The Government is failing to provide adequate funding for the Nuclear Decommissioning Authority (NDA), the body responsible for cleaning up Britain’s nuclear waste, a report published today by the House of Commons Business and Enterprise Committee says.

The NDA’s activities at 19 nuclear sites, including Sellafield, absorbs 42 per cent of the £4 billion annual budget allocated to the Department of Business, Energy and Regulatory Reform (DBERR). Annual costs are expected to rise by a further 5 per cent a year over the next three years, with “major implications” for DBERR’s spending plans.

“We believe the NDA’s funding model is unsustainable,” the report, called Funding the NDA, concludes. “Nuclear decommissioning is too important to be left to the mercy of changing priorities in the Treasury and uncertain commercial income. A new system of funding is needed, and work on this needs to begin urgently.”

The funding crisis emerges as companies jockey for position in the anticipated £10 billion sale of British Energy, the leading nuclear power supplier.

Since the NDA was formed in 2004, the clean-up of legacy nuclear facilities has been paid for with a mix of funds — roughly half in direct government grants and half generated commercially by the NDA — and allocated in three-year cycles. But this commercial income — the bulk of which comes from the reprocessing of spent nuclear fuel at Sellafield plus the sale of electricity from the NDA’s two remaining operational power stations at Wylfa and Oldbury — has fallen short of expectations.

Meanwhile the cost of decommissioning Britain’s nuclear sites has risen steadily, far outstripping estimates, forcing the NDA to lean increasingly on direct funding from central government.

Peter Luff MP, the committee’s chairman, told The Times that there was “no reason” to believe that the latest estimate of £73 billion to pay for the long-term clean-up Britain’s nuclear waste would not need to be revised upwards in the future. He said that there had been a consistent failure to grasp the scale of cost increases for nuclear decommissioning and to make accurate forecasts about the commercial income available to the NDA, which has fluctuated wildly because of operational problems at the organisation’s ageing plants.

DBERR has already been forced to request an extra £400 million to fund the NDA during the current year, although the committee said that this was largely a technical issue, arising from extreme volatility in commercial income and a dispute about how to account for the proceeds of some contracts.

Nevertheless, the committee argued that the incident showed up “fundamental problems” with the funding structure of the NDA.

It said that it would be “completely unacceptable” if DBERR were forced to make cuts in other spending areas to continue funding the organisation.

A spokeswoman for DBERR said that the Government “agrees with” the committee’s findings. “It is time to review the model and [we] will be looking at options for updating it,” she said.

The Government claims to have set aside money to cover the next funding cycle from 2008-11, but the committee said that it was “sceptical about how watertight” such assurances were.

The NDA’s budget for the next three years, 2008 to 2011, is £8.5 billion — an increase of £671 million. It represents the largest amount ever spent on the UK civil nuclear clean-up programme.

Centrica, the owner of British Gas, has held talks with EDF, the French energy giant, about a possible joint bid for the Government’s 35 per cent interest in British Energy, the nuclear plant operator, it emerged over the weekend. Centrica is thought to be pushing for a “British-led” solution to the future of British Energy, which has been in talks with several companies about a possible sale or partnership.

Both EDF and Centrica declined to comment.

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