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Schedule 8
Amendments made: No. 21, in page 203, line 30, leave out from ‘the’ to ‘purpose’ in line 31 and insert ‘main’.
No. 24, in page 209, line 7, at end insert—
‘(6) A plant or machinery lease is not a funding lease in the case of the lessor if—
(a) before 1st April 2006, the plant or machinery had, for a period or periods totalling at least 10 years, been the subject of one or more leases, and
(b) the lessor under the plant or machinery lease was also lessor of the plant or machinery on the last day before 1st April 2006 on which the plant or machinery was the subject of a lease.’.
No. 25, in page 212, line 43, at end insert ‘(but see also subsection (4A))’.
No. 26, in page 213, line 23, at end insert—
‘(4A) A lease is not excluded by virtue of subsection (2) if—
(a) the inception of the lease is before 28th June 2006, and
(b) by virtue only of section 70J(6), the lease is not a funding lease in the case of the lessor.’.
No. 22, in page 214, line 32, leave out from ‘is’ to ‘that’ in line 33.
No. 23, in page 216, line 26, leave out from ‘if’ to third ‘the’ in line 27.— [Mr. Watts.]
4 pm
Rob Marris (Wolverhampton, South-West) (Lab): I beg to move amendment No.1, page 92, line 2, leave out clause 99.
Mr. Deputy Speaker: With this it will be convenient to discuss amendment No. 2, in clause 100, page 93, line 40, leave out clause 100.
Rob Marris: I wanted another run around the block on the UK nuclear industry from a financial point of view. Clauses 99 and 100 go hand in hand in amending the Energy Act 2004. Clause 99 deals with British Nuclear Fuels Ltd and clause 100 covers the Nuclear Decommissioning Authority.
British Nuclear Fuels Ltd is a Government company, which has a turnover of approximately £3.5 billion. It appears to me, prima facie, that clause 99 is part of a device to fatten up BNFL from a tax point of view because of the sell-offs that it proposes to make. It will sell British Nuclear Group, and the rumours are that that is expected to raise between £500 million and £1 billion. It proposes to sell BNG America and is in advanced talks with Toshiba to sell Westinghouse this autumn for a reported £5.4 billion. It also owns a third of Uranco, a uranium reprocessing company, the other two thirds of which are owned in the Netherlands and Germany. British Nuclear Fuels Ltd is therefore a sprawling, large company, which deals with a large industry. Whatever happens in future, it will continue, for many years, to play a significant part in energy delivery and have a significant environmental impact in the United Kingdom.
Hon. Members will not be surprised to hear me referring to the explanatory notes. Paragraph 12 of the explanatory notes for clause 99 states:
“The amendments provided in this clause will preserve the intended effect of section 29”—
“and ensure that a BNFL site licensee company does not incur corporation tax charges or acquire taxable losses as a consequence of the NDA taking responsibility for decommissioning and cleaning-up liabilities.”
I wanted to probe the Government a little about the figures.
British Nuclear Group is a site-management and clean-up company, a contractor for the Government’s Nuclear Decommissioning Authority and, as I said, a subsidiary of BNFL. It remains state owned, although BNFL may sell it off sometime in the next 12 months. British Nuclear Group has responsibility for Sellafield, formerly Windscale, for the older Members among us, and it operates 14 sites in the UK. There is also BNG America, which is a different operation, albeit owned by BNFL.
The nuclear industry has a history of lying about figures. That is widely accepted, although whether it continues to do so is a matter for debate. However, proponents of nuclear power, and especially the nuclear industry in the 1960s, 1970s and 1980s, made statements that were clearly inaccurate on many counts. In some cases, they were outright lies rather than simply optimistic projections. The nuclear industry around the world is, in every case, heavily subsidised directly or indirectly by Governments, including in the UK.
I am worried that clauses 99 and 100 would further the subsidies to a failing industry.
David Howarth (Cambridge) (LD): Does the hon. Gentleman agree that one of the difficulties with the two clauses is that nothing appeared about them in the press releases that accompanied the Budget resolutions and that the Red Book contains nothing about how much they might cost? The Government might be trusted more on that issue if such figures were available.
