly be the case that that would be better in the public sector.

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Let us deal with the consequences of public ownership. First, there would be a complete lack of transparency over costs. It is difficult enough to identify the costs to the Government associated with British Energy's proposed rescue package, so goodness knows what they would be in the case of public ownership, given the company's relationships with BNFL and its tax situation. What would happen in relation to the disposal of fuel from a publicly owned company? The situation would be even more opaque that it is now. Would the company continue to improve its operational performance? No, because it would have no incentive to do so. Its operational performance would almost certainly decline from what has been achieved by British Energy's management and work force in private ownership.

Most devastating of all is the effect that public ownership would have on the future of the nuclear energy industry. That is why I profoundly disagree with the Minister's assessment of why he was opposed to privatisation in 1989. The simple fact is that if there is to be a new generation of nuclear power stations, it is conceivable that that investment would come only from the private sector. However, the private sector would make that investment only if there were a framework that allowed investors to judge performance. The Government have failed to produce that framework.

We do not know what the future price of electricity will be. Investors will make their own judgments about that, and for significant parts of the past year City analysts said that British Energy shares were worth buying and that the company would be successful commercially. Those judgments proved erroneous, but assumptions made last summer about the long-term price of electricity could turn out to be true by next summer if generating capacity continues to be withdrawn. The question of the future of coal-fired power stations after 2008, and the costs of the European directive on clean coal technology and other matters, will also have an effect on the generating sector.

If the industry is put into public ownership, will the Government say that they will build new nuclear power stations? No—I do not for a minute believe that they will. However, designs for a new generation of nuclear power stations might be available in five or 10 years. Those stations would produce electricity and help us to meet our Kyoto obligations in the most economically efficient way. It would be wholly irresponsible if that option were shut off.

In that respect, I depart from Liberal Democrat Members. They want the option to be shut off, and consider that the proper course of action is to run existing power stations to the end of their lives and not replace them. However, choices have to be made about bringing on new generating capacity in the UK. If British Energy were taken into public ownership, we would be deciding not to enable private companies to build new nuclear power stations that could use new designs, such as pebble-bed reactors. That would damage our national interest, as such stations might be

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the best economic and environmental answer for the UK. That is why it is essential that the company does not end up in public ownership.

Mr. David Drew (Stroud): I am pleased that the hon. Gentleman has gone on to the matter of engineering new generating capacity. Will he tell me who owns Westinghouse?

Mr. Blunt: I can tell the hon. Gentleman that BNFL owns Westinghouse. That is why the Conservative party will welcome the proposals that the Government will make on the liabilities management authority and the reorganisation of BNFL. If the Government pursue a sensible strategy on those arrangements, Westinghouse will be sold into the private sector, where it belongs. However, it appears that the Govt will produce another hybrid and that another hideous public-private partnership will emerge. Westinghouse designs and builds new nuclear reactors, and the company would be well placed to compete in the private sector with other similar companies from around the world.

If the Government take nuclear generation entirely into the public sector, the message would be that the industry was a lame duck that could survive only with public subsidy. In the end, there would be no opportunity to consider new options for nuclear generating capacity, even if they were in the UK's interests. Those options are at present an open question, and it would be wrong to preclude them now.

What message would be sent to the rest of the electricity market if the company were taken into public ownership? The case about the Magnox reactors owned by BNFL has often been made by my hon. Friend the Member for Croydon, South (Richard Ottaway). He is not here at present, but he has pointed out that they are the oldest power stations supplying electricity to the grid, that they are uneconomic on their own, and that they are kept going by subsidies from BNFL—that is, the Government.

I cannot come to a judgment about that, as I do not know enough about the economics involved, or about that particular case. However, if all nuclear reactors were in the public sector, it could be claimed that they were being kept in production unfairly, at the expense of the rest of the market.

4 pm

The point was eloquently made by the hon. Member for Twickenham (Dr. Cable), and also by Ofgem in its submission to the Government, that if the Government interfere with the operation of the electricity market, they will raise the internal rate of return for people who want to invest in that industry. If the Government take the company into public ownership, there will be a significant increase in the risk for investors. To offset that risk, they will demand a higher return on their investments in new UK generating capacity.

That is why I urge the Government to make it clear that they do not intend to interfere in the market. It is vital that they stand back and allow the market to work in order to secure the largest possible private investment so that our future generating capacity needs are met.

Mr. Bercow: Does my hon. Friend agree that he is justified in seeking the Government's assurance that

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they do not propose to nationalise, on account both of their treatment of British Energy and of the fact that we are shortly to have the Second Reading of the Industrial Development (Financial Assistance) Bill, which is a further token and indication of the Government's thinking on these subjects?

Mr. Blunt: I am grateful to my hon. Friend; he makes the point extremely well.

I entirely part company with the hon. Member for Twickenham in his view of the current state of liberalisation and privatisation in the electricity market, although I am not sure that he meant his remarks to be as extreme as they sounded when he said that the disadvantages of privatisation were manifest. How are those disadvantages manifest? In the 40 per cent. reduction in wholesale electricity prices that has sustained our manufacturing competitiveness? In the 35 per cent. reduction in prices for consumers since privatisation? Those price reductions alone have lifted 1 million people out of fuel poverty.

The privatisation of the industry has been of enormous benefit to the United Kingdom. We are still only at the initial stages of understanding how best to use Ofgem to ensure that the industry remains as competitive as possible, yet there is so much evidence that the lessons have been well learned in the UK and that the rest of the world is following our example—not least the European Union, where there is to be privatisation and liberalisation.

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