Gerry Steinberg MPIn the House...

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Risk management: the nuclear liabilities of British Energy plc (HC 354-i)

Public Accounts Committee 11 Feb 2004

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Oral Evidence given by Sir Robin Young KCB, Permanent Secretary, Department of Trade and Industry, and Mr Adrian Montague CBE, Chairman, British Energy.

Q38 Mr. Gerry Steinberg (City of Durham): Sir Robin, the whole privatisation has been a complete disaster, has it not? It has been handed absolutely disastrously by your department.

Sir Robin Young: I think that is very unfair and ---

No, it is not unfair and I will tell you why.
No, it is not unfair and I will tell you why.
Q39 Mr. Gerry Steinberg (City of Durham): No, it is not unfair and I will tell you why. What amazes me about permanent secretaries who come here is that they seem to have a different interpretation of the reports that we get - is it not funny that my line of questioning is exactly the same line of questioning as Mr Allen's; I follow exactly the same line and will follow it - and yet you see it in a completely different way. I find it amazing. Sometimes I wonder whether we get the same reports.

Sir Robin Young: The reason that I said it was unfair was because ---

Q40 Mr. Gerry Steinberg (City of Durham): If you read this report, it is a disaster and you are responsible, or your department is, for making such a disaster.

Sir Robin Young: The reason that I say it was unfair is that, in paragraph 2, it refers to the NAO report on the privatisation of British Energy and it "recognised that the Department created British Energy as a robust company, obtaining a high degree of assurance that British Energy would have the capacity to meet its nuclear liabilities ..." That was the NAO report, this Committee considered it and no one said that we had, as it were, done privatisation legislation wrongly. That is all I was saying. I am of course not saying that it is ---

Q41 Mr. Gerry Steinberg (City of Durham): It is a little bit different saying that you did the privatisation correctly but how you actually then carried out, in the ensuing years, your relationship with British Energy clearly shows how you cocked it up, to be quite honest with you. Mr Montague, you are a busy man, are you not? You are Chairman of British Energy; you are Deputy Chairman of Network Rail; you are Chairman designate of Infrastructure Investors; you are leading the Government's review of Crossrail; you are Chairman of Michael Page International; and you are a non-executive director of CellMark AB. How many days a work do you put into British Energy?

Mr Montague: About two or two-and-a-half.

Q42 Mr. Gerry Steinberg (City of Durham): So, there are about 12 days in a week!

Mr Montague: I am a non-executive chairman.

Q43 Mr. Gerry Steinberg (City of Durham): How much do you get paid for doing the job?

Mr Montague: I get paid a basic fee of £150,000 a year. During the reconstruction period where, on many occasions, I have been working seven days a week, I get ---

Q44 Mr. Gerry Steinberg (City of Durham): Do you not think you should be the full-time Chairman of British Energy?

Mr Montague: I think that the Chief Executive and I have an arrangement under which he is very much full time and I am there whenever the company needs me.

Q45 Mr. Gerry Steinberg (City of Durham): How much is the taxpayer putting into British Energy at the moment?

Mr Montague: At the moment, the taxpayer has, through the Department of Trade and Industry, advanced a loan to the company which was originally a maximum of £275 million. At the moment, it has been reduced to £200 million and our drawings on that loan, the actual money we have had from taxpayers at the moment, are very small. I do not have the exact figure.

Q46 Mr. Gerry Steinberg (City of Durham): I think it is important that we know.

Mr Montague: I think it is at the moment zero.

Q47 Mr Allan: So, you have not borrowed anything?

Mr Montague: Not at the moment.

Q48 Mr. Gerry Steinberg (City of Durham): Do you intend to borrow anything?

Mr Montague: This is a loan which is due to expire when our reconstruction is completed. At the time the reconstruction becomes effective, we will have the new arrangements with Government under which some of these liabilities will be taken back on to the Government management, but we do not expect any ongoing financial support from the Government.

