Copies of the consultation document are available in the House library and on the Home Office web-site www.homeoffice.gov.uk/ Comments have been requested by 11 March 2004.

The principal focus of the new parent company will be clean-up activities at UK sites.

In the period up to the establishment of the NDA in April 2005, BNFL and its Board will continue to have responsibility for the safe and efficient running of its existing sites and for the financial performance of the company and its subsidiaries.

At the same time as a new parent company is established in April 2005, a new group of subsidiary companies will be established which will have initial responsibility for managing clean-up and operations at BNFL's UK sites under transitional arrangements to be agreed with the NDA. These companies will have the chance to bid to continue managing these sites when the NDA introduces competition.

Fuel manufacture will continue at the Springfields site, where clean-up activity is also underway. It will be established as a separate licensed entity, likely to be managed initially by Westinghouse, and with the NDA taking financial responsibility for the relevant decommissioning and clean-up liabilities.

The vast majority of the existing BNFL UK workforce will continue to be employed by companies that operate current BNFL sites. Initially, the two largest site licensee companies will be British Nuclear Fuels plc (which will continue to have the licence for the Sellafield site) and Magnox Electric plc. Other employees will transfer into companies within the clean-up group.

BNFL's existing Research and Technology facilities and a proportion of the personnel will remain with the site licensee companies. Other staff will transfer to a new Nuclear Science and Technology Service (NSTS) which will initially be a subsidiary of the new parent company and will deliver services on a commercial basis to the NDA, site licensee companies and third parties. These proposed arrangements for R & T are consistent with the Government's policy to keep the nuclear option open as set out in the White Paper "Our Energy Future—creating a low carbon economy".

The BNFL Board, and from April 2005, the Board of the new parent company will manage the other businesses to deliver value and in a way that limits and controls risk to the UK taxpayer.

In relation to the Westinghouse business, the Government has agreed with the BNFL Board that steps will be taken to enable the business to operate with greater financial independence from its parent, so that possibilities for private sector participation are opened up.

Future strategy for the investment in the Urenco fuel enrichment business will take full account of the strategic significance of this business and of the UK's nuclear non-proliferation obligations.

BNFL is seeking routes to reduce significantly its exposure to the US clean-up market.

These proposals are designed to help deliver the policy objectives set out in the 2002 White Paper "Managing the Nuclear Legacy" and are entirely consistent with our continuing commitment to keep the nuclear option open as set out in the 2003 Energy White Paper. They offer the best route towards both a more competitive market for UK clean-up, better value for taxpayers and a genuine opportunity for BNFL staff and management to continue to play a key role in meeting the challenge of nuclear clean-up.

We are also very conscious of the need to consider the impact of the NDA proposals and BNFL's future strategy on local communities. This is why the legislation to establish the NDA will facilitate its involvement in social and economic activities to support them.

We have sought to maximise the benefits from the establishment of the NDA to West Cumbria, for example:

The headquarters of the NDA will be in West Cumbria.

We have established a key project on UK nuclear skills in West Cumbria with the North West Development Agency

Moreover, we are today setting out plans to establish a strategic taskforce for West Cumbria whose job it will be to plan and ensure the implementation of the social and economic regeneration of the area in light of decommissioning the Sellafield site.

I am placing further details of the review outcome in the Library of the House.

OPERATION OF THE EU FRAMEWORK

We envisage that the EU Framework would be established by agreement in the European Council of a set of high level, outcome-focused objectives which support the achievement of the Lisbon and Gothenburg agendas. Member States would then develop with their nations and regions, consistent with their respective constitutional arrangements or devolution arrangements, Devolved Strategies for Regional Policy which would be subject to a peer review process facilitated by the Commission. More details are given in section 1 of the accompanying paper.

THE FINANCIAL GUARANTEE

The Government's guarantee that the nations and regions of the UK will not lose out if the EU Framework approach is agreed is based upon the amount of Structural Fund receipts that could be expected if, in 2007, the current allocation system were applied but in the context of an enlarged EU. This is explored further in section 2 of the accompanying paper.

