Why taxpayers will share the pain of cost of building Sizewell C nuclear power plant

Published

2 years ago

November 29, 2022

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It was as long ago as 1982, back in the pre-privatisation days of the Central Electricity Generating Board, that the idea of building a new nuclear power plant in Suffolk – Sizewell C – was first mooted.

At that time, construction had yet to begin on the neighbouring Sizewell B, which for now remains the youngest of Britain’s operating nuclear power plants.

The first planning application was filed as long ago as 1989 and there have been countless false starts since.

The theoretical cost of construction was pushed up when Margaret Thatcher‘s government insisted that any company building a new nuclear power station would also have to have funding in place for not only its construction but also for the disposal of waste and the eventual decommissioning of the plant.

That proved a major obstacle to new nuclear build which was then further held up by Tony Blair’s reluctance to take on opponents of new nuclear build in his own party – although, in 2006, he eventually committed to the cause, as did his successor, Gordon Brown.

Hinkley Point C, the UK’s first new nuclear power station in a generation, was the upshot.

New financing key to unlocking nuclear

Yet the construction of the Somerset plant is years behind schedule. EDF, the French energy giant building it and which will construct Sizewell C, originally envisaged it opening in 2017. Hinkley Point C is also billions of pounds over budget.

And the coalition government’s decision to guarantee EDF a fixed price for the energy generated at Hinkley Point C, which was necessary to persuade the French company to go ahead with the project, was subsequently heavily criticised.

The National Audit Office (NAO) said the agreement had locked consumers into a “risky and expensive” project – although, ironically, the deal now looks good value following this year’s spike in wholesale electricity prices.

The NAO’s report did, though, make subsequent governments wary, once more, of new nuclear build.

Theresa May immediately demanded a review of Hinkley Point C on becoming prime minister and, even though her government ultimately approved the project, she also took note of a suggestion in the NAO’s report that new funding models be considered for subsequent new nuclear power stations.

That, in a nutshell, is why it has taken so long for Sizewell C to finally get off the ground. These plants are so monstrously expensive to build that no private sector company is willing to bear all of the risks themselves without some support from government. It is also why the likes of Japan’s Hitachi and South Korea’s Kepco have reluctantly walked away from building new nuclear plants at Wylfa on Anglesey, Oldbury in Gloucestershire and Moorside in Cumbria.

So key to unlocking the project has been coming up with a new way of financing it.

The solution

The government’s solution is the funding model known as Regulated Asset Base (RAB) – the means by which other major infrastructure projects, such as the £4.3bn Terminal 5 at Heathrow Airport, have been financed.

Under this arrangement, rather than guarantee whoever builds Sizewell C a set price for the electricity it generates, taxpayers will be taking risk alongside other investors.

This is why the government is investing an initial £700m in the construction of the plant although, with the total cost likely to come in at between £20-£30bn, that will only go so far.

The other elements in the RAB model include electricity consumers – households and businesses – paying for the plant while it is still under construction through their bills.

This is how, for example, the £4.13bn Thames Tideway tunnel now under construction is being financed. A share of the cost of the project, which is aimed at preventing sewage spills into the Thames estuary as well as future-proofing London’s sewerage system for expected population growth, is being met by customers of Thames Water on their bills.

The arrangement means taxpayers share in the pain of any cost-overruns. Other crucial aspects of the RAB model include an ‘economic regulatory regime’ (ERR), overseen by an independent regulator, who determines the extent to which investors and taxpayers will share the risks by setting the amount of revenue that EDF will be allowed as it builds Sizewell C.

Unknown sums but less risk

The government has yet to make clear the sum that billpayers will have to contribute towards the new power station but newspaper reports have suggested it will be in the region of an additional £1 per month per customer.

The Department for Business, Energy and Industrial Strategy said today that the lower cost of financing a large-scale nuclear project through this scheme was “expected to lead to savings for consumers of at least £30bn on each project throughout its lifetime” compared with the existing arrangements governing the financing of Hinkley Point C.

So in theory, while there is a risk attached to building Sizewell C, the funding model proposed appears to be less risky than the way in which Hinkley Point C has been financed. The ultimate cost to electricity consumers in the latter case was dictated simply by a decision made a decade ago on the price that EDF would be promised for its power. It currently looks good value but, for much of the last decade, it has not.

