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Paul Flynn (Newport, West): The Secretary of State will know of the great campaigning appeal to restore the earnings link in pensions. Had we done so from 1998 until now, the single pension in 2002–03 would be £78.25. We are close to that level, and could raise it by spending £1 billion from the national insurance scheme. If we did that, there would still be an unneeded surplus, in addition to contingency funds, of £11 billion in the national insurance scheme. I urge my right hon. Friend to take such action so that we can go back to the public with an offer. We can face the pensioners now with great pride, but if we restored the link we could offer them a great triple crown of achievements—winter fuel payments, additional payments now for those who are losing out and the restoration of the link.

Mr. Darling: It will not surprise my hon. Friend that I cannot agree with him. Anticipating that he might be in the Chamber and that he might catch your eye, Mr. Speaker, I did some research. It is a fact that 98 per cent. of pensioner families are better off as a result of measures that we have introduced since 1997 than they would have been with an earnings-linked basic pension.

The critical difference between us is that I believe we ought to pay more to the people who need it most. I have never entirely understood the argument that we should pay exactly the same to, say, Lady Thatcher and the poorest pensioner. I do not think that that approach is fair—[Interruption.] Conservative Members think that it is; we have to part company on that.

The measures that we have introduced mean that we are giving the poorest pensioners an average of £15 a week more than they would have got without the minimum income guarantee. As for the pension credit, it is our policy to encourage people to save for a second credit. The pension credit means that it pays to save; that is not the case at present. Our approach is fairer and much

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better, which is why, my hon. Friend will not be surprised to learn, we do not intend to change it. It is the right approach and, come the next election, people will see that it is.

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Civil Nuclear Liabilities

4.32 pm

The Secretary of State for Trade and Industry (Ms Patricia Hewitt): I wish to make a statement about the future management of public sector civil nuclear liabilities. I would also like to inform the House of changes in BNFL's financial position and the outcome of work on the company's future strategy. I am sure that the House will forgive me for what will necessarily be a detailed statement on an important issue.

In the 1940s, 1950s and 1960s, the Government and the nuclear industry focused on the development and application of nuclear technology for civil and weapons purposes. Sellafield, Dounreay and most other major nuclear sites in the United Kingdom date from that period. Much was achieved and the nuclear industry now makes a significant contribution to the British economy. However, the early years of the industry created substantial liabilities in the form of wastes that needed to be treated and plants that needed to be decommissioned.

The industry operates within a rigorous, robust and transparent regulatory framework that insists on the highest safety, health, environmental and security standards. The proposals that I will outline this afternoon show our commitment to deliver a clear and focused long-term strategy to address the liabilities and set the course for the next hundred years. They make it clear that the Government's priority is to ensure that the legacy is managed safely, securely and cost-effectively in a way that ensures the protection of the environment.

Responsibility for the management of the legacy currently rests with two public sector bodies: BNFL and the United Kingdom Atomic Energy Authority. In undiscounted terms, BNFL's 2001 accounts estimated the total liabilities for which it was responsible at £35 billion, £28 billion of which was linked to those historic liabilities. In addition, the UKAEA, for its part, has management responsibility for more than £7 billion of liabilities. I should stress that those liabilities do not represent a financial obligation owed to creditors.

Instead, these nuclear liabilities are redundant radioactively contaminated facilities, equipment and materials which need to be dismantled and disposed of under demanding safety and environmental regulatory conditions. In the earlier years of the nuclear programme, the standards of environmental care and regard for long-term safety were not as stringent as those that we apply today. Only limited and often superficial records of what the facilities contained were kept. Indeed, the clean-up challenges involved were not recognised as such until well into the 1980s.

As a result, those dealing with the legacy today have to wrestle not only with significant technical challenges but with the basic problem of determining what exactly they are dealing with. I pay tribute—and I am sure that the whole House would wish to pay tribute—to those working in the nuclear industry for their efforts on our behalf. The work required to deal with the legacy extends decades into the future, and the costs involved are inherently uncertain. Over the next 10 to 15 years, the work is expected to cost approximately £1 billion a year, although the level of expenditure will decrease over time.

The work, which is incredibly important to all of us, involves huge technical and managerial challenges, but offers exciting opportunities for engineers, managers and

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scientists. Nuclear decommissioning and clean-up is an environmental programme that needs the same focus, intensity and technological innovation as the original nuclear development programme. We must face up to our responsibilities for that programme and not leave them to future generations.

Our priority is that the nuclear legacy is dealt with safely, securely, cost-effectively and in a way that ensures protection of the environment. We need to build on the best efforts of BNFL and the UKAEA and the real progress that they have made in recent years. We now need a revised structure that strengthens the emphasis on converting legacy facilities, and wastes, into forms that will keep them safe for decades to come, pending their eventual disposal. We need a structure that can provide the strategic direction and influence across the UK required to sustain a clean-up programme that will extend into the next century.

