House of Commons - Explanatory Note
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Clause 31: Taxation of NDA activities chargeable under Case VI of Schedule D

138.     Clause 31 confirms that the income generating activities of the NDA will be taxed under Case I of Schedule D, rather than Case VI of Schedule D, under section 18 of the Income and Corporation Taxes Act 1988. This is being introduced in case the contractual relationships between the NDA and site licensee companies are such that the income generating activities of the NDA would be taxable under Case VI under the general tax rules. Taxing the income from significant activities, such as electricity generation, under Case VI would cause difficulties. This is because the tax clauses in this Bill have been drafted on the assumption that the NDA would be carrying on a trade for tax purposes, and Case VI does not have the comprehensive computational rules in the same way that Case I does.

139.     Subsections (1) and (2) confirm that activities carried out by the NDA when fulfilling its potentially commercial functions under clause 6 are taxed under Case I, unless there is specific tax legislation (other than section 18 of the Income and Corporation Taxes Act 1988) to tax them under Case VI.

140.     Subsections (3) and (4) provide for any activities to be treated together as part of the same trade or of another "real" trade being carried on by the NDA, unless specific tax legislation requires the activity to be treated as carried on as part of a separate trade.

141. Subsection (5) ties this clause to the corporation tax legislation.

Clause 32: Disregard for tax purposes of cancellation etc of provisions

142.      This clause provides that the accounting entries made by a publicly-owned BNFL site licensee company arising from the initial recognition of the NDA taking responsibility for nuclear clean-up and decommissioning liabilities are not included in the tax computation ("a disregard"). This disregard would only apply to the initial accounting entries made on the undertaking of responsibility.. The clause addresses the possibility that the NDA may take responsibility either as a result of a direction under clause 6 or by virtue of a transfer of liabilities etc to the NDA under clause 42. In the former, more likely, case this will involve the recognition of an asset representing sums recoverable from the NDA when it first takes responsibility as a result of a direction. This asset would match the nuclear liabilities that had been provided for in the accounts of the BNFL site licensee.

143.     Without this provision the accounting credit arising in these circumstances would increase the taxable profits (or reduce the tax-allowable losses) of the BNFL company in which the credit was made. Where the NDA has taken responsibility by virtue of a direction under clause 6 (thereby causing the site licensee to recognise an asset to match its liabilities) the site licensee may recognise in its accounts subsequent change in the estimated value of the NDA's undertaking to pay for nuclear clean-up and decommissioning. The disregard will not apply to these accounting changes nor to the actual expenditure to which they relate. These subsequent changes would lead to accounting entries for the decommissioning liability and the right to recover sums from the NDA, which would match one another. This matching treatment would be followed for tax without the need for a special rule.

     144.     Subsections (1 and (2) define the circumstances in which the "disregard" applies. Subsection (3) sets out the disregard itself.

     145.     Subsection (4) ensures that it is only the accounting entries caused by the NDA acquiring responsibility for decommissioning and cleaning-up, or by the transfer of property etc to the NDA or a subsidiary of the NDAunder a nuclear transfer scheme under clause 42, that are to be disregarded

     146.     Subsection (5) contains definitions and subsection (6) ties this clause to the corporation tax legislation.

Clause 33: Disregard for tax purposes of provisions recognised by NDA

147.     Clause 33 introduces a new clause for the NDA that mirrors the effect of the new clause introduced by clause 32 for BNFL. The disregard in clause 33 applies to the NDA so that the entries recognised in its accounts immediately on taking responsibility for BNFL's nuclear liabilities would not be brought into account for tax purposes. As for clause 32, the disregard would not apply to any subsequent change in estimated value of the expenditure to which it relates.

148.     Subsections (1)) and (2) set out the circumstances in which the "disregard" applies. Subsection (3) sets out the disregard itself. The disregard applies only to entries relating to nuclear sites where the nuclear site licence is held by BNFL or a wholly owned subsidiary.

149.     Subsection (4) restricts the disregard to accounting entries for the first recognition of the provision in the accounts of the NDA.

150.     Subsection 5 contains definitions and subsection (6) ties this clause to the corporation tax legislation.

Clause 34: Establishment and maintenance of the Account

151.     Clause 34 establishes a statutory account - the Nuclear Decommissioning Funding Account - as the basis for funding all of the NDA's activities. The aim is to enable the NDA to plan ahead effectively and put long term contracts in place by demonstrating the availability of funding on a rolling basis over a period of ten years or more.