Yet the RAB model does have its critics.

Less incentive to control costs

Steve Thomas, emeritus professor of energy at the University of Greenwich, has argued that, by removing construction risk from EDF, the company has less of an incentive to control construction costs. With Hinkley Point C, EDF has had to bear the cost of any over-runs. With Sizewell C, taxpayers would be on the hook.

Professor Thomas argues that this is particularly worrying because he believes EDF’s cost estimates are too optimistic. He has also argued that the £1-a-month levy on household bills, should it come to pass, is also potentially flawed because of assumptions it is making about borrowing costs.

Less risky, for now, appears to be the ownership of Sizewell C. Objections to the involvement of the Chinese state-owned company China General Nuclear, originally raised by the May government, have resulted in the company now being bought out of its interest in Sizewell C. The project will instead be jointly owned by EDF and the UK government – although there has been speculation that new investment could also be brought in from the sovereign wealth fund of the United Arab Emirates.

There are, though, some other objections. The idea of building small modular reactors by companies like Rolls-Royce has won support on the basis that the technology could be cheaper and more scalable than big projects like Sizewell C. They would also, in theory, involve less cost in adapting the national grid.

The EDF question

Another risk concerns EDF itself. The company recently had to be bailed out and fully nationalised by the French government following the spike in wholesale prices.

But this means EDF is now effectively run at the behest of the French government. France is also anxious to build new nuclear power plants. Should EDF become cost-constrained it is perfectly plausible that the French state would direct it to focus on its domestic projects rather than its ones overseas.

There have already been hints of this.

EDF’s former chairman and chief executive Jean-Bernard Levy, who was effectively fired by President Macron after opposing nationalisation, was a strong supporter of Sizewell C but was hampered by the French government’s constant demands for more information on the project.

One final risk is that electricity demand does not increase in the way that the government is assuming and that Sizewell C’s output may not be needed.

However, with electricity demand projected to double as the UK decarbonises, that feels less worrisome than some other factors – and particularly now Vladimir Putin’s war on Ukraine has highlighted the importance of the UK having more indigenous sources of energy.

Business

Bank chiefs to Reeves: Ditch ring-fencing to boost UK economy

Published

1 day ago

April 26, 2025

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Bank chiefs to Reeves: Ditch ring-fencing to boost UK economy

The bosses of four of Britain’s biggest banks are secretly urging the chancellor to ditch the most significant regulatory change imposed after the 2008 financial crisis, warning her its continued imposition is inhibiting UK economic growth.

Sky News has obtained an explosive letter sent this week by the chief executives of HSBC Holdings, Lloyds Banking Group, NatWest Group and Santander UK in which they argue that bank ring-fencing “is not only a drag on banks’ ability to support business and the economy, but is now redundant”.

The CEOs’ letter represents an unprecedented intervention by most of the UK’s major lenders to abolish a reform which cost them billions of pounds to implement and which was designed to make the banking system safer by separating groups’ high street retail operations from their riskier wholesale and investment banking activities.

Their request to Rachel Reeves, the chancellor, to abandon ring-fencing 15 years after it was conceived will be seen as a direct challenge to the government to take drastic action to support the economy during a period when it is forcing economic regulators to scrap red tape.

It will, however, ignite controversy among those who believe that ditching the UK’s most radical post-crisis reform risks exacerbating the consequences of any future banking industry meltdown.

In their letter to the chancellor, the quartet of bank chiefs told Ms Reeves that: “With global economic headwinds, it is crucial that, in support of its Industrial Strategy, the government’s Financial Services Growth and Competitiveness Strategy removes unnecessary constraints on the ability of UK banks to support businesses across the economy and sends the clearest possible signal to investors in the UK of your commitment to reform.

“While we welcomed the recent technical adjustments to the ring-fencing regime, we believe it is now imperative to go further.

“Removing the ring-fencing regime is, we believe, among the most significant steps the government could take to ensure the prudential framework maximises the banking sector’s ability to support UK businesses and promote economic growth.”

Work on the letter is said to have been led by HSBC, whose new chief executive, Georges Elhedery, is among the signatories.

