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House of Lords

Thursday, 3rd April 2003.

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

Prayers—Read by the Lord Bishop of Guildford.

Electricity (Miscellaneous Provisions) Bill

Report received.

Clause 1 [Expenditure relating to British Energy p.l.c.]:

Lord Ezra moved Amendment No. 1:

    Page 1, line 6, at end insert "in relation to qualifying activities"

The noble Lord said: My Lords, in moving Amendment No. 1, I shall speak also to Amendment No. 6.

The purpose of the amendments, together with others which will be moved today, is to define and limit the expenditure under the Bill for its defined purposes. Amendment No. 6 is a reworded version of the amendment moved in Committee on 17th March. It is designed to take account of the Minister's remarks (at col. GC3 of Hansard of 17th March) that the purpose of the clause was not to deal with historic liabilities, which is how the original amendment was worded, but to cover ongoing operational expenditure while the restructuring plan was put in place, and in the event of administration should the restructuring plan fail.

These alternative proposals are being put forward for the company. They have been mentioned on several occasions by the Secretary of State, the Minister and others in public statements and that is confirmed in the Explanatory Notes. That being so, it is important that the operational expenditure referred to in Clause 1 should relate to these two alternative solutions to the company's problems. As this has been firmly reiterated by the Government on many occasions, it is surprising that it does not appear on the face of the Bill.

It is a simple amendment. It will help everyone to understand what the Bill is about and defines clearly what the expenditures allowed under Clause 1 relate to. I beg to move.

Lord Jenkin of Roding: My Lords, I intervene briefly to say that I warmly support the amendment. Before enlarging on that, I should point out that the Minister, the noble Lord, Lord Sainsbury of Turville, has gone out of his way during the past week to supply noble Lords who have taken part in these debates with extensive explanations of the Government's position. He also invited us to a meeting in his office last Tuesday. I should like to put on record that this has proved extremely helpful and may well shorten today's proceedings.

As to the point made by the noble Lord, Lord Ezra, there appears to be no limitation whatever on the extent of the operational support that the Government are prepared to give to British Energy in the circumstances

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in which it finds itself. In Committee, I mentioned that I had been involved, as a Treasury Minister, in the collapse of Rolls-Royce. I should add that I was not Chief Secretary but Financial Secretary at the time. I had forgotten that in that situation no figure, no limitation, was put into the Bill that authorised support for the Rolls-Royce Aero Engines operation and its nationalisation. When we met him, the noble Lord, Lord Sainsbury, made that point very clearly.

The Minister's argument is that this is a similar case. I am not sure that it is. Initially it is the Government's intention to support British Energy in the plight into which it has fallen to enable it to continue in operation and, as Ministers have repeatedly said, to continue to pay salaries and pensions and for the lights to remain on. We on this side of the House support that approach, but is it to be without limit?

The Minister's argument is twofold. First, there will be the normal constraints on public expenditure, exercised through the procedures which apply in another place, and the normal Treasury controls. I understand that. His second argument is that the support will have to be approved by the European Commission under the state aid provision. An application was made to the Commission last month for leave to give that support and we are told that the procedure will take many months to complete. In the mean time, the Government's support must continue.

I do not believe that this situation is the same as the one involving Rolls-Royce. One different aspect is that Rolls-Royce was absolutely essential to the defence of the country. The engines made by Rolls-Royce were used in a great many aircraft, ships, submarines and so on that were needed for the defence of the realm. One can well understand that in those circumstances the costs, whatever they may have been, had be met. Here one is dealing with a commercial operation which has failed, for reasons to which I may refer briefly when we come to the next amendment. Ultimately, there must be some limit to the operational support the Government are prepared to give, although it may be not right to insert a figure. I shall explain the reason for that when we come to the next amendment.

The amendment of the noble Lord, Lord Ezra, in seeking to define more closely the words that the noble Lord, Lord Sainsbury, himself used in Grand Committee, seems something that the Government could accept in order to reassure people that there will be some control. I remind the House that there has been a great deal of anger on the part of other electricity generators which believe that this is giving this company and this branch of the generating industry an unfair subsidy whereas they have to continue to operate against the stringency of the market without support.

I should have thought that the Government would be well advised to accept the amendments of the noble Lord, Lord Ezra, in these circumstances, if only to reassure the rest of the industry.

Baroness Miller of Hendon: My Lords, I associate myself with the words of my noble friend in thanking the Minister for the help that he has given us over the past week.

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As the noble Lord will recall, I supported the amendment in Committee. I support it today, and my name is to it. I am well aware that the noble Lord, Lord Ezra, has worked extremely hard to make the qualifying activities more or less the words that the Minister used. But I am also well aware that at our meeting one of his officials suggested that he said more words than were in the amendment. I had intended to speak today purely to say that if there were a few more words, why did the Minister not put something extra in the amendment so that it would be acceptable? However, before I decided to do that I thought it wise to have a jolly good look at the other words and, having done so, I see very clearly why the Minister could not have added them to the amendment.

It has been very clear from everything that has been said, and from the notes, that the two alternatives are restructuring or administration. However, the Minister said at col. GC3, which I looked at carefully:

    "Finally, it would also allow Government to continue funding the trading arrangements of the operating companies going forward should the restructuring deal fail and should they at any point come into public ownership".—[Official Report, 17/3/03; col. GC3.]