Rob Marris: It is part of the process of parliamentary scrutiny, in which we are currently engaged, to try to tease some of that information out of the Government. It might have been preferable, if the figures were available, for them to be in the Red Book. I suspect—although I do not know—that part of the Government’s response will be to say that we are considering a recirculation exercise for corporation tax liabilities, allowable tax losses and so on. That is a strong suspicion, based on what my right hon. Friend the Paymaster General said when we had a brief debate on the matter in the Standing Committee, on which I served. I would like, as I said, to tease out some figures, and I am sure that the hon. Gentleman and others would also like to do so. Leaving aside all the environmental issues about nuclear power, which it is not appropriate for us to discuss today—I am sure that you would rule me out of order if I tried to do so, Mr. Deputy Speaker—there are clear financial questions to be asked about the nuclear industry, both in the United Kingdom and around the world.
As I was saying, the industry is subsidised around the world. It is a private industry in the United States, where it is heavily subsidised. No nuclear reactor has been built or commissioned in the USA, that bastion of free enterprise, for at least 25 years because the figures do not stand up. In Finland, which has been widely quoted recently because it is opening up nuclear power—quite controversially, perhaps, for a Scandinavian country—there are direct and very indirect subsidies for the power stations that are being built.
I want to try to find out whether the Government are subsidising the nuclear industry in this country more than is commonly known, because of course there is a debate about whether there should be more nuclear power stations built in the United Kingdom. It is interesting to note, as I have teased out in the House before by parliamentary questions and in the Trade and Industry Committee on which I serve, that any company could now apply to build a new nuclear power station in the United Kingdom.
Dawn Primarolo: The clauses deal with the history of nuclear power stations and with decommissioning today; they do not go forward in any way. I will cover that in my remarks. We are talking about responsibilities for decommissioning now power stations that are already in operation and need to be decommissioned.
Rob Marris: Yes, of course these are in a sense backward-looking clauses, but in the context of a public debate about nuclear energy and what we do with the nuclear power stations and the spent materials that we have—a debate that will develop this summer when the energy review is published—we need to try to be aware of the historic cost of nuclear power, as perhaps evidenced in these two clauses, to inform that public debate about the possible future cost of nuclear power.
Mr. Paul Goodman (Wycombe) (Con): The Paymaster General said a moment ago, no doubt accurately, that these clauses are about looking back. But is it not important at least to explore who will be doing this clear-up work, given that it would appear that a private company may be doing it and enjoying tax advantages that were designed for the public sector?
Rob Marris: I quite agree, and that is what I am trying to find out. Whether we talk about existing nuclear power stations or a new group—what the industry tries to dress up as a fleet—we have to look at the question of dealing with spent materials, radioactive waste and so on. That is particularly true of the radioactive waste that we already know exists, because it is here, and the waste that we know will be generated in the next 13 to 15 years, until 2020, the life of the current nuclear power stations. The Nuclear Decommissioning Authority is a Government body, but as the hon. Gentleman points out, it uses British Nuclear Group as a subcontractor for site management, clean-up and so on, and BNG is likely to be privatised in the next 12 months.
I would like
to know whether there are any tax breaks for the existing nuclear
industry because that must inform the public debate about the
future—or lack of future, whichever it may be—of nuclear
power stations
in the United Kingdom. One thing that the nuclear industry has
historically been very good at is getting hidden subsidies. I am not
sure whether clauses 99 and 100 are indicative of that; I want to find
that out. It already has a hidden subsidy through the cap on its public
liability insurance, because given the liabilities it would be almost
impossible, even with reinsurance—the hon. Member for South-West
Bedfordshire (Andrew Selous) knows a great deal about that and could
correct me if I am wrong—to get insurance cover at a premium
that would make a nuclear power station viable. There has to be an
indirect state subsidy on those liabilities. Clauses 99 and 100 may or
may not speak to that, and I wish to find out
more.
Julia Goldsworthy: The Minister talked about how, in effect, the clauses look back. Is it not also true that they deal with transitional issues? As the explanatory notes to clause 100 say:
“The amendments provided in this clause will preserve the intended effect of section 30 and ensure that the NDA does not incur corporation tax charges or acquire taxable losses as a consequence of the accounting caused by the imposition of the transitional arrangements.”
If these companies are still benefiting during the transitional arrangements, does this provision not still qualify as a state aid? Is this not a question that needs to be answered?
Rob Marris: As I understand it, the transitional arrangements came in because the European Commission started examining whether there was or is unauthorised state aid in the UK for the nuclear power industry, part of which has been privatised and more of which will be privatised.
Whatever the proponents of the nuclear industry say, we have what I would regard as a dinosaur industry that is using technology, even with the pebble-bed reactors and so on that it is talking about—technology that has been around in Germany since, I think, 1958, but which is supposed to be the new generation of nuclear power—that is about 50 years old. The technology has never been operated anywhere without state subsidy, directly or indirectly. The proponents of a new generation of nuclear power stations are looking forward rather than backwards, which the clauses do, to a situation where there will not be state subsidies. I am a little cynical about that. I have heard it all before. Throughout my adult life I have heard about how there would not be state subsidies, and that we would have electricity too cheap to meter, for example. That never worked out.