His counterparts at Lloyds, Charlie Nunn; NatWest’s Paul Thwaite; and Mike Regnier, who runs Santander UK, also signed it.

While Mr Thwaite in particular has been public in questioning the continued need for ring-fencing, the letter – sent on Tuesday – is the first time that such a collective argument has been put so forcefully.

The only notable absentee from the signatories is CS Venkatakrishnan, the Barclays chief executive, although he has publicly said in the past that ring-fencing is not a major financial headache for his bank.

Other industry executives have expressed scepticism about that stance given that ring-fencing’s origination was largely viewed as being an attempt to solve the conundrum posed by Barclays’ vast investment banking operations.

The introduction of ring-fencing forced UK-based lenders with a deposit base of at least £25bn to segregate their retail and investment banking arms, supposedly making them easier to manage in the event that one part of the business faced insolvency.

Banks spent billions of pounds designing and setting up their ring-fenced entities, with separate boards of directors appointed to each division.

More recently, the Treasury has moved to increase the deposit threshold from £25bn to £35bn, amid pressure from a number of faster-growing banks.

Sam Woods, the current chief executive of the main banking regulator, the Prudential Regulation Authority, was involved in formulating proposals published by the Sir John Vickers-led Independent Commission on Banking in 2011.

Legislation to establish ring-fencing was passed in the Financial Services Reform (Banking) Act 2013, and the regime came into effect in 2019.

In addition to ring-fencing, banks were forced to substantially increase the amount and quality of capital they held as a risk buffer, while they were also instructed to create so-called ‘living wills’ in the event that they ran into financial trouble.

The chancellor has repeatedly spoken of the need to regulate for growth rather than risk – a phrase the four banks hope will now persuade her to abandon ring-fencing.

Britain is the only major economy to have adopted such an approach to regulating its banking industry – a fact which the four bank chiefs say is now undermining UK competitiveness.

“Ring-fencing imposes significant and often overlooked costs on businesses, including SMEs, by exposing them to banking constraints not experienced by their international competitors, making it harder for them to scale and compete,” the letter said.

“Lending decisions and pricing are distorted as the considerable liquidity trapped inside the ring-fence can only be used for limited purposes.

“Corporate customers whose financial needs become more complex as they grow larger, more sophisticated, or engage in international trade, are adversely affected given the limits on services ring-fenced banks can provide.

“Removing ring-fencing would eliminate these cliff-edge effects and allow firms to obtain the full suite of products and services from a single bank, reducing administrative costs”.

In recent months, doubts have resurfaced about the commitment of Spanish banking giant Santander to its UK operations amid complaints about the costs of regulation and supervision.

The UK’s fifth-largest high street lender held tentative conversations about a sale to either Barclays or NatWest, although they did not progress to a formal stage.

HSBC, meanwhile, is particularly restless about the impact of ring-fencing on its business, given its sprawling international footprint.

“There has been a material decline in UK wholesale banking since ring-fencing was introduced, to the detriment of British businesses and the perception of the UK as an internationally orientated economy with a global financial centre,” the letter said.

“The regime causes capital inefficiencies and traps liquidity, preventing it from being deployed efficiently across Group entities.”

The four bosses called on Ms Reeves to use this summer’s Mansion House dinner – the City’s annual set-piece event – to deliver “a clear statement of intent…to abolish ring-fencing during this Parliament”.

Doing so, they argued, would “demonstrate the government’s determination to do what it takes to promote growth and send the strongest possible signal to investors of your commitment to the City and to strengthen the UK’s position as a leading international financial centre”.

Business

Post Office to unveil £1.75bn banking deal with big British lenders

Published

2 days ago

April 25, 2025

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Post Office to unveil £1.75bn banking deal with big British lenders

The Post Office will next week unveil a £1.75bn deal with dozens of banks which will allow their customers to continue using Britain’s biggest retail network.

Sky News has learnt the next Post Office banking framework will be launched next Wednesday, with an agreement that will deliver an additional £500m to the government-owned company.

Banking industry sources said on Friday the deal would be worth roughly £350m annually to the Post Office – an uplift from the existing £250m-a-year deal, which expires at the end of the year.