152.     The provision is intended to give confidence to the market that resources will be available to support substantial programmes of work over a period of years, and thereby should encourage competition for clean up contracts and help to build confidence in the NDA and in its programmes.

153.     Subsection (2) provides for the opening balance of the Account to be determined by the Secretary of State with the consent of the Treasury. The intention is to ensure it is sufficient to support the NDA's programme over the first 10 year period. The opening balance will be the sum total of:

  • the value of BNFL's Nuclear Liabilities Investment Portfolio (which, under clause 45 of the Bill will be transferred to the Secretary of State and paid into the Consolidated Fund - see paragraphs 173 and 174 below);

  • the value of the Magnox Undertaking of 1998 at the time it is extinguished by clause 46 of the Bill (see paragraphs 175 and 176 below);

  • an additional sum from Government to drive forward the decommissioning and clean up programme as effectively and efficiently as possible.

154.     Thereafter, the Account will be held by the Secretary of State who, under clause 25, will receive all income passed to the NDA for payment into the Consolidated Fund and provide grants to the NDA. The Account will record all such receipts and grants as credits or debits respectively. Any money generated by the NDA in operating installations such as THORP, SMP or Magnox will therefore be identified as a contribution to the funding of the decommissioning and clean up programme. Subsection (4) also provides for the Account to be credited by any amounts received by the Secretary of State on the NDA's behalf and by interest on the balance in the account.

155.     The annual contribution will be the largest and most important of the credits to the Account. The intention is that it should be set at a level which ensures that the balance of the Account is kept at a sufficient level to support a rolling ten year programme for the NDA. Subsections (6) and (7) require the Secretary of State to publish a policy statement explaining how the annual contribution is to be determined so as to prevent the balance of the Account falling below a minimum defined level determined by the Secretary of State with the consent of the Treasury. The Secretary of State will be accountable to Parliament for the implementation of this policy and the operation of the Account as a whole.

Clause 35: Examination of the Account

156.     Clause 35 makes provision for the Comptroller and Auditor General (C&AG) to examine the operation of the Account and the application of the policy for determinations of the Government's annual contribution. The aim is to ensure that the operation of the Account is subject to independent scrutiny. The C&AG's report is to be based on a statement by the Secretary of State setting out the credits and debits made to the account for the period of the statement. The C&AG must lay copies of the statement and of his report before Parliament.

Clause 36: Validity of transactions

157.     Clause 36 provides that a contract which is entered into by the NDA is not invalidated by conduct of the NDA which is outside its powers or contravenes the duties imposed on the NDA by clause 10(6) or 12 or a direction given by the Secretary of State under the Bill. The clause also stipulates that contractors are not required to enquire or see whether the transaction being entered into constitutes or involves such conduct or contraventions. Potential contractors will not therefore have to concern themselves with checking whether the Bill has been complied with by the NDA before entering into a contract.

Clause 37: Amendment of Schedule 12 to Electricity Act 1989

158.     Clause 37 makes two detailed amendments to Schedule 12 of the Electricity Act 1989 (c.29), which allows the Secretary of State to give financial assistance in connection with cleaning-up after nuclear activities. The first brings the scope of Schedule 12 (which already covers the decommissioning of an installation licensable under the Nuclear Installations Act 1965) into line with the concepts of decommissioning and cleaning up of nuclear installations and principal nuclear sites under this Bill. The second provides that the Secretary of State's power to give financial assistance under Schedule 12 does not apply where the NDA has financial responsibility under clause 24 of this Bill.

Clause 38: Power to modify Chapter 1 of Part 2

159.     Clause 38 gives the Secretary of State a power, by order subject to affirmative resolution of both Houses, to modify the provisions of clauses 5, 14, 15 and 16 and their related Schedules on the constitution of the NDA and the process for approving the NDA's strategy and annual plans. It provides the flexibility to make any amendments to those provisions which might be necessary or desirable without having to secure the Parliamentary time needed for primary legislation. The Secretary of State must consult Scottish Ministers before making an order and cannot modify the functions of Scottish Ministers without their consent.

