Select Committee on Business and Enterprise Fourth Report


Conclusions and recommendations


Waste Substitution Income

1.  We emphasise that none of the issues raised in this short report should have any consequences for the construction of new nuclear power stations. Separate special funding arrangements are being developed for their decommissioning. (Paragraph 7)

Shortfall in the NDA's Budget

2.  The National Audit Office (NAO), in its January 2008 report into the NDA, identified uncertainty as to whether the waste substitution income budgeted for would actually be forthcoming in the 2007/08 period. It seems that this uncertainty has been resolved and the money has been raised; we are therefore surprised that the NDA was suddenly told by the Treasury that—owing to a technical accounting issue—it might not be able to spend it. (Paragraph 12)

3.  We believe this issue could and should have been addressed earlier. The nature of waste substitution income has been known since the 2004 consultation, if not earlier, and we find it unlikely that the relationship of these contracts to the original reprocessing contracts became clear only immediately before contracts were finalised in December 2007. (Paragraph 13)

NDA Derogation

4.  The previous existence of a derogation allowing the NDA to recognise the income from some long-term contracts upon receipt suggests that the NDA, the Treasury and the Department should already have been alert to the fact that the accounting treatment of long-term contracts might need to be considered. We are therefore surprised and disappointed that when this issue reappeared, albeit in a different context, everyone appears to have been caught unawares. (Paragraph 16)

5.  The 2005/06 derogation could have been the basis for a solution that would not have involved spending £256 million of the Department's accumulated EYF and claiming on the reserve. We would like to know if this was considered as an option once the issue came to light and, if it was rejected, for what reason. Given the references to the derogation in the Estimate Memorandum we would like to know whether any party wrongly assumed that the derogation still applied and if not—as seems likely from the evidence we received—why the Estimate Memorandum made reference both to the derogation and the date of its expiry in April 2006. (Paragraph 17)

Spring Supplementary Estimate Memorandum

6.  The Spring Supplementary Estimate Memorandum did not give an entirely accurate picture of the situation. Accuracy in such documents is always essential, but for such a large request for additional funding at such a late stage in the financial year, this is particularly regrettable. These differences between the Memorandum's version of events and what we were told in evidence suggest poor communication between the Department and the NDA, which might have played some part in the situation occurring in the first place. We expect that future Estimates Memoranda will be drawn up after close consultation between the parties involved. (Paragraph 21)

Impact on the Department

7.  We recognise that, due to the provision in the Spring Supplementary Estimate, there has been relatively little impact on the NDA, despite the sums of money involved. We are concerned, however, that accounting uncertainty had the potential to impact drastically upon the NDA's funding of decommissioning of existing nuclear liabilities. We urge the Government to resolve this issue as soon as possible in a way which will not delay future spending on decommissioning. (Paragraph 25)

8.  Sir Brian told us that the precise sequence of events that led up to the requirement for an additional £303 million is the subject of a review within the Department, HM Treasury, the NDA and the Shareholder Executive. We look forward to receiving the Permanent Secretary's promised note outlining its findings and any action to be taken. In particular, we would like to know exactly when and how this issue came to light, what advice the Department gave to the NDA, what advice the Treasury gave to the Department, what grounds there were for the Treasury's apparent insistence on spreading this income over several years and what action will be taken to ensure that such issues are identified sooner in future. (Paragraph 26)

Funding the NDA

9.  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. (Paragraph 31)

10.  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. The scale of the NDA as a proportion of BERR's overall budget makes such a prospect completely unacceptable in this case. (Paragraph 32)

11.  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. (Paragraph 37)


 
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