Money latest: ’14 million Britons on course for parking fine this year’

The sources added that in return for the additional payments, the Post Office would make a range of commitments to improving the service it provides to banks’ customers who use its branches.

Banks which participate in the arrangements include Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander UK.

Under the Banking Framework Agreement, the 30 banks and mutuals’ customers can access the Post Office’s 11,500 branches for a range of services, including depositing and withdrawing cash.

The service is particularly valuable to those who still rely on physical cash after a decade in which well over 6,000 bank branches have been closed across Britain.

In 2023, more than £10bn worth of cash was withdrawn over the counter and £29bn in cash was deposited over the counter, the Post Office said last year.

A new, longer-term deal with the banks comes at a critical time for the Post Office, which is trying to secure government funding to bolster the pay of thousands of sub-postmasters.

Reliant on an annual government subsidy, the reputation of the network’s previous management team was left in tatters by the Horizon IT scandal and the wrongful conviction of hundreds of sub-postmasters.

A Post Office spokesperson declined to comment ahead of next week’s announcement.

Business

Trump trade war: How UK figures show his tariff argument doesn’t add up

Published

2 days ago

April 25, 2025

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Trump trade war: How UK figures show his tariff argument doesn't add up

As Chancellor Rachel Reeves meets her counterpart, US Treasury secretary Scott Bessent to discuss an “economic agreement” between the two countries, the latest trade figures confirm three realities that ought to shape negotiations.

The first is that the US remains a vital customer for UK businesses, the largest single-nation export market for British goods and the third-largest import partner, critical to the UK automotive industry, already landed with a 25% tariff, and pharmaceuticals, which might yet be.

In 2024 the US was the UK’s largest export market for cars, worth £9bn to companies including Jaguar Land Rover, Bentley and Aston Martin, and accounting for more than 27% of UK automotive exports.

Little wonder the domestic industry fears a heavy and immediate impact on sales and jobs should tariffs remain.

Money latest: ’14 million Britons on course for parking fine this year’

American car exports to the UK by contrast are worth just £1bn, which may explain why the chancellor may be willing to lower the current tariff of 10% to 2.5%.

For UK medicines and pharmaceutical producers meanwhile, the US was a more than £6bn market in 2024. Currently exempt from tariffs, while Mr Trump and his advisors think about how to treat an industry he has long-criticised for high prices, it remains vulnerable.

The second point is that the US is even more important for the services industry. British exports of consultancy, PR, financial and other professional services to America were worth £131bn last year.

That’s more than double the total value of the goods traded in the same direction, but mercifully services are much harder to hammer with the blunt tool of tariffs, though not immune from regulation and other “non-tariff barriers”.

The third point is that, had Donald Trump stuck to his initial rationale for tariffs, UK exporters should not be facing a penny of extra cost for doing business with the US.

The president says he slapped blanket tariffs on every nation bar Russia to “rebalance” the US economy and reverse goods trade ‘deficits’ – in which the US imports more than it exports to a given country.

That heavily contested argument might apply to Mexico, Canada, China and many other manufacturing nations, but it does not meaningfully apply to Britain.

Figures from the Office for National Statistics show the US ran a small goods trade deficit with the UK in 2024 of £2.2bn, importing £59.3bn of goods against exports of £57.1bn.

Add in services trade, in which the UK exports more than double what it imports from the US, and the UK’s surplus – and thus the US ‘deficit’ – swells to nearly £78bn.

That might be a problem were it not for the US’ own accounts of the goods and services trade with Britain, which it says actually show a $15bn (£11.8bn) surplus with the UK.

You might think that they cannot both be right, but the ONS disagrees. The disparity is caused by the way the US Bureau of Economic Analysis accounts for services, as well as a range of statistical assumptions.

“The presence of trade asymmetries does not indicate that either country is inaccurate in their estimation,” the ONS said.

That might be encouraging had Mr Trump not ignored his own arguments and landed the UK, like everyone else in the world, with a blanket 10% tariff on all goods.

Trade agreements are notoriously complex, protracted affairs, which helps explain why after nine years of trying the UK still has not got one with the US, and the Brexit deal it did with the EU against a self-imposed deadline has been proved highly disadvantageous.