Q49 Mr. Gerry Steinberg (City of Durham): Mr Williams asked you about dividends paid presumably before you were there under the old regime. What dividends have been paid our recently? When was the last dividend paid out?

Mr Montague: The last dividend was in May 2002 before the collapse. There have been none recently.

Q50 Mr. Gerry Steinberg (City of Durham): Sir Robin, getting back to what we are talking about originally, you were quoting paragraph 15 to Mr Williams. However, you did not continue to quote the paragraph because, if you had quoted the second little point, you will see that it says, "The period from Spring 2000 to early 2002, when the Department, uncertain in the face of mixed messages from the Company therefore increased its monitoring of the risks, trying to understand the real extent of the Company's difficulties from outside, and decided to 'wait and see.'" That is a different sort of impression than you have given certainly me, I do not know about the rest of the Committee. That was a little like an ostrich putting its head in the sand hoping that somebody else would solve it, but nobody else did solve it, did they? They had to come back to you, did they not? Just look at the appendix 2 on page 39 and if we look from March 2000, "31 March 2000 Chairman of British Energy advises Ministers of a major reverse to the fortunes of the Company, due to a 20% fall in prices and the difficulty of finding further cost reductions given an 'increasingly tough line' by safety regulators." Then, "28 April 2000 British Energy Directors obtain meeting with Departmental officials, and highlight British Energy's need for concessions on the Climate Change Levy and in the cost of services from British Nuclear Fuels ..." Then we go on to, "May 2000 British Energy Chairman formally raises Climate Change Levy ... is a matter for Treasury ..." who have a lot to answer for as well - I hope he is not sitting there hiding behind his report! Perhaps he could tell us why they did not do something about it as well - "... declining to become directly involved ..." Then, "June 2000 Department concludes from review of brokers' reports that British Energy 'might be overdoing the gloom.'" It just reads like a disaster. Anybody with any sort of knowledge or anybody with any common-sense would have looked at this and thought, bloody hell, something is wrong here, but you did not, you just sat in your department, buried your heads in the sand and let British Energy get into more and more trouble, even though you were being warned that there was going to be a catastrophe, that there was going to be a disaster. Why?

Sir Robin Young: That is not a description that I recognise from this report. As I said, between May 2000 and early 2002, we had hugely upped our monitoring and discussions with the company. The company asked for three or four things including things to do with local taxation and national taxation and, as I was saying in reply to Mr Allen, those are discussions we took up with the relevant departments. This was not an emergency, it was not, in our view or in the view of most of the lay people in the market place, inevitable that the company was at that stage going to go bust. You will remember also that we cannot, as a department, intervene on behalf of a single private company, it is not policy and that would be unfair ---

Q51 Mr. Gerry Steinberg (City of Durham): This is not a normal private company, is it? It is a nuclear company which could have disastrous effects on the general public not only in terms of what might happen if anything went really, really wrong, but in terms of the actual amount of money that it is costing. It is not Marks and Spencer, I agree with you, but you treated it as though it was Marks and Spencer or an ordinary private company, that is the whole point.

Sir Robin Young: That is the point. It is set up as a private company. We are not allowed to give it state aids without getting permission from the European Commission and, if we do help in any way, the first people to complain would be its competitors. We have set up a marketplace for energy supply as this Committee knows because it has done the NTA report, the New Trading Arrangements Report. It was deliberately set up as a market which means that the Department cannot intervene on behalf of a single firm. It just cannot.

Q52 Mr. Gerry Steinberg (City of Durham): Do you not feel as though you have a responsibility to say to, say, Ofgem, the Treasury, the Deputy Prime Minister's Office and the Health & Safety Executive, "Look, we are treating this company as an ordinary private company and, frankly, they are not." Even when they came along, as I work it out from the report, they were not being treated as an ordinary private company. For example, the report says that other energy companies get rate relief. When they came along and asked you for rate relief, you referred them to John Prescott's Department and it was refused. You then referred them to the Treasury Department as far as Climate Change Levy relief was concerned and they refused. What was going on here is quite incredible. Here is a company going down the drain. It would probably not have cost more to the taxpayer in the long run for you to have given them some sort of refund on climate energy at the Treasury, but you did not. Quite honestly, it makes an incredible story of incompetence.

