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TREASURY

Debt Management Office

The Financial Secretary to the Treasury (Ruth Kelly): The Debt Management Office (DMO) is today publishing its business plan for 2004–05. The DMO's targets for 2004–05 are set out in the business plan. A brief commentary on last year's outturn in relation to the comparable targets will be included in the DMO's report and accounts for 2003–04. A copy of the business plan has been placed in the Library of the House.

TRADE AND INDUSTRY

Operating and Financial Review

The Secretary of State for Trade and Industry (Ms   Patricia Hewitt): I am launching today a consultation on draft regulations for a statutory operating and financial review (OFR), following a recommendation of the company law review and proposals set out in the Government's White Paper "Modernising Company Law" of July 2002. Copies have been placed in the Libraries of both Houses and the Vote Office.

The OFR regulations will require quoted companies to provide a narrative report setting out the company's business objectives, its strategy for achieving them and the risks and uncertainties that might affect their achievement. It will require companies to report on other matters where these are necessary for an understanding of the business. These matters include employees, the environment and social and community issues. It is proposed that where directors believe that they have nothing to report on those matters, they will have to state that fact. The OFR will represent a move from reporting on past performance to an assessment of the future prospects of the company in both the short and the long term. It will enable shareholders to judge whether the directors' view of the business meets their own long-term investment needs and their own expectations of the way good companies should perform—companies that understand the importance of human capital, open dealings with customers and suppliers, and their impact on the environment and on the wider community.
 
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The OFR will apply to all quoted companies. These are companies registered in Great Britain that are either listed in the UK or in any other European economic area (EEA) state or whose shares are traded on the New York stock exchange or NASDAQ. The regulations also implement related changes to the directors' report of other companies required by the Accounts Modernisation Directive.

A number of quoted companies already prepare OFRs or adopt the broad approach set out in a guidance statement originally introduced by the Accounting Standards Board in 1993 and revised in 2003. The directors of those companies recognise that such reporting can contribute to the profile of the company and offer the market confidence about its management and prospects. The OFR regulations will provide directors with the opportunity to provide key information to shareholders within a statutory regime that will give reassurance on the quality of the information provided. It will enable the best companies to maintain and promote their high standards while allowing other companies to raise their standards. It will contribute to market stability, shareholder engagement, investment, company performance and corporate social responsibility. It will facilitate informed dialogue between directors and shareholders, encouraging responsible institutional investors to adopt an understanding of the particular businesses their investments rely upon.

The Accounting Standards Board will be preparing a new reporting standard for the OFR. In addition, alongside the consultation, a working group chaired by Rosemary Radcliffe and representing a range of business, investor and wider interests, is publishing practical guidance for directors on the preparation of the OFR. I am extremely grateful to the working group for the hard work it has undertaken on this essential element of the OFR.

The consultation period will end on 6 August. After taking into account responses to the consultation, I intend to lay the regulations before the end of the year, so that they can apply to accounting periods beginning on or after 1 January 2005. I hope that all those interested in this issue will respond to our consultation and help us ensure that the OFR is an effective tool.

Special Shares (Energy Companies)

The Secretary of State for Trade and Industry (Ms Patricia Hewitt): I wish to inform the House about the Government's decision on the future of special shares held in the British Energy Group, Nuclear Generation Decommissioning Fund Limited, National Grid Transco plc, Viridian, Phoenix Natural Gas, Scottish Power, and Scottish and Southern Energy.

The Secretary of State for Scotland and I jointly hold a special share in British Energy plc. I hold a special share in British Energy's English operating subsidiary, British Energy Generation Limited, and the Secretary of State for Scotland holds a special share in the Scottish operating subsidiary, British Energy Generation (UK) Limited. I also hold a special share in the Nuclear Generation Decommissioning Fund Limited (NGDF) that would be subsumed into the new Nuclear Liabilities Fund (NLF) being created as part of the proposed restructuring of British Energy. In addition, I also hold
 
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a special share in National Grid Transco plc. The Secretary of State for Northern Ireland holds special shares in Viridian and in Phoenix Natural Gas. The Secretary of State for Scotland holds special shares in Scottish Power, and Scottish and Southern Energy.

Special shares in these companies require the consent of the relevant Minister for certain significant decisions affecting shareholdings, the structure of the company or disposal of certain assets. In particular, Government consent is required for any move that would allow a single person to own more than 15 per cent. in any of the companies.

We have been considering carefully the future of these shares that date back to the original privatisation of the companies in the light of the European Court of Justice (ECJ) judgments on special shares (including BAA) on 13 May 2003, and, in the case of British Energy, the proposed restructuring of the company. The Government have concluded that the current legal and regulatory framework now provides adequate protection of the public policy objectives, which the special shares were initially set up to cover. We will maintain only those that can be justified and are necessary in the public interest.

Taking account of the ECJ judgments, the Government have decided to redeem the special shares held in National Grid Transco plc, Viridian, Phoenix Natural Gas, Scottish Power, and Scottish and Southern Energy.

The Government have decided, however, that it would be justifiable to retain two key provisions of the British Energy special share: first, to require anyone who has purchased more than 15 per cent. of the issued shares of British Energy to obtain the Government's consent; and, secondly, to require the consent of the appropriate Secretary of State for any disposal of a nuclear-station by British Energy. It is proposed that both provisions will be amended to provide that Government consent may be refused only on national security grounds. The nuclear security regime operated by the Department's Office for Civil Nuclear Security is robust and comprehensive, and is designed to prevent unauthorised access to nuclear stations or nuclear material falling into inappropriate hands. But in the context of nuclear energy we believe it is justified and proportionate to the risks involved to retain these two particular special share provisions in the companies of the British Energy Group.

Other provisions of the special shares in the British Energy Group would be given up on the same basis as for the conventional electricity companies. In the light of the ECJ judgment in would not be justified to retain general powers over the commercial operations of the company. These rights have not protected, and will not protect, the Government's economic interest in British Energy. This interest arises from the Government's ultimate responsibility to ensure safe management and funding of BE's nuclear liabilities, which would always fall to the Government in the last resort given their duty to safeguard nuclear safety, security and environmental protection. For the future, it is the contractual arrangements we are putting in place as part of the restructuring that would compel British Energy to
 
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contribute to its liabilities and help minimise demands on the taxpayer, and enable us to monitor the performance of the company.

The special share in the NGDF will be retained and carried forward into the NLF if British Energy's restructuring is successful. The special share contributes to the protection of the Government's significant interest in ensuring that the NGDF/NLF Company achieves its purpose of receiving, investing and ultimately paying out moneys for the decommissioning of British Energy's nuclear power stations.

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