POSSIBLE DELIVERY MECHANISMS

The Government stressed in the consultation document that we want regional policy to respect devolution in Scotland, Wales and Northern Ireland, and in future possibly in some English regions, and to be locally led with decisions taken as close as possible to local people, thereby supporting civil renewal. We also wanted to retain the strengths of the Structural Funds, such as multi annual funding and partnership working, but achieve significantly simplified delivery mechanisms. The ways in which such delivery in support of Framework objectives might work must take into account current devolved and decentralised arrangements and the views of stakeholders.

In addition to seeking reassurance about their future role in decision-making on regional policy, many respondents also wanted to be reassured that the agendas supported by the Structural Funds would continue to be supported through domestic funding under the proposed approach. This applied particularly in the areas of skills and employment, social inclusion and regeneration and for rural and urban areas. Although it is not possible now to say exactly what the domestic institutional arrangements will be in 2007, nor exactly how increased domestic funding would be distributed or on what it would be focused, the direction of our thinking on these areas is set out in section 3 of the accompanying paper. This focuses on arrangements in England given that, as outlined in the consultation document, Devolved Administrations would continue to devise and implement their own regional policies.

LINKS BETWEEN EU REGIONAL POLICY REFORM AND OTHER EU POLICIES

The UK Government is a firm advocate of the need to transfer more funding from Common Agricultural Policy (CAP) production support and income subsidy to the CAP rural development budget. The aims of CAP rural development to effectively assist in conversion of the EU agriculture industry to a more sustainable structure and to tackle the social, economic and environmental consequences in rural areas of change in the sector, and our objectives for EU and domestic regional policy, need to be mutually supportive. Among other things, this means that the range of instruments available at EU, national or regional level needs to make a proper and well co-ordinated contribution to the Government's productivity agenda in rural areas as well as elsewhere. This is discussed further in section 4 of the accompanying paper.

Since the Lisbon Council in March 2000, successive European Councils have called on Member States to

"further their efforts to promote competition and reduce the general level of state aids."

The Stockholm Council in March 2001 established the target that Member States should demonstrate a downward trend in state aid in relation to GDP by 2003. More recently, the Barcelona Council in March 2002 restated that aid should he directed to

"horizontal objectives of common interest, including economic and social cohesion, and to target it to identified market failures. Less and better-targeted state aid is a key part of effective competition."

The UK Government firmly supports these conclusions.

In the context of regional policy, the Commission announced on 2 April 2003 that it would conduct a thorough review of its rules on regional state aid for the period after 1 January 2007. In line with the European Council conclusions on state aid, the UK will be seeking a modernised state aid system which is more efficient and which allows Member States to tackle the market failures which cause regional underperformance, while bearing down on distortive aids.

Under an EU Framework, the objective of Structural Funds would be to aid development in the poorest Member States, while the state aid rules would allow all Member States to provide support to address regional and sub-regional/area underperformance, consistent with the need to ensure state aid discipline.

EU BUDGET

We believe that our proposal benefits all Member States by focusing scarce EU Budget resources where they will have the greatest effect. It also supports regional policy across the EU, by providing a shared policy framework for all Member States—whether recipients of funding or not—linked to the Lisbon goals and objectives. Our proposals, by providing a solution that is sustainable in the long-term (both for the Financial Perspective starting in 2007, and beyond), will bring lasting benefits shared by all Member States.

The UK also believes that, like other elements of the budget, spending on regional policy should achieve a fair budgetary deal for the UK taxpayer. As a net contributor to the Structural and Cohesion Fund (SCF) budget, additional receipts from a larger SCF budget would only come at a net cost to the UK taxpayer, reducing the amount of potential funding available for UK regional policy. Further details on the budgetary aspects of reform are contained in section 5 of the accompanying paper.

CONCLUSION

The Government have already reformed domestic regional policy in England to enable all regions to reach their full potential, based on their indigenous strengths, and devolved substantial power to Scotland, Wales and Northern Ireland. If the Government is to meet its ambitious domestic goals, and if EU cohesion policy is to be both sustainable, effective and fair for all Member States, radical reform is needed. In particular, we believe that EU regional policy should be substantially devolved and decentralised. The Commission has committed to examining in detail the options that have been put forward so far in its 3rd Cohesion report due next month and we await this analysis with interest. We, in turn, are committed to continuing to consult with domestic stakeholders and our EU partners as the debate develops with the aim of producing the best outcome for the new Member States, for Europe and for the nations and regions of the United Kingdom.

