Lord Jenkin of Roding
Main Page: Lord Jenkin of Roding (Conservative - Life peer)Enterprise and Regulatory Reform Bill
Lord Jenkin of Roding Excerpts
Lord Stevenson of Balmacara
I thank the noble Lord for those additional remarks and for saying earlier in his response that he would lay copies of the articles of association in both Houses when it comes to reviewing the designation process. We look forward to seeing them because they will help considerably.
I am afraid that I cannot respond very positively to the former Secretary of State, the noble Lord, Lord Brooke. I did not pick up this point when I was reading, but I am so completely gender-blind in these matters that I simply read the word as one that described, in a personal way, the Secretary of State for the time being. However, he will have noticed, as we all did, that throughout his response the Minister referred to the Secretary of State as “he”. Perhaps we have a problem that we should all reflect on.
Lord Jenkin of Roding
Perhaps I can help with this question. Since the 1880s, it has been a matter of interpretation of statutes, and I was certainly taught at law school that the male embraces the female. It has therefore always been said that you used the term “he”, which meant, in the appropriate context, “he or she”. The result is that statutes and, presumably, amendments do not need to use the words “he or she” each time. My noble friend will find when he takes advice on this later that it is a well established principle of statutory interpretation, if I may repeat it, that the male embraces the female.
Lord Marland
I am grateful to my noble friend Lord Jenkin of Roding for explaining that. In fact, it coincides with a note that has just been passed to me affirming it. There are two issues, of course. First, our current Secretary of State is a he, and, secondly, we refer to each other as, “My Lords”. I hope that that means I do not have to write to the noble Lord, Lord Brooke, on the subject—although I am always delighted to do so.
Lord Teverson
Thank you very much indeed. In fact, last month the Government already had their first auction of phase three allowances. They made £34 million and sold 6.5 million EUAs at €6.62 per unit—a terrible price in terms of carbon pricing but not a bad price, given some of the other prices that have been found. Unfortunately and regrettably, since then the price has fallen below €6. The German Government have sold some as well more recently and that price fell. There is an intention to auction in excess of 50% of these allowances in phase three and once auctioning starts, it seems that will be one of the ways in which the price will go up because the free issue has ended.
I would also hope that the Government’s intention to raise the bar on 2020 carbon reductions to 30% will be successful. That would also mean that the number of these allowances would decrease in the market. This seems to be an obvious revenue stream, some of which could be used towards reinvestment— I am not saying that it must be—of those carbon reduction revenues into green growth and into making sure that that whole process is reinforced.
I must apologise to the Grand Committee in that Amendment 11, on a second area, has a mistake in it. In subsection (3), at the very end, it should say Clause 1 instead of “section 1” and I apologise to noble Lords for that. I have been looking for a way in which, when the time is right, we could lever extra money into the Green Investment Bank without having all the effects of increased public debt, which is why the current £3 billion comes from asset sales. It means that there have to be other ways of finding that money, with all the borrowings, but the debt is not changed. As I understand it, it would be absolutely the same as for the Nuclear Liabilities Fund, which is currently worth some £8.6 billion. Again, this is a way in which the firepower of this bank could be increased quite substantially without the effect on public debt that other forms of fundraising might have. It would not require outside borrowing by the bank and would take over the trustees’ functions.
I do not know how many of your Lordships have read the excellent report by Professor Gordon MacKerron, Evaluation of Nuclear Decommissioning and Waste Management, which came out earlier in the year. I am sure that my noble friend the Minister was closely associated with it, given his responsibilities in that area. Very importantly, it makes the point that at the moment the vast majority of that £8.6 billion has to be invested in the National Loans Fund for a very low return. I would be interested to learn from the Minister whether he or his officials know what that current rate of interest is. Professor MacKerron was clearly particularly concerned at the low rate of return. On understanding the net present value of the fund’s existing liabilities, he said,
“though its current rate of accumulation is significantly less than the discount rate applied”,
which was 3% . He went on:
“Whether the fund will be able to meet all the … liabilities will depend on a range of factors (in addition to whether the current approach to its investment regime are maintained)”.
He questioned whether putting that cash into the National Loans Fund would maintain a sufficient value for the decommissioning costs of the existing nuclear fleet. There is a simple solution to that as well: the purpose of the Green Investment Bank is not only to invest in green infrastructure but to create a proper commercial return from its investments, so we have a double-win situation here. We increase the firepower of the Green Investment Bank quite substantially and also make it far more certain that the NLF will be able to meet its liabilities and not put the liability back on taxpayers, as would happen otherwise in future. So we have a double success. I beg to move.
