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6 Feb 2003 : Column 497—continued

Mr. John Redwood (Wokingham): My hon. Friend makes a powerful case against nationalisation. Is there not another important point? Whenever nationalisation has taken place in the past, it has been at enormous financial risk to the taxpayer. It costs far too much money when it goes wrong and puts money that is needed for teachers, nurses and doctors to a wholly unproductive use, as I am sure that my hon. Friend will confirm.

Mr. Blunt: I entirely agree with my right hon. Friend. That is true not only of companies that are taken into public ownership, but of the Government's support for British Energy's proposed restructuring package. The value left for the bondholders or shareholders of British Energy if the deal is approved would otherwise have been available to the taxpayer to spend on the services to which my right hon. Friend alluded. Furthermore, staggering amounts of money are being spent on consultancy fees; I understand that, to date, the bills from lawyers and management consultants amount to £9 million and that a possible total of £100 million was suggested in The Times. The Minister pooh-poohed that on the radio. He asked where such figures came from, but if the Government have already been presented with bills for £9 million, I should not be surprised if the total were £50 million or even £100 million by the end of the process. It would be a tragedy to throw away the benefits of the industry being in the private sector, when potentially huge damage could be done to the UK's future interests. Privatisation and liberalisation are the right economic answers. Sometimes when companies get into commercial difficulties, investors lose money and the companies go bust or into administration. In this case, there will be assets to be sold out of

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administration, which will work in the public interest in the UK by generating power and cash for people who choose to buy those assets—which is why British Energy should not be allowed to fall into the hands of the Government.

Mr. Drew : I agree with the hon. Member for Reigate (Mr. Blunt) about the need to keep open opportunities for nuclear generation, but on everything else he talks absolute nonsense. The Government would be foolhardy not to provide for the option of returning British Energy to public ownership if that were the only way to safeguard its basic integrity and, more important, the skills and expertise that are vital in meeting national and international requirements. The nuclear industry's special circumstances require that those skills and that expertise are kept alive.

Mr. Mark Hendrick (Preston): I am not suggesting for a moment that the company will be nationalised, but has it not been the case throughout history that nationalisations have resulted from market failure? Not to nationalise in some circumstances would be totally irresponsible.

Mr. Drew: I agree. If the state were not the lender of last resort, who would be? It is a nice idea that one can asset strip and reconfigure the industry, but everyone—whether pro-nuclear, anti-nuclear or agnostic on nuclear—would worry if the industry were split up under the pretence that everything will be hunky-dory. That would be an illusion at best and could be incredibly dangerous, given the times in which we live, so the Government must act honourably and sensibly. I do not believe that the market would have any interest in taking on responsibility. It would look at the financial outcome—certainly not at safety and security.

Mr. Blunt: New nuclear energy needs a framework within which people can invest. It will plainly include some form of payment to a fund to provide for the risks currently being taken by the Government. I refer not to the current decommissioning fund for which British Energy currently provides. The issue that must be addressed is where a company that is meant to contribute from its profits to its back-end fuel liabilities does not make a profit.

Mr. Drew: I wish that I could be as optimistic. The City works within an incredibly short-term framework but the nuclear industry, with the best of intentions, looks to a set of long-term outcomes—well beyond the life expectancy of most right hon. and hon. Members. Bringing those completely contradictory themes together is neither easy nor practicable, so the Government are entirely right.

It is a nice notion also that keeping British Energy in the private sector would in some way make all the calculations, different arrangements and contracts that much more transparent. Anyone who has seen the parliamentary questions that are regularly asked about BNFL or British Energy, which is more difficult, will know that the stock answer is that financial matters are confidential to those companies. That is the way of the world; huge contracts dependent on the negotiations between the different interested parties are involved, and they are not in the public domain.

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The fact is that the way in which the industry was privatised is at the root of many of the problems. The lines drawn between British Energy and BNFL have always been grey. Many of my constituents go up and down the road between Berkeley and Barnwood, as they are employees of those companies. Anyone who knows about the industry will say that it is very complex and that the overlap is always so great that it is very difficult to pretend that there is transparency in the financial operations. More importantly, the companies are so integral to each other that it is very difficult to pretend that there is anything other than a seamless arrangement between them, rather than a join. So the idea that there is transparency is somewhat illusory.

The third point is the suggestion that we would be fundamentally different from other parts of the world. I wish someone would tell me where the nuclear industry operates entirely through the marketplace and where it is entirely about private enterprise. In every part of the world—whether in South Africa, the former Soviet Union states, Japan or even the United States, which is the closest comparison—the state is involved directly or indirectly in determining the strategy, providing the finance and setting the parameters.