The floors and ceilings on grant increases will change for authorities with education and social services responsibilities, to 4 per cent. and 7.5 per cent. respectively. In some cases, however, authorities will receive more than 7.5 per cent. because we are continuing to provide support for increased capital investment outside the floors and ceilings system.

For shire districts, the additional grant is sufficient to raise the floor to 3 per cent. so all districts will get an above inflation increase. There will be no effective ceiling for districts, giving grant increases of up to 12.2 per cent. for individual authorities.

There will be no changes in floors or ceilings for police and fire authorities.

This will mean that for the second year running, every local authority will get at least an above inflation increase, with many getting substantially more.

Tables showing grant totals and the revised provisional allocation of formula grant to all English local authorities for 2004–05 have been placed in the Vote Office and are also available in the Libraries of both Houses.

Given the scale of this change, the consultation period on our proposals will be extended and will now end on 9 January 2004. The House will then have the chance to debate the Government's final proposals in late January or early February. As is normal, the detailed allocations to individual authorities may still change as data on council tax base and capital allocations are updated.

Given the scale of the investment in local services and the scope for efficiency improvements in local government, the Government believe next year local authorities must aim to deliver council tax increases in low single figures. Unreasonably large council tax increases will be neither justified nor acceptable.

So the Government are prepared to use targeted capping powers next year if that proves necessary.

When considering whether to cap authorities, the Government will look at a range of factors including the level and increase in the council tax and the level of the budget. In areas where there is a combined fire authority, budgets for 2004–05 will not be comparable with 2003–04 because the combined fire authority is precepting for the first time in 2004–05. The Office of the Deputy Prime Minister is today issuing a consultation document which sets out the proposed methodology and the notional budget figures as a result of this change. A copy of this will be made available in the Libraries of both Houses.

The regulations comprise one set covering England and Wales (which have already been approved by the National Assembly for Wales) and a further set covering the Northumbria river basin district which crosses slightly over the England/Scotland border.

¹ The Water Environment (Water Framework Directive) (England and Wales) Regulations 2003 and

The Water Environment (Water Framework Directive (Northumbria River Basin District) Regulations 2003 can be found at http://www.legislation.hmso.gov.uk/si/dsis2003.htm and a transposition note can be found at http://www.defra.gov.uk/corporate/ria/default.htm

Maps showing the district boundaries for each set of Regulations can be found at http://www.defra.gov.uk/environment/water/wfd/index.htm

¹The Regulatory Impact Assessment can he found at http:// www.defra.gov.uk/corporate/ria/default.htm

³Summary of third Framework Directive consultation paper responses and Government response/commentary on regulations can be found at http://www.defra.gov.uk/environment/water/wfd/index.htm

TRANSPOSITION IS ONLY THE FIRST STEP

The Water Framework Directive is of exceptional importance in setting the objectives for our policies towards the water environment for years to come. The Government is fully committed to these objectives. Transposition of the Directive through these regulations is a significant stage in its implementation. But it is important to recognise that it is only one step along the road. Full implementation will depend on a wide range of further decisions and actions to be taken over the coming years. The transposition regulations should be seen as enabling and requiring these further steps to take place. But they are by no means all that is needed to put the directive into practice. Key issues, as currently envisaged, on which further decisions and action will be needed, in order to achieve this, are summarised in the annex.

The overall effect of the regulations is that in England, the Secretary of State has ultimate responsibility for the Directive's implementation; this responsibility includes:

an explicit role in approving environmental objectives, programmes of measures and river basin management plans;

the power to issue guidance to the Agency and other relevant bodies, to which they are bound to have regard.

The Environment Agency has responsibility to:

Characterise river basin districts;

Identify bodies of water used for the abstraction of drinking water;

Prepare, review and keep up to date a register of protected areas for each river basin district;

Establish programmes to monitor water status, so as to establish an overview of water status within each river basin district;

Prepare and submit to the 'appropriate authority' (i.e. Secretary of State and/or National Assembly for Wales) environmental objectives for each body of water and programmes of measures;

Prepare and submit to the appropriate authority a river basin management plan for each district (including consultation, publicity and taking account of views) and supplementary plans.

