FUNDING THE NDA
29. Mr Clarke told us that the NDA's CSR settlement
for the next three years is 20% higher than the settlement up
to now, which means it will increase by, on average, 5% per annum
in real terms over the next three years.[37]
The grant-in-aid portion of the NDA's income already represents
a very sizeable proportion of the Department's annual budget—42%
of the original DEL for the 2007/08 financial year.
30. It is likely that this public funding will have
to increase still further. As our predecessor committee said in
2006 "we remain to be convinced that the assets transferred
to the NDA will in practice make a significant contribution to
paying for nuclear decommissioning."[38]
Even if the revenue from these assets were to prove sufficient
for the original estimates of the NDA's liabilities, these have
steadily increased. In June 2003 the estimated remaining lifetime
costs of the NDA's sites were £56 billion; by March 2007
this had risen to £73 billion.[39]
Moreover the NDA's commercial income is not only volatile but
will decline over time as its work is completed. In 2020 work
at Sellafield is expected to end; in 2022 the Springfields site
will go offline. In the words of Mr Roberts this will be "the
end of all the income we [the NDA] have from the commercial assets."[40]
31. Public
funding for the NDA will almost certainly have to increase significantly
in the coming years over and above current plans. If nuclear decommissioning
is going to be carried out as planned this has major implications
for the Department for Business, Enterprise and Regulatory Reform,
which already spends over 40% of its Departmental Expenditure
Limit on the NDA.
32. We
welcome the assurance given by the Permanent Secretary that the
Department's budget will be insulated from the NDA for 2008/09
and subsequent years and look for further specific assurances
from Government that NDA funding requirements will not impact
on other areas of the Department's work. Government departments
that have experienced funding problems in one area of their activities
have often had to make reductions in other unrelated areas.[41]
The scale of the NDA as a proportion of BERR's overall budget
makes such a prospect completely unacceptable in this case.
33. The volatility of the NDA's commercial income
was identified as a particular problem, both by the NAO and in
the evidence we received. The NAO stated that many of the NDA's
most pressing challenges "reflect, in part, uncertainties
inherent in its [the NDA's] reliance on commercial income earned
from ageing and unreliable facilities."[42]
£240 million of the Supplementary Estimate resulted either
indirectly from technical issues at the NDA's facilities or volatility
in commercial income.[43]
34. Sir Brian also said that, in view of the unpredictable
nature of the NDA's income, having the NDA constrained by three-year
spending review settlements "does not help" and told
the Committee this was one area he was looking at with the Treasury.[44]
The NAO agreed—concluding that:
The Authority has not had sufficient flexibility
in its budget to cope with the level of volatility and uncertainty
it has faced with its commercial income, and urgent expenditure
commitments, in particular at Sellafield.[45]
35. Sir Brian told us that he believed that a "credible
and sustainable" solution had been found to fund the NDA
for the next Comprehensive Spending Review period—that is
until 2010.[46] All agreed,
however, that the present funding model is not sustainable in
the longer term.[47]
In Sir Brian's view "the saving grace is I do not think there
is a car crash in the next two or three years and therefore we
have time to plan the avoidance strategy."[48]
36. At present, spending on decommissioning is monitored
through the Nuclear Decommissioning Funding Account. This account
contains no money but is used to keep track of what money is spent
on decommissioning.[49]
In 2003, in its Report on the draft Nuclear Sites and Radioactive
Substances Bill, the then Trade and Industry Committee recommended
that the British Nuclear Fuels (BNFL) Nuclear Liabilities Investment
Portfolio be put into a segregated fund, which the Government
would contribute to annually, to guarantee the monies for decommissioning.[50]
Under the current system there is no funding 'pot' from which
the NDA can draw other than the Consolidated Fund.[51]
37. We
believe the NDA's funding model is unsustainable. We note the
Department's assurances that a solution has been found for the
current Comprehensive Spending Review period. However, in view
of the volatile—and declining—nature of the NDA's
commercial income we are sceptical about how watertight such an
assurance can be. Nuclear decommissioning is too important to
be left to the mercy of changing priorities in the Treasury and
uncertain commercial income; as the Permanent Secretary acknowledged,
a new system of funding is needed, and work on this needs to begin
urgently.
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