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Electricity Bill

January 27, 2003

Electricity Bill

It is a great pleasure to speak after the right hon. Member for Rother Valley (Mr. Barron), who gave a spirited defence of his long-standing interest in the energy industry, and the hon. Member for South Thanet (Dr. Ladyman), who suggested that, by voting against Second Reading, we would be voting to write off the whole nuclear industry. It seems that there is no problem so big that a good dose of Government intervention cannot make it worse. Although I accept that, from the Minister’s point of view, it is prudent to plan for all eventualities, and that the Bill is obviously the result of such planning over recent months, no one should be deceived. This is wholesale renationalisation of the business, or at least the first and most important step towards that.

Mr. Simon Thomas: It is an expensive way of doing it. Mr. Field: It is indeed. There is a great fear among Opposition Members that this may become Railtrack mark II and that the taxpayer will effectively be asked to sign a blank cheque. The Minister will remember that, on that long ago day in October 2001 when Railtrack was reorganised, to put it at its most euphemistic, it was said that no taxpayer’s money would be spent, and of course we have seen the results of that in the intervening 15 or 16 months.

I shall canter through a quick history of the UK energy sector. I accept, as I am sure that the right hon. Member for Rother Valley does, that there has been rapid change in the past 50 years. In 1950, we relied on coal for about nine tenths of our energy, and roughly one tenth came from crude oil. Gas, high-grade oil and nuclear power were not even a gleam in anyone’s eye. Now, 43 per cent. of energy comes from gas, 32 per cent. from oil and only 15 per cent. from coal. We may not be sure about the route that we will take in the next half-century, but one thing that we can all be sure of is that there will be rapid change in the energy sector. I suspect that, whether or not Liberal Democrat councillors get in the way, the hon. Member for South Thanet is right to suggest that wind power will not be the answer to all the UK’s problems.

More recently, the energy review has tried to envisage what energy policy we will have in 50 years. There is a fallacy of over-prescriptive planning, and one has to consider the law of unintended consequences, which all too often rears its ugly head in any planning that promotes one sector over another. I greatly fear that, in giving this Bill a Second Reading and giving a thumbs-up for the long-term future of nuclear energy, which intrinsically I support, we will distort the whole energy market. It will be interesting to see how the energy White Paper, when it is eventually published in late February, early March or even a week or two later, is integrated with the Bill.

There is widespread acceptance of certain beneficial impacts, both economically and environmentally, of the changes that have taken place in the past 10 or 11 years. The hon. Member for Preston (Mr. Hendrick) hit the nail on the head when he said that there had been a sea change in thought about environmental issues in the past 12 or 13 years, particularly in relation to greenhouse gases and global warming.

The changes in the 1990s, both under Conservative Governments and more recently since Labour was elected in May 1997, have reduced the cost of production as a result of the liberalisation of the market. Wholesale reductions in the cost of raw materials have fed through to the consumer. That has led to a reduction in UK fuel poverty, which was a large-scale problem discussed by many only 10 years ago, but it has not been in the headlines in more recent years. We have also seen a switch from coal to gas, which has allowed us to achieve many international environment targets.

There is little doubt that one problem in the electricity sector is the precipitate fall in wholesale prices, down 40 per cent. since 1998 as a result of misguided pricing policies and over-building. That created a generation capacity 22 per cent. higher than required, to which hon. Members referred. The role of NETA, the new market clearing system, accelerated the worsening position since 2002. The fallout in the increasingly international energy market has also been a problem. We fear that that is not over and that British Energy is at the forefront of the financially embarrassed market.

What is the right way forward? We all agree that there are problems. We need a concerted strategy, not just as an Elastoplast for the stage that we are considering, but as something that plans for the years and decades ahead. British Energy provides about 20 per cent. of the UK’s electricity, with more than 5,000 staff and 15 of the 31 nuclear reactors. The precipitate problem that began only last August, with the shutdown of new plant owing to the probe over a fault, led to a run on the British Energy share price, which lost a third of its value almost overnight. That resulted in the financial position turning down from the already precarious to the somewhat ugly. At the end of 2002, creditors were owed £1.26 billion.

Even the Department appreciates that the introduction of NETA opened up competition between operators and helped to drive down prices of wholesale electricity. That would not be such a problem but for the fact that British Energy has no retail business on which it can rely. After the warnings of insolvency, which Conservative Members espoused as recently as September, the Secretary of State assured us: "There’s no question at all of taxpayers writing a blank cheque to British Energy and its shareholders".

That assurance seems hollow in the light of the Bill, which will probably go through tonight, and any action consequent on it.

Last autumn was characterised by the extension and increase of British Energy’s financial support package. The blank cheque rose in value from £410 million to £650 million to provide working capital because of its shot-through balance sheet. Even the Bill can only take effect to the extent permitted by the European Union state aid rules. We may not have heard the last of that. My hon. Friend the Member for Stone (Mr. Cash) tried to address the problem in a point of order before the debate. I suspect that we will return to it on Report next week and later. It is of great concern that the papers will not be given to the Commission until March, by which time there is a risk of the package falling apart. The Minister will know that the Commission has reportedly launched a new investigation into British Energy after its request to local councils to defer business rates. There is the suggestion that that falls foul of state aid provisions.

We are gravely concerned that the Bill amounts to unnecessary Government intervention. It is anti-competitive and, by exposing the taxpayer to an unlimited and uncosted liability, there is a risk that it will not be in the public interest. Specifically, it is clear that British Energy will not enjoy fair trading until proper account is taken of the true effect of the climate change levy. Given the absence of carbon dioxide emissions, the proper account should be nil. Although I am instinctively supportive of measures that will improve the global environment, the Government have all too often allowed the environmental tail, in the form of the climate change levy, to wag the energy dog. Their policies, as highlighted by the Bill, make neither economic nor environmental sense.