Sir Robin Young: I am surprised at this line of questioning. This was a company which ---

Q53 Mr. Gerry Steinberg (City of Durham): You are surprised!

Sir Robin Young: This was a company which was a private ---

Q54 Mr. Gerry Steinberg (City of Durham): Can I have a look at your report to see if we have the same report.

Sir Robin Young: This is a private company which is still paying out dividends. You are suggesting, frankly, that the Department or the Government should intervene and pay it a special thing, which would be a subsidy from the taxpayer straight to the shareholder. That is really what you are suggesting.

Q55 Mr. Gerry Steinberg (City of Durham): No, I am not ---

Sir Robin Young: And, if I may say so, that is the wrong policy.

Q56 Mr. Gerry Steinberg (City of Durham): Mr Williams questioned you on the payment of dividends. It was quite outrageous that they paid a dividend in the first place considering that they were going down the drain and here they were paying out a dividend bigger than they had ever paid before. I am not for one moment suggesting that they should be paying out dividends, what I am suggesting is that you should have been seeing that in fact the company was being run properly, which clearly it was not and it was going down the drain. It was millions of pounds in the red.

Sir Robin Young: Just to pursue my earlier point, you were suggesting that earlier Government intervention by way of payment from the taxpayer to this private company should have happened earlier. I was arguing that that is a straightforward subsidy from the taxpayer to the shareholder which I would expect this Committee to criticise ---

Q57 Mr. Gerry Steinberg (City of Durham): No, it was not because you would not pay the dividend ---

Sir Robin Young: ... and I am also arguing ---

Q58 Mr. Gerry Steinberg (City of Durham): Who said anything about paying dividends? I did not mention paying dividends, you did.

Sir Robin Young: The company to whom you are suggesting we should have made early interventions and payments from the Exchequer was a company which, at that time, was paying out dividends. That is a factual statement.

Q59 Mr. Gerry Steinberg (City of Durham): Right.

Sir Robin Young: So, it would have been the case that ---

Q60 Mr. Gerry Steinberg (City of Durham): Wrongly.

Sir Robin Young: Rightly or wrongly, so the taxpayers' money would be a straight subsidy of the shareholder. Moreover, it would have admitted that the company was going on and produced a distorting Exchequer subsidy to a particular company, which is illegal under the State Aids Regulations.

Q61 Mr. Gerry Steinberg (City of Durham): But you have done it now.

Sir Robin Young: We have done it under rescue and restructuring, which is subject to the European Commission and of course have had the complaints from other competitors in the marketplace of unfair special treatment to this particular company.


Q118 Mr. Gerry Steinberg (City of Durham): I just want to follow up on some of the questions I asked and I did not get answers to. We have a bit of an argument here and Sir Andrew Turnbull does not like it.

Sir Robin Young: If he does not like it I do not like it because he is the boss.

Q119 Mr. Gerry Steinberg (City of Durham): I do not care. Your Department actually identified that British Energy would be losers under the new electricity arrangements in 2001, I think Mr Cruddas mentioned that, why did the Department not actually ensure that British Energy would actually work under worse terms than their main competitors? Now I would like to ask the Treasury to explain why you refused to give them £150 million rebate on the Climate Change Levy - I am not very much of an environmentalist, I do it - because as I understand it nuclear fuel does not have problems with carbon, so why were they forced to pay £150 million climate tax?

Mr Molan: The first point, Mr Steinberg, is that the CCL, the Climate Change Levy, is what we call a downstream tax, a tax on use by business users, not on the generators. It was designed to encourage users to make more efficient use of energy. On that basis an exemption for an energy generator was contrary to the logic of the tax. I would also say that to exempt one nuclear generator and not others would undermine the credibility of the tax system. If we had gone further and exempted all of them ---

Q120 Mr. Gerry Steinberg (City of Durham): You say one nuclear generator.

