Select Committee on Trade and Industry Minutes of Evidence


Examination of Witnesses (Questions 40-51)

MR ADRIAN HAM, DR JOHN MILLS AND MR LES INGHAM

TUESDAY 9 JULY 2002

Chairman

  40. Are any of your members fearful of a fund which would require the LMA to really screw down costs and the amount of money available for the work that your members would wish to bid for which would in fact be rather less than they had hoped and that they might not be as enthusiastic about serving the community through the LMA if it has a fund, if it is not flexible, if the sums that are involved are not quite clear? Do you think there is a worry that the Treasury might force them into forcing prices down beyond what you would regard as attractive levels?
  (Mr Ham) That question covers lots of issues. I have not heard any of our members in any of the working parties and meetings that we have had over the past six months voice concern that this innovation is going to be prejudicial to their business opportunities, in fact quite the contrary.
  (Mr Ingham) I think the important measure that the LMA is trying to achieve is that competition is not only about reducing costs as far as possible but making sure that the competition generates innovation and best practice and there will be a need as well for the arrangements to ensure that the regulatory process is strong enough. I think the concern that most members would have would be that the process allows that the activity be undertaken safely and properly regulated.

  41. I remember when we were discussing some years ago the privatisation of the generating element which subsequently became British Energy and we were talking about what was then in the segregated fund which was to come out of notional profits. In those days they were anticipated, now they may well be notional! It was to come out of these profits and there was a concern about the rate of discount that might make British Energy attractive or not to the Stock Exchange. In this case, it could ultimately be the case that LMA set alongside the New BNFL in which there is going to be private capital—it is not clear by what mechanism, whether it is going to be shares or what-have-you or how it is to be floated. Is there not a danger that there could be undue Treasury influence in this? Let us face it, if you have an account and you have regular subventions of money from the Treasury, there will have to be a unit within the Treasury that is overseeing this. Alternatively, if you have a kind of topping up arrangement on an ad hoc basis which is not planned, which is my understanding of the character of the fund, then you are damned if you do and you are damned if you don't. I put it this way, the Export Credit Guarantee Department, for example, is frustrated beyond belief by the interference of the Treasury which has no proper role in it apart from the fact that they are paymasters and this happens in one of the areas for which the DTI has responsibility. Are you not worried that the dead hand of the Treasury could come in here and interfere and then perhaps create problems for your members who would be bidding for contracts? It is a weighted question!
  (Mr Ham) I am sure you are not inviting me to criticise the Treasury, Chairman! I think the point here is that in fact the way the not segregated fund but segregated account is actually described suggests that one of the benefits to Government of the segregated account is that it offers Government great flexibility and it is just that flexibility downwards that concerns our industry. The benefit of a fund we see is that it is capable of riding out of the bumps and it is the riding out of the bumps and being able to give guarantees of longer term commitment that we would like to see. So, I am certainly not going to be critical of the Treasury which of course we all respect deeply!

  42. Perhaps you with your experience of many years ago as I understand you were a Treasury civil servant yourself . . .
  (Mr Ham) Yes, that is correct.

  Chairman: Like the Jesuits, once they have you, they have you forever, but that is another story!

Sir Robert Smith

  43. You say that one of the benefits of the LMA was putting money into R&D. Will the spin-off benefit of that be that the private sector will also get benefits from the outcome of that R&D?
  (Mr Ham) Yes, I would hope so. R&D is carried out by firms to offer better products, if you like a better effectiveness, a better efficiency. All these things with which you are very familiar and I would certainly hope that R&D offered benefits both ways.

  44. I just wondered, therefore, in terms of the funding of this body, how will the LMA establish some kind of contribution from those in the private sector who are going to benefit from this research?
  (Mr Ham) Well, I am sure that would be feasible. I think one of the things we welcomed is that there was a recognition in the White Paper that one of the LMA's roles was going to be to encourage R&D and to ensure that there was adequate R&D and beneficial R&D carried out. I would ask if my colleagues have anything to add to that.
  (Dr Mills) I would comment that, in my experience, real R&D in this area is best carried out on projects with a project focus and it is again the urgency of getting the LMA in place to start contracting projects which I believe will help deliver the R&D and innovation. R&D in a vacuum will not be attractive to industry.