We are talking about old technology. It is about 50 years old, as I have said. That is the basic design, however much we talk about advanced gas water and all that, heavy water and can-do reactors, for example. It is, as I have said, old technology. It works in as much as it produces electricity, but it does not work in that it is not economic. Even with today’s high energy prices, there are serious questions to be asked about whether the nuclear power that we have, let alone that that we may have in future, is economic, given the direct subsidies that we have for the existing nuclear fleet of power stations and the possible subsidies, whether on insurance or guaranteed purchase of electricity, that we may have for future nuclear power stations.
As for the environment, we would be much better spending the money on energy conservation and renewables than on a new generation of nuclear power stations, but that is not a debate for today. The debate is whether clauses 99 and 100 are directly or indirectly a hidden subsidy for the nuclear industry that already exists. I hope that today, or perhaps by writing to me, my right hon. Friend the Paymaster General will indicate what the fiscal effects of the two clauses will be on the Government's net balance sheet. The explanatory notes talk about avoiding incurring corporation taxes and a company acquiring taxable losses.
I wanted to get some idea for the entire industry, in as much as it is state owned in the UK—that is pending sell-off of larger chunks of it than have already been sold off—whether corporation tax charges that might be avoided by means of clauses 99 and 100 will be greater than the acquired taxable losses that the clauses facilitate in a sort of wiping-out exercise. My right hon. Friend the Paymaster General, perhaps to use my words rather than hers in Standing Committee, referred to these measures being, in a sense, a recirculation of Government money.
There is the fiscal net effect—that is weighing the avoided corporation tax and the avoided tax right-offs through acquired losses and determining whether that is even or whether there is an imbalance. If there be an imbalance, what is it? That will enable us to have some idea at this stage of whether there be yet another subsidy to an industry that is financially, let alone environmentally, a failed industry, or whether this is an accounting exercise that results in even stevens at the end. I hope that my right hon. Friend the Paymaster General will elucidate. If not—I realise that there may be complex figures—I should like to receive a response in writing at a later date.
4.15 pm
Mr. Paul Goodman: I am grateful for the opportunity to speak in this debate. As this might be my last chance to contribute to the Bill, I should like to pause and thank everyone from PricewaterhouseCoopers and elsewhere who has provided me with advice on technical aspects of the Bill over the past few weeks.
It is appropriate to use the word “technical” for clause 99 because, as the hon. Member for Wolverhampton, South-West (Rob Marris) intimated, it is a difficult provision. As he said, we discussed the clause in Committee, and he will recall that I asked questions about it when it was debated on 6 June—as, indeed, did he. Having had time to reflect on the debate in Committee, and having reread the relevant proceedings in Hansard, I am not entirely happy.
Dawn Primarolo: While the hon. Gentleman is reflecting, perhaps he and the hon. Member for Falmouth and Camborne (Julia Goldsworthy), if she catches your eye, Mr. Deputy Speaker, will tell the House what their parties said in 2004, when the Energy Bill proceeded through Parliament. The clauses in the Finance Bill correct a mismatch, but the principle was accepted in the House in 2004. I would be interested to know what the two parties said then—they probably supported the provision.
Mr. Goodman: I am surprised that the Minister did not ask me that in Committee. However, the line of inquiry that I am about to pursue is the same as the one that I pursued in Committee. Strictly speaking, it is not predicated on the Energy Act 2004 but on the question of whether a private company would enjoy the tax advantages enjoyed by public companies.
As I said, I am not entirely satisfied with the answers that I received from the Paymaster General in Committee—that may explain why the right hon. Lady was so anxious to intervene on me—and neither, it appears, is the hon. Member for Wolverhampton, South-West.
Dawn Primarolo: I was just seeking information.
Mr. Goodman: Indeed.