Mr Molan: In a sense if you design a tax you say that a particular class of bodies pay that tax, to single out an exemption for one of those companies makes the integrity of the tax system look rather doubtful, so in a sense you are driven towards considering whether the whole class, i.e. all nuclear generators, should be exempt and that in itself could undermine the whole viability of the levy.

It is like saying my mother when she was alive who could not drive should pay a car tax.
It is like saying my mother when she was alive who could not drive should pay a car tax.
Q121 Mr. Gerry Steinberg (City of Durham): It is like saying my mother when she was alive who could not drive should pay a car tax.

Mr Montague: I do not understand your analogy.

Q122 Mr. Gerry Steinberg (City of Durham): They do not produce carbon gas, you are saying that is irrelevant but you still have to pay the tax, I am saying my mother did not drive a car but your argument is it does not matter, it is a tax, she should pay the tax.

Mr Montague: The point I am making is that the tax was designed to encourage users of energy to change their methods of use, that is the logic of the tax.

Q123 Mr. Gerry Steinberg (City of Durham): You did not think that by refusing this at the end of the day the taxpayer may well have to subsidise it to the tune of three times the amount you were refusing to let them off with.

Mr Molan: I think there are two points there, one is that in the case of the levy there was no analysis carried out on the impact of levying to do with companies. Secondly, in the event of an exemption being agreed it would not have been sufficient to be dealt with for the financial position because British Energy ---

Q124 Mr. Gerry Steinberg (City of Durham): It would have helped. I do not know whether you can answer this because you are not answerable to Prescott's Department, my understanding is that the other generating companies did not pay business rates but they were forced to pay business rates, why? You were saying they had to pay the carbon tax because it was a generating sort of tax, on the other hand other generating companies did not have to pay council tax but they did, it is just double Dutch.

Mr Montague: I cannot comment on the business rates, I am not qualified to comment on that.

Q125 Mr. Gerry Steinberg (City of Durham): What was the reasons they refused to give them relief on rates?

Sir Robin Young: When the company made the proposition to us we took it to what is now ODPM and it turned out that their rateable value was actually reduced. I am looking at 3.13 where it says it is 1,400 per megawatt, the previous figure was 16.4, so actually they had a rate reduction in 2000, but not as big a rate reduction as some other generating companies, as Table 11 on page 26 shows. We carried on discussing with the DETR, they did not accept unfairness, they just denied it, as can happen when you make special propositions to a department. They did also point out, if you look at the bottom of page 25 on the right there, this would have gained £2 million over the five years for the company because of phasing, and all of that. You are right that the Climate Change Levy was a very much more significant sum of money but against the whole of their accounts of 280 million two million over five years was not very significant.

Q126 Mr. Gerry Steinberg (City of Durham): I accept that. Finally, the interpretation of paragraph 1.12 is clearly different to the interpretation that the Chairman made of it and I made of it. You did say during the hearing, I have not quoted you exactly, I did think you said that you would wait to see what the PAC future recommendations will be before making decisions on how to proceed?

Sir Robin Young: I think I must have said EC, the European Commission.

Q127 Mr. Gerry Steinberg (City of Durham): Did you not say you were waiting for the recommendations the NAO would be making?

Sir Robin Young: The recommendations the NAO made are on page ---

Q128 Mr. Gerry Steinberg (City of Durham): No, in the future. You are going to wait for the results of this Committee's findings to see what we were going to say as to how you were going to proceed in the future.

Sir Robin Young: I do not think I said that. Obviously we are keenly waiting this Committee's conclusions.

Q129 Mr. Gerry Steinberg (City of Durham): You ignored us the last time presumably you will ignore us this time.

Sir Robin Young: I do not accept that we ignored you the last time and I certainly would not propose to ignore you a second time.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

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