  45. I am thinking of what the taxpayer will be paying to pick up the liabilities, which will be the taxpayer's, but if the benefit is also to the private sector, should there not be some joint partnership in terms of recognising that both are going to benefit from the outcome?
  (Dr Mills) Our current contracts as contractors do have clauses relating to intellectual property associated with R&D and we are quite used to coming to commercial relationships with our clients on these issues.

Richard Burden

  46. Could we move on to issues of the relationship of the industry in the future with regulation. Obviously already there are a whole range of different regulatory bodies involved, the HSC, NII, the Environment Agency, a whole range of them. How do you see the relationship between the LMA, if it is established, and the regulators developing? What do you think the challenges will be and how will that be made to work rather than just end up as another layer in there of regulation?
  (Mr Ham) Perhaps I could make a very broad comment in the first instance and then offer some opportunity to my colleagues to make further comments. We have been talking about, and the glib phrase is, "joined-up regulation", and the industry is conscious and has been making representations about problems where there are actually conflicts of regulatory pressure between the different agencies that you have just mentioned. We would like to see a greater opportunity for the regulators to be co-ordinated in obtaining a better result overall in terms of the regulatory intervention. One possibility that we see the LMA offers is perhaps encouraging more strategic thinking through future regulation from the regulatory bodies. There may be an issue, and we would not like to enlarge on it too much, of the need for more resources to the regulators to allow them to carry out more strategic thinking of regulatory policy, so we see that there are several potential benefits. One is the opportunity of encouraging more joined-up regulation, and the other is perhaps focusing attention on more adequacy of resources going to the regulators themselves.
  (Mr Ingham) I think we see and would be very happy with effective regulation, joined-up regulation between the various regulators, and without compromising the need for independence, a greater sort of proactive involvement would help put clarity into the programmes which need to be generated which will give the kind of certainty we were talking about before. I think the regulatory uncertainty is one of the issues which in the end impacts on costs and that needs to be part of the equation from the very beginning.

Mr Djanogly

  47. That pretty much answers what I was going to ask, but to the extent that the LMA is going to have a role in the programme management as well as overseeing licensees, presumably the relationship that it has with the regulators will be extremely important.
  (Mr Ham) Yes.

  48. I did not really see that area addressed in the White Paper. Is that something that you would agree with or be concerned about?
  (Mr Ham) Well, if I can comment very broadly, there are a lot of issues in, if you like, creating the strategic approach to the whole historic liability issue which clearly the LMA is going to be charged with, and I would have said that the most important thing from our point of view is to see the LMA created in timely fashion to allow it to start the kind of dialogues which we think are going to be necessary in the future, so we thought that probably is a timing issue. Once it is created, it can start developing its own view about the right kind of dialogue and the right kind of strategic thinking which can be created around regulation.

  49. So it is something to happen afterwards rather than before?
  (Mr Ham) Yes.

Mr Hoyle

  50. Moving on to the state of Nirex and what was stated in the report, that it believes it needs new direction and it argues that the ownership, linked with the nuclear industry, needs to be broken, what is your view on that and how do you wish to see it develop?
  (Mr Ham) Well, I think, firstly, Nirex is of course a member of our Association, and Nirex is, I think, applauded in some areas too in the White Paper as having been innovative in packaging, which is of course a very, very important and crucial area of long-term waste deposition. We just feel that there has to be an authority which carries on responsibilities of long-run disposal of nuclear waste and that a degree and a distance between it and the major players in the industry is probably rather a desirable one.
  (Dr Mills) I would comment that there is a very important interface between the LMA and the long-term waste management organisation, Nirex, particularly in the area of the packaging. We like to think of the LMA having product. It is a remediated site and a lot of packages containing waste and the treatment, conditioning and packaging of that waste is clearly an issue for the long-term waste management organisation. This is the advice and input which is required from Nirex at this moment and in the near future, so I think we would see a very important interface between the LMA and Nirex, but an independence being required from the LMA of the long-term waste management organisation.

  51. So from that, you would agree with it?
  (Dr Mills) Yes.

  Chairman: Well, thank you very much, gentlemen. I think we have reached the end of the questions we would like to put to you today. Can I just make one small housekeeping change, which is that we would like the evidence in by 5 o'clock on the 17 July—that is a week tomorrow—in order that we can get this report out on the street at about the same time as the House is rising. We need it for then, so if you can help us, we would be much obliged. We are very grateful for the help you have given us this morning and it has been a good start to our inquiry. Thank you very much.





 
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