Lord Jenkin of Roding
My Lords, I have some doubt about the proposed new clause of which my noble friend has just spoken. The Nuclear Liabilities Fund very properly seeks to avoid the situation that the country got into over many years when large numbers of nuclear installations of one sort of another were left to be decommissioned and their radioactive materials dealt with, and there were no funds available. One is always astonished at the huge amounts of money that have to be set aside to satisfy the obligations that are now being discharged to decommission these nuclear plants safely and effectively. My noble friend Lord Teverson may contradict me on this, but I believe that it is intended entirely to be confined to that purpose; it is intended to be there when it is needed and nuclear establishments come to be decommissioned. When my noble friend says that this increases the firepower of the Green Investment Bank, what does he mean? Is it intended that the fund should be invested in other green projects, which may or may not achieve the return expected when the fund was invested? I would have thought that that would risk defeating the purpose of the Nuclear Liabilities Fund.
The question of the rate of interest that should be earned on that fund is something that the Minister may wish to look at. I had not refreshed my memory of Professor MacKerron’s report, and I was grateful to my noble friend for reminding me what was in it. Of course, it is a very low rate of interest, as he has rightly said. But the fact of the matter is that this is a hypothecated fund; it is there for a particular purpose, and the idea that it could be used by the Green Investment Bank to invest in something else that might produce a higher return risks prejudicing the absolute and essential purpose for which it has been set up—namely, to meet the costs of decommissioning nuclear plants when they are available. I hope that the Minister will give some indication that he will look at this proposal in the proposed new clause with some suspicion, because I believe that it might be misconceived. I apologise to my noble friend Lord Teverson for putting it in that form, but I feel very strongly about this.
One of the best things that the previous Government and this Government have done is to make sure that future nuclear liabilities will not fall on the taxpayer but are regarded as a proper cost of those who invest in nuclear installations, power plants and so on. That is what it is intended to do. It is a very wise thing to do, and I hope that it will not be prejudiced by diverting it to some of the other purposes of the Green Investment Bank that noble Lords have talked about this afternoon.
Lord Wigley
My Lords, I apologise for coming in rather late, but I am in good time for the amendment that I wanted to catch up with, Amendment 11, and to follow on from the question regarding nuclear decommissioning. I live in a part of north-west Wales where there are two nuclear power stations. Trawsfynydd nuclear power station stopped generating two decades ago. It now employs some 600 people on decommissioning, more than it ever employed when it was generating electricity. The message that comes home from that is the uncertainty with regard to the cost of decommissioning and the length of time, and the need, therefore, to have financial cover for that.
This becomes particularly relevant with regard to the new reactor that is likely to be forthcoming with Hitachi at Wylfa in Anglesey. There is considerable support in Anglesey for the renewal of the nuclear power station. But the one reservation that people would have is if there were uncertainty as to the eventual decommissioning and the resultant costs arising from that station, particularly if in the private sector the company running it were to go out of existence. There needs to be a cast-iron guarantee with regard to funding for that purpose in order to maintain the good will towards the building of that new reactor at Wylfa. It is needed in energy terms and in terms of investment in the local economy in north-west Wales.
Therefore, the amendment goes to the heart of some very important aspects of nuclear power. Whereas I have a considerable amount of sympathy with the amendment in terms of the green bank and developing green alternative sources of electricity, that has to go on side by side with the nuclear dimension. Whatever settlement is finally reached it has to encompass both sides of that equation.
Lord Teverson
My Lords, as we are in Committee, perhaps I could come back on my noble friend Lord Jenkin’s important areas. I can reassure him on both those items that we would be better off if this amendment was passed. First, the MacKerron report is quite clear that the current rate of investment going into the National Loans Fund almost certainly will mean that its liabilities cannot be met, so we have to find another way to do this. The Green Investment Bank is not a fund to give away money; it is there to commercially invest, alongside other commercial investors. It could be perceived as being a greater risk perhaps—I will come on to why it is also a lesser risk—but also as providing a sensible return with a very sound government-backed institution to do the investment, and I think that is good. Furthermore, this fund has to invest its money in the National Loans Fund. That is a euphemism; what it actually means is that it has to give it all to the Treasury. So the Nuclear Liabilities Fund at the moment is similar to unfunded state pensions. It goes in there, but to take the money out will have the same impact as paying pensions into the future. While it is a discrete amount that is accounted for, it just reduces the national debt. That is all that it does on the current terms.
