Treasury takes axe to £80m nuclear industry loan

The Treasury has today confirmed that it has axed the £80m loan to nuclear industry components supplier Sheffield Forgemasters that had been promised by the previous government.

In an address to the House of Commons, chief secretary to the treasury Danny Alexander confirmed that the project had been cancelled as part of the review of spending commitments made since the start of the year.

Alexander said the projects that had been cancelled with immediate effect were either "simply unaffordable", did not meet with the new government's priorities, or did not represent good value for money.

The £80m loan had been earmarked to pay for the installation of a forging press to make components for nuclear reactors, and had been hailed by the previous government as evidence of its support for low-carbon industries.

Energy minister Charles Hendry, who yesterday outlined the government's support for the nuclear sector, insisted that the decision did not reflect a weakening of its desire to see a new generation of nuclear reactors built in the UK.

"Withdrawal of this loan is no reflection on the company, the project, its management or staff, or on our intention to remove unnecessary barriers to new nuclear in the UK," he said. "In these difficult times, tough decisions have to be made across government. This is one such decision."

His comments were echoed by business secretary Vince Cable, whose department originally administered the loan.

"Sheffield Forgemasters is an important part of the UK's ability to develop a civil nuclear supply chain and its specialist forging skills are in demand globally," he said. "However, we have to find a balance between reducing the deficit while helping the economy to grow. Against a backdrop of reduced public spending, the government's role is to create the right business environment and the right skills base. The government cannot simply keep writing out cheques."

He added that the government remained hopeful that the company would be able to secure private investment to fund the forging press.

A spokeswoman for BIS said the government would work with Sheffield Forgemasters to try to help it raise private funding for the project. "The decision was entirely a question of affordability," she added. "The government recognises that this is a good company and a good project."

However, Ian Parrett of energy analyst Inenco condemned the decision, warning that it would undermine the government's low-carbon credentials, particularly given that it also announced yesterday that it would honour a €300m (£250.5m) loan guarantee to GM to help safeguard Vauxhall jobs in the UK.

"The last 24 hours have demonstrated that this government is still prepared to support high-carbon industry but not low-carbon power generation," he said. "At a time when renewable projects are struggling to get investment, because of the uncertainty around long-term financial support, we need to step up our actions to secure our future energy supplies and meet carbon reduction commitments."

He added that the decision would undermine the UK's competitiveness in the expanding global nuclear energy market. "Without this kind of investment, the UK will be poorly placed to benefit from the expansion of nuclear power, which we expect to be a significant contributor to the low-carbon energy economy," he said.

While Sheffield Forgemasters attempts to come to terms with the news that its loan has been rejected, other low-carbon projects will be celebrating today after the Department for Business, Innovation and Skills confirmed they had been spared the axe.

Plans for a £30m investment in the National Renewable Energy Centre in Blyth will go ahead, alongside a £12.4m investment in offshore wind demonstration and development and £30m in funding for Mitsubishi's planned offshore wind R&D centre.
About £360m in loan guarantees intended to support Ford's plan to bolster its green vehicle manufacturing capacity have also been approved, along with the government's £20.7m grant to help fund Nissan's new electric car plant in Sunderland.

A spokesman for the Department for Transport also confirmed that the government would move forward with plans to offer incentives worth up to £5,000 to motorists purchasing electric vehicles. He said that the scheme, which is due to come into effect from the start of next year, had been approved to run until at least the next spending review in 2011.