Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Sainsbury of Turville: As I said, the NLF will be introduced as part of the restructuring of BE. I believed that that answered the noble Lord's point.

Lord Jenkin of Roding: Perhaps I was looking for more information. The proposed fund has been on the stocks for well over a year, but it still does not exist. It is not entirely limited to BE's nuclear liabilities—it may also provide a place for other payments for other sources. That was all spelt out in the White Paper last year, but since then nothing has happened.

Lord Sainsbury of Turville: The noble Lord may be referring to a separate fund for public sector nuclear liabilities, which will be established as part of the new nuclear decommissioning agency.

Baroness Miller of Hendon: We thank the Minister for the detailed information that he gave us, but we take note that the question that my noble friend Lord Jenkin asked has not been answered to his satisfaction. Perhaps the Minister will add something to his reply on Report, because it deals with an important aspect of the legislation.

We understand the Minister's explanation that the Government could not possibly give an upper limit because of the extensive sum that might be needed. The Secretary of State said on BBC radio that the Government were not giving a blank cheque, but it looks like a blank cheque if one cannot get any idea of the amount. However, we will read carefully what the Minister said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 13 not moved.]

Clause 3 agreed to.

17 Mar 2003 : Column GC33

Clause 4 [Undertakings to make grants under Schedule 12 to be disregarded for tax purposes]:

Lord Jenkin of Roding moved Amendment No. 14:

    Page 3, line 7, leave out subsection (2).

The noble Lord said: The Explanatory Notes give a marvellous explanation of the proposal in Clause 4(1) for the provision of exemption from taxation. I tabled Amendment No. 14 in order that I may seek further information as regards subsection (2).

Paragraphs 21 to 27 of the Explanatory Notes spell out in considerable detail why there must be a provision for exemption from the taxation of the value of the undertakings when they are given—namely, that it is based on the manner in which the accruals basis is used for making up the company's accounts. I accept that.

However, I should like an explanation as to the purpose of including subsection (2). I believe that that might have been included as an excess of caution—one is not supposed to use Latin words to describe legal concepts. Is that all it is? Or does it have an operative effect which would occur if subsection (2) was not in the Bill?

Lord Sainsbury of Turville: The short answer is yes, it does have a purpose. It is not an excess of legal caution. Perhaps I may explain. The Government have already indicated that they are prepared to play their part in supporting a private sector restructuring of British Energy. We shall do that by providing financial support in relation to British Energy's historic liabilities. Doing that will help put BE on a sound financial footing in order to go forward in the future. In that way, they could continue to run the stations and generate revenue that can be put towards these liabilities.

To ensure that this restructuring plan can succeed we need to ensure that the Government can deliver their side of the bargain. That is why we are clarifying the tax effect of any support provided by Government in respect of British Energy's decommissioning liabilities. Without that, when the Government sign the restructuring deal committing to provide support for the liabilities, this promise of support will trigger an immediate liability to corporation tax. We would give with one hand and take back with the other. But, of course, what we give is a promise of money over a long period, whereas what we take back is immediate cash—cash that British Energy can ill afford.

Amendment No. 14 would remove subsection (2) of Clause 4, changing the scope of the tax disregard. That scope was derived following discussions with the Inland Revenue and with advisers who understand the accounting system for nuclear liabilities. The disregard essentially comes in two parts—subsections (1) and (2). Subsection (1) states that the making of a Schedule 12 grant should not trigger a tax charge. Subsection (2) clarifies that subsection (1) refers only to the initial recognition of the Government's grant.

The undertaking to provide financial assistance to BE will be long term, but it is the initial giving of the undertaking that we are concerned about in relation to

17 Mar 2003 : Column GC34

tax. It is this initial giving of the undertaking that would trigger a significant tax bill if we did not address this matter through legislation.

While we want a tax disregard for the initial value of the undertaking, we do not want a tax disregard in relation to changes to the value of the undertaking in future years. The value of the undertaking made by the Government will change over time. It will change in line with changes in the value of the underlying nuclear liabilities that they are guaranteeing and will be funding.

The accounting value of the liabilities will change over time as the discount for the fact that payment of these liabilities is still some time in the future unwinds and as costs become accurately known. As that value changes, the value of the undertaking given by the Government will change by an equivalent amount. Therefore, any credit for the increase in the value of the undertaking will be matched by an equivalent debit for the increase in the value of the liabilities. The two will cancel out and symmetry will be achieved.