Again, the idea that we have a nice, neat division between the private and public sectors is completely illusory, so the Government are entirely right to have a backstop and to be responsible. They must have the means to keep people in the industry so that it can do what it needs to do nationally and, more importantly, internationally.

Mr. Hendrick: Will my hon. Friend give way?

Mr. Drew: I hope that my hon. Friend will not mind if I conclude my remarks now.

Even with the best will in the world, I cannot support the amendment, and I hope that it will not be pressed to a vote. If it were accepted, there would be an even greater threat not just to market sensibilities, but to the whole strategic direction of the energy industry in this country and, I dare say, further afield.

Mr. Djanogly: First, I should like to declare a non-registerable interest in British Energy shares.

My first point is technical and relates to the definition of British Energy in the context of the amendments. The Bill defines "British Energy company" as

The Companies Act 1985 uses a control definition of "subsidiary"—normally, if more than 50 per cent. of the company is owned—but a smaller percentage holding could apply if control of the subsidiary were owned through voting rights.

I should like to ask the Minister some questions. Are there any subsidiaries that are not 100 per cent. owned? If so, who owns those minority shareholdings? If there are such companies—for example, joint ventures and so on—will the Government give an assurance that clause 1 will not be used to acquire them? Of course, the fear is

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that those provisions could be used effectively to pay off third parties and to get around the order of payment that would apply under the normal insolvency rules. If the clause were used to subvert our insolvency rules, there could be great cause for concern and hon. Members would certainly want it to be debated.

Nationalising the company would be a disaster. Clearly, it has had problems. There have been management and strategy failures, and the Government have failed to understand the implications of their own legislation on the market. Ironically, the windfall tax has taken from this sector about the same amount as the taxpayer will need to pay towards British Energy's historic nuclear fuel liabilities.

4.15 pm

We then have to consider the climate change levy and the new electricity trading arrangements. We could discuss the Government's failure to give a clear lead on where the industry is going. Without the energy White Paper, we and the whole energy sector are forced to scramble around in the dark. That will continue until we know what is in that White Paper.

Of one thing I am sure: any attempt to manage this business from Whitehall would certainly not work. That would remove the sector even further from the disciplines of the marketplace, and would load further liabilities on to the taxpayer. The power of acquisition in this clause will send all the wrong messages. This company should go into administration, as any other company in a similar situation would do. The Government have admitted that, either way, they will be responsible for nuclear liabilities. Why, therefore, do they keep digging a hole—a hole that will appear in taxpayers' pockets? That hole will get bigger if the Government start buying up power stations.

The Government view having an administrator as a possibility but, worryingly, the Minister for Energy and Construction is already undermining the role of any such administrator. That role, of course, is to maximise returns for creditors. On Second Reading, the Minister said that the Government were

He has repeated that view in a slightly different way this afternoon. In fact, he has gone even further, asking why the Opposition had not come up with a purchaser for the business. I felt that he had rather missed the point. If what the Minister said is coupled with the failure to publish the White Paper and to show potential buyers what will happen in the sector and what kind of marketplace will exist, what rational person would want to be a buyer? Could it be that the Government are, in effect, killing the market so that they can buy the assets back on the cheap if restructuring fails?

Again on Second Reading, the Minister noted:

On the face of it, that is absolutely right. I cannot take issue with it. However, in practice, the argument is nonsensical. The Government can manipulate the market, and may have done so already. That being the case, if the Government were to put the provisions that

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we are discussing into effect, how could they reach a fair valuation if they were to buy British Energy or parts of it? It would be impossible, and it would give clear cause for shareholder or creditor class action.

From reading many of the speeches on Second Reading, I saw clearly that there had been a general misconception of what administration involves. Most hon. Members seemed to believe that administration could lead to the sale of British Energy, either to a third party or to the Government. The possibility of such a sale is contained in clause 1(1)(b). However, in practice it is rare that administrators will sell assets in the form of shares, because purchasers coming to an administrator want to cherry-pick. They want to choose the assets that they want to buy. In most cases, they will not accept taking all the assets. Even if they do, they will not want to take all the liabilities. As far as possible, they will leave the liabilities with the company in administration. Clearly, that means that buyers may wish to acquire individual power stations rather than the whole lot. Of course, they will do that only if they are not scared off by the Bill, the lack of a White Paper and the threat of nationalisation. They are undermining the whole process.

When the Trade and Industry Committee conducted an inquiry into the security of energy supply, one feature that shone through when we considered the gas market was that the key to its success—it is generally considered to have been successful in recent years—has been its freedom and the adaptability that results from the freedoms that it has. Rather than providing for nationalisation and greater inefficiencies in the market, why cannot we now draw a line on intervention and accept that the market will eventually have its own way and that intervention will fail?

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