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House of Lords

Friday, 19th May 1995.

The House met at eleven of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.

Prayers—Read by the Lord Bishop of Newcastle.

Atomic Energy Authority Bill

The Minister of State, Department of Trade and Industry (Earl Ferrers): My Lords, I beg to move that this Bill be now read a second time.

The Bill before your Lordships is intended to pave the way for the privatisation of the commercial activities of the United Kingdom Atomic Energy Authority. It contains provisions of the type which are normally found in legislation of this kind, but they are tailored specifically to the circumstances of the authority.

The United Kingdom Atomic Energy Authority came into being in 1954 as a nuclear research and development organisation. It took over certain responsibilities for the development of atomic energy which had previously been exercised by the Ministry of Supply. The authority was not intended to be an academic research institute, nor was it intended that it should pursue basic science. It was the vehicle by which the new technology could be developed on a commercial scale. But the operation of the technology, once it had been developed, was left to others. It was left, for example, to industrial consortia; to the electricity authorities; and to what ultimately became British Nuclear Fuels and Amersham International.

By the 1960s it was clear that the authority's skills and expertise could more effectively be exploited if the authority were permitted to undertake non-nuclear work. Therefore, the authority was empowered in 1965 to carry out non-nuclear research and development, and in 1974 its powers were further extended in order to allow it to work in the environmental field. Unlike the nuclear programme, which was financed mainly by money provided by the Government, non-nuclear work was done from the outset under contract to customers. Most of these customers were, to start with, government departments; but over the years the field has widened to include other public and private-sector customers, both here and abroad.

In a similar way, even in the nuclear field, almost all of the income which the authority now earns comes from work which is done on a contract basis. Because the authority's commercial activities were growing in importance, the decision was taken some 10 years ago to put the whole organisation on a trading fund basis. That was done by the Atomic Energy Authority Act passed by Parliament in 1986.

Since then, the emphasis has increasingly moved away from nuclear research and development and towards providing scientific and engineering services. The authority's nuclear facilities have largely been closed, and staff numbers have fallen from the peak in the 1960s of over 40,000 to some 6,000 today. Therefore, the privatisation of the Atomic Energy Authority's commercial

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activities is the next logical step in a process of technology transfer and exploitation which has been going on for many years.

The authority today consists of two divisions. One is called UKAEA Government Division and the other, AEA Technology. They operate at six sites. They are Harwell and Culham, both of which are in Oxfordshire; Risley, in Cheshire; Winfrith, in Dorset; Windscale, in Cumbria; and Dounreay, in Caithness. The Government's intention is to privatise AEA Technology. UKAEA Government Division will remain in the public sector.

The prime function of the government division is to manage the process of decommissioning the authority's nuclear facilities cost-effectively and to ensure that that is done in accordance with safety and environmental requirements. Following privatisation, the Government Division will retain the ownership of the authority's nuclear licensed sites as well as the responsibility for the safe management of the authority's nuclear liabilities and those operational nuclear facilities which still have life left in them.

The government division is also responsible for fusion research; for the UKAEA constabulary; and for the authority's other non-commercial activities. Again, these activities will not be transferred to AEA Technology but will stay in the public sector.

On the other hand, AEA Technology is responsible for all of the authority's commercial activities. It is an international science and engineering services business. It has a turnover of over £250 million, and it employs some 4,000 people who are spread across all six of the authority's sites. The business of AEA Technology is to identify problems and to try to find solutions to them based on the know-how which has been built up over 40 years of leading edge science and engineering. It operates in four closely related areas: in making the best use of industrial plant and improving production and processes; in product development and improvement; in safety and risk management; and in environmental and waste management.

It would take too long—and I fancy that it would be to the discomfort of your Lordships—if I were to describe even a selection of the many activities of AEA Technology in detail; but the breadth of its operations is demonstrated by its wide range of markets. For example, it is involved in manufacturing; in transport; in oil and gas; in defence; in energy supply, including the nuclear sector; in chemicals; and in healthcare. Some 40 per cent. of AEA Technology's business comes from the Government. A further 18 per cent. comes from the United Kingdom public sector. But in volume terms those markets are of diminishing importance.

AEA Technology's growth markets are in the United Kingdom private sector and overseas. In broad terms the United Kingdom private sector already accounts for nearly 20 per cent. of its turnover. Overseas markets now account for well over 20 per cent. of its turnover. Sales to both markets are growing rapidly. Privatisation will provide another stimulus to this process. It is clear to all those who have detailed knowledge of the business and, most important, to its management that privatisation represents the best—indeed the only—way forward for the business.

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There are enormous opportunities open to AEA Technology. But it will be able to take full advantage of them, and will be able to maximise its return to the United Kingdom, only if it has the freedom and the flexibility which being in the private sector will give to it.