In fact, how secure is that? Yes, there is an accounting mechanism, and my noble friend is absolutely right that the sins of the past are huge in terms of those funds having been lost during the process of changes in the nuclear industry and its ownership over the past couple of decades. First, this amendment would make it far more certain that this fund will be able to meet its liabilities in the future. Secondly, we, as taxpayers and as citizens, would know that that money is in a place where we can actually see it, see its value, see that it is different and separate out of the Treasury from the national debt and, as the noble Baroness, Lady Worthington, said, we can predict decommissioning of nuclear plants far enough in advance to craft the investment and our exit strategies around those financial needs.
Lord Jenkin of Roding
As we are in Committee, I hope that I can say a couple of words about this. The nuclear industry is, of course, building up this fund as part of the Government’s policy to make sure that the liability for decommissioning does not again fall on the taxpayer. It has recognised this, and it follows the same pattern as one has seen increasingly in the offshore oil and gas industry, where funds now have to be put aside so that when the oil rigs are decommissioned, again that does not fall on the taxpayer but is part of the cost that has to be built into the supply of the oil or gas and therefore met by the investor. I think that my noble friend Lord Teverson may be confusing two matters. I use the phrase again: this is a hypothecated fund. It is not like the pension fund. There never was a separate fund for that. It is simply that the pension contributions from, for instance, the teachers’ pension fund have been paid to the Government, and the obligations are met, of course, by the taxpayer out of the fund. There has never been any question of trying to balance the one against the other. This is quite different. This is a fund that is being set up and funded by the industry. It has to be built up while plants are operating—not just when they are commissioned—so that, at the end, when they come to be decommissioned, which may be 50 or 60 years ahead, the fund is there. They have invested in it so the cost will not fall on the taxpayers. It is a separate, hypothecated fund. It may make the green bank look bigger because it will have more money but it cannot do anything with it other than get a rate of interest. My noble friend shakes his head, but if they are going to start investing in green industrial ventures and so on, it seems to me that that would be a breach of trust to those who have built up the fund. It may be that they can hold it and, as it were, guarantee the payment, but the minute that they start investing it themselves, it seems to me that that is risking the whole purpose for which the fund has been set up.
A separate issue is whether there is an alternative method of investing in the Nuclear Liabilities Fund that might get a slightly more realistic rate of interest. That is a separate matter, but it seems to me that to make it part of the loan capital of the UK Green Investment Bank would be a breach of trust, as I suggested, against the firms that are building this up perfectly properly. They agree, they recognise it, and they know that they do not want to go back to the previous position, but they want the fund to be available to finance the decommissioning of the plants when the time comes.
Lord Marland
My Lords, perhaps I can deal with this quite swiftly. Both the ETS and the NLF, the Nuclear Liabilities Fund, reported to me in my previous department so I have a rough idea of what is going on. Let us deal with the EUAs and the ETSs first. I also sit on the government assets committee and we looked at selling some of our EUAs. We drew the conclusion that the price was not right, the market was not big enough and we would not be able to get a substantial figure into the market. However, as the noble Lord, Lord Teverson, rightly says, an opportunity may come along later.
Clause 4 permits financial assistance to be provided in any form,
“as the Secretary of State, with the consent of the Treasury, considers appropriate”.
If we were able to do it and if—that is a big “if”—the Treasury agrees, the Secretary of State could divert funds into it. Amendment 6 permits the Government to use a proportion of revenues from auctioning emission permits to fund the bank. There is already provision within that.
This is creative thinking and I am very grateful to my noble friend for that because he is a great creative thinker. I turn to the Nuclear Liabilities Fund. Clearly, as the noble Lord, Lord Jenkin, quite rightly said, two things are going on here. One is that this is a fund that is committed to nuclear liabilities; it is committed to the nuclear industry and, therefore, it has a range of opportunities in the nuclear industry in which it could invest. The noble Lord, Lord Wigley, referred to Wylfa and other investments in new nuclear. I had discussions with the chairman of the NLF about developing the fund into nuclear investments, including, for example, a MOX plant, which is something that we were committed to when I was in the department and, indeed, new nuclear. That is entirely for the NLF to decide for itself.
The problem I have with the NLF diverting funds here is that this is an investment bank and it is what it says. There is no such thing as a guaranteed investment. Some investments go up and some investments go down and if the NLF lost money, co-venturing with the Green Investment Bank on things that it did not understand, of course the liabilities would not be met. Despite the fact that we may consider it a very boring return on the investment at the moment, it is planned to match some of the liabilities. But I do not want the noble Lord, Lord Teverson, to go away thinking that actually the NLF is enhancing its investments, but think that it has enough on its plate with the nuclear industry.
Therefore, given the commitments that I have made on Clauses 4 and 6, I hope that, despite the fact that two very important points have been raised—and I am grateful to my noble friend Lord Jenkin of Roding, who has expertise in this field—the noble Lord will withdraw the amendment.