The Government has greatly appreciated the input made through the comments of those who have responded to consultation. The Government is setting out its response to them today on the Defra website. A very wide range of comments were received and a wide range of changes have been made to the draft regulations published in August this year. These include revisions to provisions dealing with programmes of measures, river basin management plans, public participation and publication of information.

A FRAMEWORK FOR ACTION

The regulations set the framework for further implementation action by both the Government and the Environment Agency, as competent authority for the Directive. There is much more action to come. The regulations achieve transposition; but the Government will be building on the regulations by bringing forward a range of proposals dealing with such issues as controls on diffuse pollution, River Basin Management Plan guidance and the development of a Water Framework Directive communications strategy.

Discussions continue in Brussels on linked proposals for new Directives on groundwater and priority substances, building on Water Framework Directive requirements. Further work is underway at Community level to develop guidance packages to support implementation of the Directive. The UK will continue actively to support such work, including through its pilot river basin scheme based on the river Ribble in the North-West. The regulations need to be seen therefore in the context of this further future action.

KEY EARLY ACTIONS

The EA, as competent authority in England and Wales, will consult in 2004 on a public participation strategy. This will in turn inform the formal mechanisms that will ensure full and proper participation of wider society at the river basin level. It is not just the Government that must ensure that all are aware of and fully engaged in this process—there is also an important role for all agencies and organisations that wish to see a better quality water environment. To this end Defra and the EA are already developing, in close consultation with stakeholders, a WFD communication strategy for England to raise awareness of both the WFD and water quality issues.

The benefits and opportunities the Directive will provide—economic and social regeneration, biodiversity, integration of land-use and sectoral planning, flood management, fisheries/marine, health and amenity—must be explained and seized upon. For its own part the Government has instituted much of this integration within its own structures already, building on the principles outlined in its 2002 statement of priorities for water policy, "Directing the Flow". This will continue, as will the focus on delivery at the regional and sub-regional level.

Meeting the good ecological and chemical status requirements in the directive will be a challenge. A key analysis of impacts of human activity on water bodies must be completed by December 2004. Diffuse pollution from agricultural and urban sources will need to be tackled as a priority to meet the Directive's objectives, as well as further reductions in point source discharges. The costs of the measures required to meet "good status" will need to be apportioned to water users and other sectors in a transparent and rational way. A robust economic analysis is a core requirement of this Directive and will ensure that the benefits of the measures employed justify the costs involved. (Defra will assess the scope for updating the final RIA from 2005). Costs must, as far as possible, adhere to the polluter pays principle. Defra is leading this analysis in England, in conjunction with Ofwat and the Environment Agency. The results will underpin the identification of the most effective suite of measures be they regulatory, fiscal, incentive or voluntary. Each of these measures will be formulated with the full engagement of the wider public both within the auspices of the WFD stakeholder forum for England and at the regional and local level through the active

HELPING TO CARRY FORWARD THE DIRECTIVE WITH THE WIDER WATER AGENDA

Alongside action to carry forward implementation of the requirements of the Directive through these regulations, the Government will actively be pursuing linked actions, consistent with the overall policy objectives of "Directing the Flow" and the aims and spirit of the Directive.

These will include: work to carry forward and implement the provisions of the Water Act 2003 that will

further the sustainable use of water resources;

promote water conservation; including a requirement for mandatory water company drought plans which up until now have been voluntary.

completion of the current Periodic Review of water prices and related environmental investment programmes to protect and enhance surface and groundwater water quality, including the water needs of important wetlands and other important biodiversity sites;

work within the context of the Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR) on hazardous substances and nutrients and work to help deliver the Government's vision for the marine environment as set out in "Seas of Change";

work on establishing effective integration and linkages between river basin management plans (including supplementary plans) and other plans with a bearing on them, including abstraction plans, flood management plans and land use plans.

Annex—Key further decisions and action likely to be taken in the implementation of the WFD

(Note: all key decisions will be subject to prior consultation with stakeholders)

strategic partnership potential

ability to deliver IT services

ability to innovate and deliver technology enabled change

ability to manage transition to the new contract effectively.

In parallel with this activity there was a financial and commercial evaluation.

CGEY proved themselves across the range of evaluation criteria and demonstrated their capacity to act as strategic partner. In addition, the contract prices quoted by both bidders were compared with each other and with a baseline established through the use of professional benchmarking advisers (a "Should Cost Model").