Eighteen months ago, my right hon. Friend the Member for Airdrie and Shotts (Mrs. Liddell), then the Minister for Energy and Competitiveness in Europe, announced that, as part of the wider quinquennial review of the UKAEA, Government would reconsider their ability under current arrangements to ensure

The reports on that review are being published today and I have arranged for copies of them to be placed in the Libraries of the House. That review and work on BNFL's future strategy both underlined the need for a sharper focus on liabilities management. We have therefore decided to make two fundamental changes to the present arrangements for managing public sector civil nuclear liabilities.

First, we are clear that it is only by managing the liabilities as a whole that we can achieve the necessary focus and strong strategic control and direction. I therefore propose to set up a Liabilities Management Authority responsible for Government's interest in the discharge of public sector civil nuclear liabilities, both BNFL's and the UKAEA's.

I see the Liabilities Management Authority as providing the driving force and incentives to get on with the job of systematically and progressively reducing the hazard posed by legacy facilities and wastes. It will have a specific remit to develop an overall UK strategy for decommissioning and clean-up.

The LMA will work in partnership with site licensees—at the outset, the UKAEA and BNFL—as well as the safety, security and environmental regulators, to achieve the most effective and safe means of discharging the liabilities. It will look to deepen the level and breadth of expertise in nuclear clean-up in the UK and to foster competition as a means of achieving that. Consistent with the need to ensure the highest safety, security and environmental standards, it will look to optimise the use of those skills by developing the opportunities for liabilities management, including the management of licensed nuclear sites.

The LMA will look to develop a strong supply chain, and a skills base capable of sustaining the clean-up programme over the long time scale that is required. In doing so, it will build on the existing industry work force whose scientific, professional and engineering skills are widely and rightly recognised. It will operate in an open and transparent fashion.

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Secondly, to enable the LMA to exercise its role across the whole public sector civil nuclear liabilities portfolio, the Government now propose to take on responsibility for most of BNFL's nuclear liabilities and the associated assets. The most significant of those will be the Sellafield and Magnox sites. Previous Administrations have accepted responsibility for all of the UKAEA's liabilities and financial responsibility for some 50 per cent. of BNFL's liabilities. Most of BNFL's liabilities represent the legacy of nuclear development programmes carried out before its establishment in 1971 and the operation of the Magnox stations in the public sector throughout the period. BNFL has currently earmarked funds for the majority of its liabilities. Our current intention is that those assets will be transferred to the Government when we take on responsibility for the liabilities. Responsibility for the assets and liabilities associated with BNFL's commercial fuel, reactor services and international clean-up businesses will remain with the company.

Expenditure on public sector civil nuclear liabilities already forms part of the Government's expenditure plans and covers non-discretionary public sector activities that Government will have to continue to finance one way or another. In other words, today's announcement will have no impact on the Chancellor's two fiscal rules. The aggregate effect on the overall public sector balance sheet will be neutral. Indeed, the new structure offers the prospect of a lower burden on the taxpayer.

The establishment of the LMA and the transfer of assets and liabilities from BNFL and the UKAEA will require primary legislation. We will introduce a Bill at the earliest opportunity. A White Paper to be published next spring will set out in more detail our overall approach to discharging the UK's public sector civil nuclear liabilities. It will spell out the role of the LMA and how it is expected to operate in practice, and address a range of associated issues. It will complement the consultation process on long-term waste management arrangements that is currently under way and draw on the responses to it.

Before the LMA is established, my Department will take steps to strengthen its existing capability for overseeing work on the nuclear legacy. That will include acquiring a more detailed knowledge of the legacy liabilities and their management, and of the Sellafield site in particular, and incentivising and monitoring performance against key performance indicators.

I should like to turn now to the future strategy for BNFL. Hon. Members will recall that the Government have been looking at the prospects of introducing a public-private partnership into BNFL's business. On 29 March last year, my right hon. Friend who was then the Minister for Energy and Competitiveness in Europe informed the House that problems with BNFL's business had resulted in a reassessment of the prospects of PPP. She explained that the earliest possible date for the introduction of any PPP into BNFL could not be before the latter part of 2002.

Also at that time, BNFL's new chairman, Hugh Collum, and its new chief executive, Norman Askew, set out to turn the company's performance around and to carry out a fundamental review of its strategy. They have already done a great deal to refocus the company. It has met all the recommendations of two out of the three Health and Safety Executive reports and made solid progress in implementing those of the third. It has

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reshaped its management structure to provide greater accountability, including the appointment of an overall site director for Sellafield and its management as a single unified site. It has begun to win back customer confidence and is committed to delivering the highest standards of safety and environmental performance.

The board has brought a greater emphasis to liabilities management and has endorsed the need for a sharper focus on nuclear clean-up. Under its direction, the company has, over the past 18 months, been reviewing its approach to tackling the most hazardous wastes at its sites. It agreed an approach to handling highly active waste with the HSE in February this year. It has also developed a new strategy for processing its intermediate-level wastes, which the board endorsed today. Under the new strategy, which the company has discussed in outline with all its regulators, it is proposed that the wastes will be removed from existing, ageing stores as soon as is reasonably practicable and will be treated and packaged to enable them to be stored safely for decades.