Clause 39: Meaning of "nuclear site" etc and "person with control"

160.     Clause 39 defines key concepts for the designation and control of sites, installations and facilities. Subsection (2) defines the two types of nuclear site which are the basis in clause 6(1)(c) for the NDA's responsibilities for clean up: principal nuclear sites and contaminated sites. The powers of the NDA and the duties on the persons with control of sites depend on their categorisation. The principal differences are in the application of clauses 20 and 21 which only apply in relation to principal nuclear sites or facilities thereon. Subsection (3) defines the person with control of an installation, site or facility in a range of specific cases.

161.     A "principal nuclear site" includes sites licensed under the Nuclear Installations Act 1965 (c.57); sites which would require a licence were the licensing requirements to apply to the Crown; non-licensed sites on which there is situated a facility for which the NDA has responsibility; sites where there are nuclear fusion research installations (the only existing one is the UKAEA site at Culham); and sites which are still contaminated as a result of nuclear activities (defined in subsection (5)) carried out on the site during or before the time when it fell within one of the preceding classes of site which could include for example, old military ordnance.

162.     Contaminated sites can either have been contaminated as a result of a range of activities in, on, or related to a nuclear installation, principal nuclear site or NDA facilities (subsection (5)) or are the location of hazardous material. The contamination can be either radioactive or chemical in nature. This means that the NDA can potentially take responsibility for sites which are not principal nuclear sites but which have been contaminated from a range of sources connected with the nuclear industry. An example would be where pipe-lines discharging radioactive waste have leaked onto adjoining land.

163.     There is a third category of site, a "related site", which is a particular type of contaminated site. This is dealt with separately in clause 22.

Clause 40: General interpretation of Chapter 1 of Part 2

164.     Subsection (1) defines terms used in this Part of the Bill. The definitions of "cleaning up" and "decommissioning" are drawn very broadly to include removing any substance or material (i.e. not just hazardous material) that needs to be removed in order to make the site or installation suitable for other purposes. What the other purpose should be for a particular site will be determined by the objectives for it set out in the strategy. Hazardous material is defined to include "nuclear matter" within the meaning of the Nuclear Installations Act 1965, "radioactive waste" within the meaning of the Radioactive Substances Act 1993 (see subsection (7)) and things that have been contaminated as a result of nuclear activities, as defined in clause 39. It should be noted that the definition of "treat" in relation to hazardous material includes both the manufacture of nuclear fuel and the reprocessing of spent fuel. It is also worth noting that for the purposes of the Bill a "facility" includes any, or all, of an installation, an undertaking or a business, and any vehicles or other property used for the purposes of an undertaking or business. Subsections (3) and (4) define a publicly owned company.

  • Nuclear material" is defined in section 26 of the Nuclear Installations Act 1965 (c.57) to mean—

         "(a)     any fissile material in the form of uranium metal, alloy or chemical compound (including natural uranium), or of plutonium metal, alloy or chemical compound, and any other fissile material which may be prescribed [by regulations made by the Secretary of State]; and

         (b)     any radioactive material produced in, or made radioactive by exposure to the radiation incidental to, the process of producing or utilising any such fissile material as [mentioned in paragraph (a)];".

         The power to except types of matter from the definition in the Nuclear Installations Act 1965 is disregarded by clause 40(7).

  • "Radioactive waste" is defined in section 2 of the Radioactive Substances Act 1993 (c.12) to mean "waste which consists wholly or partly of—

         (a)     a substance or article which, if it were not waste, would be radioactive material; or

         (b)     a substance or article which has been contaminated in the course of the production, keeping or use of radioactive material, or by contact with or proximity to other waste falling within paragraph (a) or this paragraph.".

  • "Radioactive material" is defined in section 1 of the Radioactive Substances Act 1993 to mean (broadly) anything which is not waste but which is a substance possessing a degree of radioactivity as set out in Schedule 1 to that Act, or a substance which is radioactive—

         (a)     due to a process of nuclear fission (or other process of subjecting a substance to bombardment by neutrons or to ionising radiations);

         (b)     in consequence of the disposal of radioactive waste; or

         (c)     by way of contamination in the course of the application of a process to some other substance.