The Minister was not talking about administration. This is the first time he has referred to coming into public ownership and, frankly, I am surprised at that. If that is really one of the options, it should have been made clear before. Anyway, I understand why he has not added that to the amendment.

I think that this is a very safe and wise amendment, and I hope that the Minister will accept it.

11.15 a.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I thank the noble Lord, Lord Jenkin of Roding, for his kind comments. I will try to continue to be helpful this morning.

I do not think there is a radical difference between the Rolls-Royce situation and this one. In both cases there are compelling economic reasons to try to keep the company alive. I should say to the noble Baroness that public ownership in this context is really the same as saying "into administration" because we have made it clear there are no other circumstances in which we would take it into public ownership. We have also made it clear that we think it very unlikely that if it goes into administration a private owner will be found to take it over. So, effectively, I do not think there is any difference in those circumstances.

The amendments tabled by the noble Lord, Lord Ezra, seek to limit the expenditure that can be made under Clause 1(a) to "qualifying activities", defined as:

    "the ongoing operational support to a British Energy company whilst a restructuring plan is being put in place or funding a British Energy company in the event of its being put into administration".

Clause 1(a), as noble Lords will be aware, gives government the power to incur expenditure on BE in a number of eventualities. Some concern was expressed

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in Committee that the provisions in this clause were too open-ended. In fact, this clause has been drafted in such a way as to ensure that the Government have the flexibility to be able effectively to meet their policy commitments in relation to BE.

Amendment No. 6 seeks to impose certain restrictions on the activities on which government can spend money under Clause 1(a). I am aware that the noble Lord, Lord Ezra, in tabling this amendment, is referring to the clarification that I sought to give when dealing with a similar amendment in Committee. However, I think I should revisit what I said at that time, and place into context the words that the noble Lord, Lord Ezra, has used in his amendment. In Committee I stated:

    "Quite simply, Clause 1 is there to cover other expenditure which is not covered by Schedule 12. Principally, this would concern ongoing operational support to keep BE going during the period when a restructuring plan is being put into place".

I then went on to explain:

    "The statutory authority provided by subsection (1)(a) could also be used to authorise Government to provide funding in the event of administration . . . Finally, it would also allow Government to continue funding the trading arrangements of the operating companies going forward should the restructuring deal fail".—[Official Report, 17/3/03; col. GC3.]

It is worth reiterating the point that I made in Committee—Clause 1 is there to cover expenditure that is not covered by Schedule 12. Clause 1 will be used principally, but not exclusively, to provide operational support to keep BE going while the restructuring plan is put into place. Schedule 12 deals only with nuclear liabilities.

So there is a need to ensure that if the restructuring deal fails, the Government have the flexibility to incur expenditure on BE beyond the support for its nuclear liabilities, which would take place under Schedule 12. The potential activities on which the Government might need to commit expenditure include, but are certainly not limited to, the "qualifying activities" defined in Amendment No. 6.

We may need, as I stated in Committee, to continue funding the trading arrangements of the operating companies going forward should the restructuring fail and the companies come back to the public sector. If that happened, the Government may need to incur expenditure on BE's nuclear business in a way that we are not able accurately to foresee at this moment. It is important to remain aware of the fact that the restructuring plan has yet to be finally agreed by all parties—or, indeed, approved by the Commission. It would be imprudent to limit the Government's ability to act effectively if the deal fails.

But even assuming the restructuring is successful, there is reason to keep the flexibility of Clause 1. There is still a lack of clarity over the final detailed form of the deal. Although the principles behind the plan have been agreed, the detailed documentation necessary has not yet been finalised. We have said that the policy intention is that funding for the restructuring would be done under Schedule 12—that is the specific provision for funding nuclear liabilities. But the working up of the detailed documentation may bring to light the need

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for small items of expenditure to be incurred under Clause 1. For example, I have already explained how—as part of the precautionary measures to avoid handing over a blank cheque—the Government will reserve the right to take back BE's nuclear stations at the end of their life. So we might want to use Clause 1 to purchase the stations at that point, albeit for a nominal sum. Noble Lords should also be comforted by a point I made in Committee; that is, that any expenditure under Clause 1 will be subject to parliamentary scrutiny through the annual Supply Estimates process.

It is perhaps also worth noting that Amendments Nos. 1 and 6 do not work as drafted as Amendment No. 1 appears to refer to British Energy's qualifying activities, and the "qualifying activities" referred to in Amendment No. 6 appear to be those of the Government in giving financial support to the company. In effect there is some lack of clarity as together the amendments appear not to match. I should emphasise, however, that that is not the main basis of our objection to the amendments.

To summarise, the flexibility that Clause 1 confers ensures that the Government stand ready to be able to act effectively in a range of scenarios. We do not believe that it would be prudent or sensible to limit an important part of the Government's contingency planning in relation to BE by accepting a restriction in primary legislation on their ability to incur expenditure on the company in the way suggested in the amendment tabled by the noble Lord, Lord Ezra. I therefore ask that the amendment be withdrawn.

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