Clause 99 aims to preserve the intended effect of section 29 of the Energy Act 2004, to which the Paymaster General referred. According to the explanatory notes on the clause, which the hon. Member for Wolverhampton, South-West will have read, section 29 is intended to ensure
“that accounting entries made by certain publicly owned companies in the British Nuclear Fuels Group, arising from the recognition of the Nuclear Decommissioning Authority taking responsibility for nuclear decommissioning and cleaning-up, should not be brought into account for corporation tax purposes...Section 29...operates on the basis that the assumption of financial responsibility by the NDA would be recognised when certain events of the reorganisation occurred...The reorganisation took place on the 1 April 2005 however, between the Energy Act 2004 and the reorganisation, the European Commission”—
“began a state aid investigation into the NDA. This caused transitional arrangements to be put in place governing the financial liability assumed by the NDA. As a result of these arrangements the accounting recognition by the site licensee companies of the assumption of financial responsibility by the NDA may be deferred and section 29 would not apply to the later accounting entries.”
I assume that that means that the tax advantage would not be enjoyed.
As the hon. Member for Wolverhampton, South-West implied, since the Budget, it has been announced that one company in the BNFL group—British Nuclear Group, which is British Nuclear Fuels Ltd’s specialist site management and nuclear clean-up business—is to be transferred from the public to the private sector. As I said in Committee, that sounds reasonable in principle and the Opposition are obviously the last group of people who will look unsympathetically on the case for transferring services from the public to the private sector. However, it is important that any tax arrangements that result from such a transfer are transparent, and that the interests of taxpayers are protected.
I asked the Paymaster General on 6 June in Committee to correct me if I was mistaken in asserting that an exemption from corporation tax that applied to a public body is now to be applied to a private body. The right hon. Lady said at column 451:
“Although I recognise that the BNFL group”—
“includes the private sector, tax and liabilities follow the normal tax provisions.”
So it seems on the face of it that an exemption from corporation tax that applied to a public body is now to be applied to a private body.
I also asked whether the exemption was intended to make the sale more attractive. The hon. Member for Wolverhampton, South-West used the phrase “fatten up”, which is a more vivid way of putting it. My reading of the record of 6 June is that the Paymaster General did not definitively deny that claim. I would be grateful if she took the opportunity to do so now.
I asked for precedents. The right hon. Lady cited the Government taking over British Energy plc’s liability for decommissioning and certain other liabilities in 2005. She said at column 451:
“The hon. Member for Wycombe asked me . . . whether there are examples of a similar arrangement being made to prevent the circular movement of Government finances. There are such examples. I do not have them to hand, but I am happy to let him know what they are.”—[ Official Report, Standing Committee B, 6 June 2006; c. 451.]
Two points follow. First, it has been suggested to me that the British Energy example is not particularly apposite. British Energy, it was argued, was effectively insolvent and the Government decided to rescue it, rather than have a major generator go bust. In other words, the British Energy example describes an old fashioned rescue operation, so reducing the tax burden of what the Government intend to be a newly privatised business, BNG, is surely not comparable. Secondly, I have not yet received from the Paymaster General, although I hope to do so in due course, the other examples to which she alluded.
I want to try to get to the heart of what the Paymaster General meant on 6 June by speaking of the purpose of clauses 99 and 100 being to prevent Government money, as she put it at column 452, “moving in circles.” On the evidence of that debate, it seems to me that the effect of the clause, if not the purpose, might no less accurately be described as reducing the tax burden of what will be a newly privatised business. If that is the case, a further question arises.
The Nuclear
Decommissioning Authority presumably employs private sector contractors
other than BNG for one purpose or another. Do they also have
arrangements in place that effectively reduce their tax burden? If
not—and I suspect the answer is not—there is a bit of
mystery hanging over the clause. I hope the right hon. Lady will take
the opportunity to clear it
up.
Julia Goldsworthy: As my hon. Friend the Member for Cambridge (David Howarth) pointed out, there was nothing about these matters in the Budget statement, the press notices or the Red Book, and there was no information available at the time that the Budget resolutions were debated and passed in the House. The Paymaster General made a specific reference to the Lib Dem contribution to the relevant section of the Energy Act 2004, which was not debated in Committee, as I found when I looked back at Hansard for that time. As has been observed, at that time all the organisations that would have been affected by these clauses would have been in the public sector, so effectively it would have been public money swilling around and the issue would not have been seen to be so important.
The key issue is whether there is state aid and, if so, to what extent. While BNFL group is a publicly owned company, it is free from corporation tax, but when it becomes private it will be liable for corporation tax. It is not clear what happens in the transitional period. Is there a hidden subsidy and will it continue through the transitional arrangements?
Finally, on the closing comments by the hon. Member for Wolverhampton, South-West (Rob Marris), what are the net fiscal effects on the Exchequer? As well as writing to the hon. Member for Wolverhampton, South-West, will the Paymaster General undertake to place that information in the Library, because I am sure that many hon. Members will be interested?
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