Clause 41 and Schedule 5: Nuclear transfer schemes

165.     Clause 41 gives the Secretary of State powers to make transfer schemes under Chapter 2 of Part 2 of the Bill subject to consulting the relevant party (the NDA, the UKAEA or BNFL) and the consent of the Treasury. Subsection (2) prohibits the transfer by scheme of a nuclear site licence.

166.     Supplementary provisions relating to transfer schemes are set out in Schedule 5 of the Bill. These are modelled on previous legislation, in particular, the equivalent provisions in the Atomic Energy Authority Act 1995 (c.37) relating to the transfer of the then commercial activities of the UKAEA. Most of the provisions relate to the proposed restructuring of BNFL but the powers may also be used to split new site licensee companies out of Magnox Electric plc and UKAEA and, as explained below, for other purposes.

167.     In more detail, Schedule 5 defines the property, rights and liabilities which may be transferred; the basis on which transfers may be made, both in relation to property, rights and liabilities held in the UK and in other legal jurisdictions; and the effect of schemes made under the Bill. It also provides for the modification of schemes by agreement within a period of three years of the date at which the scheme was first made, and for the payment of compensation where, as a result of a scheme being made, a third party is prevented from exercising an entitlement to an interest or right. Paragraph 10 of Schedule 5 makes express provision to the effect that the Transfer of Undertakings (Protection of Employment) Regulations 1981 shall apply to any transfer made via a scheme and, in that context, places a duty on the Secretary of State to give notice of any proposal to make or modify a scheme to such persons as he considers appropriate for enabling the provisions of the 1981 Regulations to be complied with.

Clause 42 and Schedule 6: Transfers of publicly owned assets

168.     Clause 42 provides for the transfer by scheme of any property, rights and liabilities as defined in subsection (2) to a publicly owned company, the NDA or a third party (a 'consenting person') who has consented to the provisions of any scheme relating to him. Subsection (6) prohibits the transfer of securities in BNFL, or of a wholly owned subsidiary of BNFL, or of any property, rights or liabilities of those companies, at a time when BNFL is no longer publicly owned. The clause provides the basis for the planned restructuring of BNFL within the public sector and for subsequent transfers from BNFL, Magnox Electric and UKAEA to any new site licensee companies which the NDA may wish to establish in order to promote competition for site management contracts and otherwise achieve its objectives. It is highly likely that these Regulations would apply anyway but express provision is made to achieve certainty.

169.     Schedule 6 provides for the financial structure and control of publicly owned transferee companies following a transfer scheme. These provisions are modelled on the equivalent provisions in the Atomic Energy Authority Act 1995 (c.37). Paragraph 2 of the Schedule permits the creation of the initial Government shareholding in a transferee company. Paragraph 3 empowers the Treasury, or a Minister of the Crown, to invest in securities of the transferee company. Paragraph 4 permits the use of nominees by the NDA, the UKAEA and a Minister of the Crown. Paragraph 5 requires dividends or other sums received by the Treasury, or a Minister of the Crown in right of, or on the disposal of, securities or rights acquired by virtue of Schedule 6 to be paid into the Consolidated Fund. Paragraph 6 sets out the provisions for establishing the excess of accumulated realised profits over accumulated realised losses of the transferee company and also the provisions for determining the amount of such an excess that shall be treated as undistributable reserves. Paragraph 7 sets out the accounting assumptions that will apply to a transferee company in respect of a period which includes a transfer date, for the purposes of determining whether a distribution may be made. Finally, paragraph 8 confirms that the Schedule does not prejudice the inherent power of a Minister of the Crown or the Treasury to acquire or dispose of securities of a company or to act through nominees for that purpose.

Clause 43: Transfers with the consent of the transferor

170.     Clause 43 provides for the transfer by scheme of shares in, or the property, rights and liabilities of, a nuclear company in the private sector to either a publicly owned company or the NDA. By virtue of subsection (2), such transfers may only be made where the private sector company concerned has consented to the provisions of the scheme. This clause is intended to deal with circumstances where, for reasons of public safety or in order to minimise costs to the taxpayer, the NDA is given responsibility for the decommissioning and cleaning up of sites or installations which are owned by a private sector company.