That symmetry should apply to the ongoing tax treatment of BE's liabilities and the Government's undertaking. This is symmetrical in all ways. If BE's liabilities increase, any tax benefit that they might receive from increased provisions in its accounts, should be offset by an increased value of the undertaking. If its liabilities decrease, the tax charge that they might receive from reduced provisions would be offset by a reduction in the value of the undertaking.

By changing the definition of the tax disregard, Amendment No. 14 could upset this symmetry. The result could be an increase in the tax benefit available to BE. It would receive a tax benefit whenever its liabilities increase—even though those liabilities are now covered by the undertaking from Government—because the result of the amendment would be to exempt any credit from a change in value of the undertaking.

I imagine that that was not the intention of the noble Lord, Lord Jenkin, and I ask him to withdraw the amendment.

Lord Jenkin of Roding: I should want to study that explanation carefully. I think that I understood it. The noble Lord, Lord Sainsbury, was reassuring when he said that this issue had been discussed with the Inland Revenue, as well as with advisors. This is the result of advice. I do not intend to take the subsection out in the light of what he says. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 agreed to.

Clause 5 [Short title and extent]:

Baroness Miller of Hendon moved Amendment No. 15:

    Page 3, line 24, at end insert—

"( ) This Act shall cease to have effect five years after it receives Royal Assent unless it has been extended from time to time for periods not exceeding two years by resolution of both Houses of Parliament."

17 Mar 2003 : Column GC35

The noble Baroness said: This Bill has been necessitated because of what amounts to an emergency in the electricity generating industry—particularly as regards the dire straits in which British Energy finds itself.

We discussed the reasons for this problem at Second Reading. It is unnecessary for further recrimination at this time. It is to be hoped that the measures taken by the Government, the public funds pumped into British Energy and, not least, the passage of this Bill, will resolve the crisis once and for all. That being so, there is no reason why this Bill should be permanently on the statute book.

The Government recognise that parts of the Electricity Act 1989 are no longer relevant. The Explanatory Notes to the present Bill refer to the provisions in Part II of the 1989 Act as, "in the main, spent". They state that,

    "In the main, Part 2 has served its purpose and the provisions no longer apply or are now irrelevant".

From my opposition to the whole of Clause 2, Members of the Committee will be aware that I disagree that Part II of the Electricity Act 1989 has become redundant or irrelevant. However, the Government clearly concede that parts of the basic electricity legislation may have a limited shelf life. But, how much more is that so for the present Bill? It is legislation designed to cope with an emergency—we trust a temporary emergency—which will eventually be resolved, making the provisions of this Bill no less inapplicable or irrelevant or spent—to use the Government's own words.

One could suppose that that happy state of affairs does not happen sooner rather than later. I propose an initial five-year term, but that the Bill be extended for successive two year periods for as long as may be necessary. I beg to move.

Lord Sainsbury of Turville: As I have made clear, this Bill allows the Government to be prepared for every eventuality. The provisions made within the Bill ensure that the Government have effective contingency planning in place to deal with BE should the restructuring deal fail and the company goes into administration.

The proposed amendment aims to limit the effect of the provisions of the Bill to five years from the date of Royal Assent. After that date, the Act would cease to have effect.

The effect of the amendment is difficult to gauge. It would affect the clauses of the Bill differently. For example, the effect that it would have on the amendments made by Clause 3 is not clear. We want to amend Schedule 12 to remove the existing limit, so that we can make our financial commitment, but if the Act were to cease to apply, it could cause legal uncertainty as to the effect on Schedule 12. A similar point applies to Clause 4. That clause already has a carefully drafted sunset provision, such that the tax disregard would apply only to undertakings made in the next five years. The effect of a complete repeal of the clause would be less clear.

17 Mar 2003 : Column GC36

In that context, any sunset clause must be drafted more carefully. Such a clause might not be totally unacceptable, but it would have to be drafted to take account of its relationship to different clauses. If the noble Baroness produced such a clause, we would examine it on its merits. The current amendment would introduce a great deal of legal uncertainty.

6.15 p.m.

Lord Jenkin of Roding: The noble Lord seems to have omitted to mention the fact that my noble friend's amendment does not just end the operation of the Bill after five years; it gives Parliament the power to extend it,

    "from time to time for periods not exceeding two years".

It is unlikely beyond possibility that Parliament would not vote for the order extending the Act, if it were necessary to do so. The amendment is not a cut-off; it would simply allow for renewal subject to parliamentary control. The noble Lord, Lord Sainsbury of Turville, did not address himself to that part of the amendment.

Next Section Back to Table of Contents Lords Hansard Home Page