Examination of Witnesses (Questions 40-51)|
TUESDAY 9 JULY 2002
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 capitalit 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
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.
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
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
(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.
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
(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 Julythat is a week tomorrowin 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.