Clause 44: Recovery of property from private ownership

171.     Clause 44 provides for the recovery by transfer scheme of shares in, and the property, rights and liabilities of, a site licensee company which, for the duration of its contract, is legally owned by a managing contractor appointed by the NDA. It reflects the fact that site licensee companies will be, de facto, assets of the NDA and the primary means by which it discharges its responsibilities. It is therefore essential that the NDA should be able to recover ownership of a company (and any associated assets etc., including new shares issued and new property acquired by the site licensee company) when a managing contractor is in breach of contract or a management contract comes to an end or is terminated.

172.     Subsections (2) to (8) provide for the making of a scheme to transfer the ownership of the site licensee company and associated property, rights and liabilities, either to the NDA itself, a publicly owned company, or to a consenting contractor. When a contract comes to an end, the expectation is that these assets will be transferred on to a new managing contractor and held by it for the duration of its contract with the NDA. However, where a contract is terminated at short notice, either because of the failure of the managing contractor or because it is in breach of contract terms, it may be necessary for the NDA to manage the site licensee company itself or via a new public sector company until a new contractor is appointed. Clause 44 permits the recovery of securities, property, rights and liabilities from persons other than the original management contractor and its subsidiaries. However, where there is recovery of securities, property, rights and liabilities from such a person, paragraph 12 of Schedule 5 provides for compensation. Paragraph 12 does not provide for compensation to management contractors, because such persons will have contracts with the NDA. Those contracts will be negotiated against the backdrop of clause 44, and the rights of the management contractors (including any rights to compensation) may be provided for in the contracts.

Clause 45: Transfer of Nuclear Liabilities Investment Portfolio

173.     Clause 45 provides for the transfer of BNFL's Nuclear Liabilities Investment Portfolio to the Secretary of State and the subsequent payment of the sums involved - whether cash transferred or money received as a consequence of realising assets forming part of the NLIP - into the Consolidated Fund.

174.     At 31 March 2003, the NLIP had a total value of £3.84 billion made up of around £2.34 billion in cash and Government gilts and £1.5 billion in short term fund-managed investments.

Clause 46: Undertakings given by the Secretary of State

175.     Clause 46 provides for the extinguishment of financial undertakings given by the Secretary of State in respect of matters for which the NDA will assume financial responsibility once clause 24 comes into force. It is aimed primarily at the Magnox Undertaking under which the Secretary of State agreed in 1998 to make a series of payments based on the profile of expected expenditure on Magnox liabilities. The discounted value of the Undertaking at 31 March 2002 was £4.8 billion. Should the Secretary of State give other undertakings in the future, this clause would also apply to those other undertakings. When the NDA assumes financial responsibility for the decommissioning and clean up of Magnox sites the Undertaking will no longer be required.

176.     Subsection (3) prohibits the extinguishment of undertakings where the recipient of the sums involved is not publicly owned. In the case of the Magnox Undertaking, however, the intention would be to extinguish it as part of the financial restructuring of BNFL consequential on the transfer of commercial businesses from BNFL to New BNFL.

Clause 47: Extinguishment of BNFL losses for tax purposes

     177.     The accumulated losses in BNFL companies that have built up over time largely arise, one way or another, from provisions made in BNFL's accounts for decommissioning and clean-up. BNFL will cease to have to bear these costs when the NDA takes responsibility for decommissioning and clean-up under Clause 24 or when assets and liabilities are transferred from BNFL under Clause 42. And under clause 32 the credits BNFL will recognise in its accounts when the NDA takes responsibility are exempted from tax. As a quid pro quo clause 47 extinguishes the tax losses of BNFL and its subsidiaries

     178.     Subsection (1) extinguishes losses in BNFL companies for accounting periods beginning on or after the trigger date, which is defined in subsection (4).

     179.     Subsection (2) lists the various sorts of tax losses which are extinguished by this clause.

     180.     Subsection (3) restricts the application of this clause to publicly owned BNFL companies. This is because the extinguishment, like the tax disregard in clause 32, is focussed on and to facilitate the reorganisation of the responsibility for nuclear decommissioning and clean-up within the public sector.

     181.     Subsection (4) sets out definitions, including of "trigger date", which is the earlier of the date when the NDA takes financial responsibility under clause 24 of a BNFL site and the date when property etc of a BNFL company is transferred to the NDA or a subsidiary of the NDA in accordance with a nuclear transfer scheme authorised by clause 42.

182.     Subsection (5) ties this clause to the corporation tax legislation.

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Prepared: 23 April 2004