In a nutshell, that is what this Bill is all about. Its purpose is to enable AEA Technology to exploit the opportunities which are there for it to grasp, and to enable it to realise its full potential as a business and as a valuable national asset which will be capable of making a greater contribution to the national economy.

Perhaps your Lordships will permit me to explain what our plans are for the future of AEA Technology. In his Statement of 17th February 1994 in another place, my right honourable friend the Minister for Industry and Energy announced the Government's intention to privatise AEA Technology. He explained that decisions on the form which privatisation would take would be based on AEA Technology's performance in the market place, and on the extent to which the various options met the requirements of the potential customers; would enhance competition; would help to improve United Kingdom competitiveness; and would maximise the return to the taxpayer.

Since then, the Government have made it clear that, for the time being, AEA Technology will continue to be managed as a single entity and that those criteria may be likely to be best satisfied if it is offered for sale as a single entity.

As the staff are the principal assets of this business, we have also make it clear that the Government will consider seriously any bid which comes forward from management and employees. We have also said that, whatever form the sale may ultimately take, we will be looking to achieve a substantial level of employee participation in it.

Final decisions on the form of privatisation must, though, depend on the performance of AEA Technology over the next few months; on the Government satisfying themselves that sale of the business as a single whole will best meet the needs and requirements of customers and, particularly, the specific requirements of government customers; and on confirmation from the market that a sale as a single entity will secure the best overall value for money for the taxpayer. Decisions on the method and the timing of the sale can, clearly, be taken only in the light of market circumstances at the time.

The Bill envisages that the authority's commercial activities might be transferred to the private sector by two possible methods. The first is to vest the property, the rights and the liabilities in one or more publicly-owned successor companies. Shares would be held either by the authority or by the Secretary of State. Those shares could later be sold to the ultimate private sector buyers. Alternatively, in the event of a trade sale and if the circumstances were right, assets might be transferred directly by scheme to the ultimate buyer. The business could be sold as a whole or in parts. The Bill leaves open the possibility of more than one transfer, and it leaves open the possibility of transfers being carried out on more than one date.

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The Bill does not refer to AEA Technology as such. AEA Technology does not yet have a separate legal identity within the authority as a whole. Therefore, the scheme-making powers relate to any of the property, rights and liabilities which are owned by the authority, but subject to the specific exclusion of nuclear site licences and freehold land which is subject to such licences. That kind of property may not be transferred under the terms of the Bill.

The exclusions are there to show that the Bill is not intended to pave the way for the privatisation of any nuclear liabilities or the privatisation of the authority's licensed sites. In so far as AEA Technology operates on or within a licensed nuclear site, it will do so in accordance with the authority's existing security and safety requirements. Privatisation will not affect existing safety or nuclear security requirements in any way. In addition, as I have already said, the other activities for which the government division is responsible will also remain in the public sector.

The Bill provides for the financial structure and control of the successor companies after they have been vested and while they are still publicly owned. And the Bill provides powers to enable these companies to borrow from the National Loans Fund while they remain in the private sector. There are also powers to permit the write off of the debt of the authority up to the value of its proceeds. Those powers are there for a specific purpose and it is this. The authority has an outstanding debt to the National Loans Fund of some £130 million. We want to ensure that the proceeds of the sale are offset against the net present value of that debt. In other words, we want to write off the debt, so far as is possible, by the proceeds of the sale. Clause 10 of the Bill specifically provides for that.

Clause 10 also permits the extinguishing of the National Loans Fund debt of publicly owned successor companies. That will happen where the debt is converted, so to speak, by the issue of an equivalent amount of securities or debentures to private sector buyers. Our intention is that if any successor company debt is not converted it will be repaid by the company or the net present value will be written off against proceeds. The tax provisions are intended to follow the precedents of earlier privatisation legislation. They aim to provide for tax neutrality—that is, that the transfer of property, rights and liabilities should not of itself give rise to tax charges.

On pensions, the Bill makes provision for all employees who are transferred to a publicly-owned successor company to remain in the authority's schemes until privatisation. At the time of privatisation, the Bill places a statutory duty on the vendor, whether the authority or the Secretary of State, to be satisfied that employees can join a pension scheme which taken as a whole is no less favourable than the authority's schemes. That means that the new scheme must offer benefits which are at least equivalent to the authority's schemes, although the mixture of benefits may be different. That reflects the Government's long-standing practice where public sector employees are transferred to the private sector. But we have set it out expressly in the Bill so that employees should know exactly where they stand.

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I hope that what I have said will enable your Lordships to realise why the Government feel that privatisation is the right way forward for this business. Apart from anything else, privatisation will provide the staff with the best opportunity for them to realise the full commercial potential of their scientific and engineering activities, and it should bring the maximum benefit to the United Kingdom as a whole.

Those are the reasons for the Government introducing the Bill. I commend the Bill to your Lordships.

Moved, That the Bill be now read a second time.—(Earl Ferrers.)

11.21 a.m.

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