That new approach means that BNFL now estimates that it needs an additional £1.9 billion to provide for its share of the liabilities. On 31 March 2001, the company's accounts were already dominated by its provision for nuclear liabilities. As a result of the increase in provisions for liabilities, the current estimated value of the company's total liabilities now exceeds the value of its total assets by some £1.7 billion. The proposals that I have made for restructuring the industry more broadly, including removal of most of BNFL's liabilities and associated assets from the balance sheet, will address that situation.

I have been kept closely informed about the company's position, which has been monitored over the past year. BNFL's chairman informed me today that the company's board has concluded that its long-term liabilities are now estimated to exceed its assets, and also that the company will continue its operations because of its strong cash position. He stressed that the position as outlined in the company's last annual accounts, in July this year, still holds good today. The accounts stated that

The company has, however, called a shareholders' meeting, as it is required to do under section 142 of the Companies Act 1985. I have also been assured by the chief inspector of nuclear installations that BNFL's financial position will not in itself have any impact on the safety of BNFL's operations. He confirmed that the nuclear installations inspectorate would continue closely to monitor BNFL's activities to ensure that it continued to maintain and, as appropriate, improve its safety performance.

The company has been working on its future business strategy, the primary focus of which must be and will remain the management and discharge of liabilities at Sellafield. Without detracting from this, BNFL's strategy is to continue as a broad-based provider of nuclear products and services, exploiting for that purpose the strong nuclear scientific, technical and engineering knowledge base and resources that are the key assets of the business. Its strategy was developed to support its two groups of customers: Governments and nuclear electricity-generating

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companies. The company continues to carry out its strategy through its four business groups: fuel manufacture and reactor services; spent fuel and engineering; Magnox generation; and nuclear decommissioning and clean-up.

The company's strategy work reinforced the Government's own conclusion that a sharper focus on nuclear clean-up was needed. This is particularly the case at Sellafield, which will account for two thirds of the LMA's overall liability. Given the high level of safety, environmental and operational interdependencies, it is important that Sellafield continues to be managed as a single, unified site. The efforts of its dedicated, talented and skilled work force are key to ensuring that the site is managed effectively.

For now, BNFL remains responsible for the management of its liabilities and for the current decommissioning and clean-up programmes, including those at Sellafield. The proposals that I am outlining today will not affect the company's existing contractual commitments to its customers in any way. I know that the company is determined to continue to improve its performance and cost-effectiveness, including through greater use of private sector contractors when appropriate. The LMA will work towards placing those site management responsibilities on an incentivised basis, with appropriate performance targets.

Similar arrangements will be put in place for the management of the Magnox stations, Capenhurst, Drigg and the nuclear licensed sites for which the UKAEA is responsible. Performance will be kept under review by the LMA, in consultation with the regulators. Changes will be made where options for improving management arrangements are identified, which enhance safety and operational efficiency and secure better long-term value for money for the taxpayer.

Let me emphasise again that the Government's priority is the safe, secure and cost-effective discharge of liabilities in a manner that ensures protection of the environment. To achieve this we need to ensure that we are able to draw on the broadest pool of expertise possible, using the best of what the public and private sectors have to offer, and rewarding those who deliver. I know that the management teams at BNFL and the UKAEA share those priorities, and are determined to build on what has been achieved to date.

For BNFL as a business, it is now important that its management and staff have the opportunity to deliver on the good work already begun to improve the company's performance. Public-private partnership remains a target for the company. The Government, for their part, recognise that a PPP could, in the right circumstances, be right for BNFL's businesses and improve the management of liabilities at Sellafield. However, the company and the Government recognise that much has to be done if this is to be possible. In 2004-05, we will reconsider the scope for a PPP. In doing so, we will consider the overall performance of BNFL's businesses, advice from the LMA—which by then will have gained real experience in the best means of discharging liabilities—and the views of the industry regulators.

Management and work force have made considerable progress in their efforts to turn the company around—progress that I and, I hope, the whole House acknowledge today. They have responded positively to the challenges they faced over the past 18 months, but there is still more

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to do. We want a successful BNFL that performs better. The approach that I have outlined gives BNFL and its people the chance to demonstrate success across all its four businesses—in particular, in managing nuclear liabilities—and to seize the opportunity for PPP.

For the UKAEA, that approach provides a clear opportunity to build on its positive efforts to make progress in liabilities management. As with BNFL, it gives the UKAEA the chance to demonstrate that it can deliver the results and the performance that the LMA and the Government want to achieve. It will be incentivised to do so and its performance will be kept under review.

The proposals set out in the statement reflect discussions with BNFL, the UKAEA, the HSE, the environment agencies and the Office for Civil Nuclear Security. Much more work is needed to take the proposals forward, and further discussions are needed with those and other interested parties, including the European Commission.

The approach that I have outlined today shows that we are gripping the challenges posed by nuclear liabilities management. We have identified a way forward that will deliver the necessary strategic approach and overall control. It is a challenge for the industry, as well as for the Government, but I know that it is welcomed by the chairmen and chief executives of BNFL and the UKAEA.

The objective for us all is to ensure that this essential work continues to be carried out in a safe, secure and cost-effective manner that ensures protection of the environment.

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