National Coal Board

HC Deb 23 November 1981 vol 13 cc727-34

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Berry.]

11.19 pm

Mr. Ivor Stanbrook (Orpington)

Along Cray Avenue in my constituency, several firms are located that operate in the building materials and do-it-yourself trade. There are nationally known names such as Marleys and Fads alongside local firms such as Kent Asphalt and Pickard Plant Hire.

Last weekend, I counted eight firms in the D.I.Y. industry within less than half-a-mile of each other, all operating in an extremely competitive market where it is difficult for the small man to make profits. Yet they are precious to us in Orpington. They provide an excellent service to local residents, and employ many local people. I do not want any of them to be driven out of business by unfair competition.

Unfortunately, further along the road in Sevenoaks Way, a large new warehouse is under construction. It must be all of 20,000 or 30,000 sq. ft. A sign outside announces that it is to be a Sankey's home centre. Yet another D.I.Y. superstore is opening shortly.

Disturbed by the effect that this new store would have on the trade of my constituents, I have looked closely at Sankey's. Lo and behold, it is a subsidiary of the National Coal Board, run under the personal direction of the NCB chairman, Sir Derek Ezra. What on earth has the NCB got to do with the D.I.Y. industry? Why is it using public money to compete with small, private firms that find it hard enough to keep trading, let alone pay the taxes that finance the board's losses? If the NCB is so hard up for money, why does it not raise it by selling off an asset that it has no moral right to have in the first place?

I have tried to answer these questions. I find that the NCB is quite heavily involved in non-mining activities. Placed in order of relevance to mining, the board has interests in fuel manufacture, fuel distribution, chemical processing, engineering, computer and scientific services, property ownership and management, exploration and development, brick manufacture, builders' merchants, D.I.Y. retailing and car sales and servicing.

Most of these activities are related to coal mining and the legitimate needs of the board. The last three most definitely are not. They are highly competitive areas in which the private sector already gives good service at low profit margins.

The board's accounts show an interesting division of profit between mining and non-mining activities, the loss on mining activities being almost exactly cancelled out by the profit on non-mining activities. The board's consolidated profit and loss account for 1979–80 shows a loss on mining activities of £23 million, with a profit on non-mining activities of £24.5 million.

Of the £24.5 million, only about £4 million was derived from the manufacturing of coke and smokeless fuel, that being a return on capital investment in that activity of only 2.5 per cent. The profit of about £20 million on other non-mining activities was 31 per cent. of the capital employed. In other words, a respectable profit and return on capital employed in non-mining activities are being used to offset a poor performance in mining.

I am, however, very concerned about the board's subsidiary companies in the do-it-yourself and builders merchants businesses, because it is here that public money is being used to the disadvantage of traders in the private sector. The NCB owns 60 per cent. of J. H. Sankey and Son Ltd., which operates do-it-yourself stores and builders merchants. The other 40 per cent. is owned by St. Regis International, to which I shall refer later.

J. H. Sankey and Son Ltd. was, until recently, equal partner with Wickes International in Wickes Building Supplies, owning 19 sites, 13 of them trading. The NCB is a partner on an almost equal basis with Amalgamated Anthracite Holdings in the British Fuel Company, which operates through a subsidiary, Focus DIY Home Centres, of which there are at present three.

The involvement of the National Coal Board in the do-it-yourself business is complex. It is very difficult to unravel the public money that has been invested in the board's non-mining activities, especially in relation to do-it-yourself superstores. However, it seems obvious that the money used, traced through the tangled web of financial relationships, is being employed both by Sankey and Focus to expand their do-it-yourself stores, supermarkets and superstores, at the overall rate of about 15 stores a year.

I calculate that the National Coal Board's share of the capital expenditure involved must, therefore, be of the order of £5 million a year. Of course, such a sum is a small proportion of the £634 million spent by the board in 1979–80 on additions to fixed assets, the bulk of which was spent on mining projects. Of this, £393 million, according to the source and applications statement in the board's annual accounts, came from funded and temporary borrowings.

The taxpayer is more concerned with Government grants to the NCB last year, which totalled no less than £251 million and were apparently credited to the profit and loss account. So the NCB's do-it-yourself investment is very small compared with the total of grants and loans available to the board. But it is growing.

To take the example of the superstore now opening in Sevenoaks Way, the cost of opening and stocking a store of that size must be about £500,000, and that is for one store alone. One has to ask whether the NCB can afford to spend such money when it is making cuts in more crucial areas in order to fund its non-mining activities. The Financial Times of 20 January 1981 stated, The National Coal Board will be forced to cancel parts of its investment programme unless it is granted financial aid, Sir Keith Joseph, the Industry Secretary, will be told next week. Sir Derek Ezra, the board's chairman, will lead a joint delegation with representatives of the mining equipment industry next Monday which will seek to impress on Sir Keith the growing financial pressure on the Board. The consequences of investment cuts for the mining equipment industry would be serious in the longer-term, for both the industry and the Coal Board. On 24 September 1981, the Financial Times referred again to this matter as follows: The recession has forced the NCB to cut its huge capital investment programme and meant a major reduction in purchases of plant and machinery, Sir Derek Ezra said yesterday. It added that the board's overall capital expenditure of £715 million in 1981–82 would be £20 million less than last year in cash terms. It said: Equipment purchases, contrary to the original aim, have been cut in real terms. New investment could be made only in sound projects and there has to be a priority order for these. No funds were available for doubtful projects. I might add to that that no funds should be available for projects unconnected with mining that lead to unfair competition with small businesses in the private sector. In any event, public money should not be used to prop up such projects. The board's trading profit and loss account for 1979–80 shows an approximate break-even on trading profit and interest charges of £184 million, being virtually funded by the Government deficit grant of £159 million. Government social grants of £91 million—making total grants £251 million—were credited within operating profit.

So the board is taking more of the taxpayers' money to increase the capital employed, yet much of it goes on purely commercial, non-coal, non-mining activities in competition with private firms.

Taking a closer look at J.H. Sankey and Son Ltd. we see that the board, under Lord Robens, who was the chairman, started buying into Sankey's in 1965. By cash injections it built up a 60 per cent. holding—£3.6 million of the £6 million issued capital—with St. Regis holding the other 40 per cent. Sir Derek Ezra, chairman of the National Coal Board, is the chairman of Sankey's. Lord Robens is vice-chairman and until earlier this year he was also chairman of St. Regis International.

In his statement in the 1980 annual report Sir Derek Ezra said: We extended our national spread of electrical branches, opening in Edinburgh and Leeds. Our further diversification into electrical and retail is important to help protect our company against the cyclical nature of the building industry. It is, however, important for us to continue developing further our nation-wide coverage on the trade side and during the year we opened new branches in Newcastle, Stockton, York, Nottingham, Littlehampton and Bridgwater. Based on its 1979–80 profits, Sankey's market value must be in the region of £30 million, valuing the Coal Board's stake at about £20 million.

I mentioned Wickes Building Supplies. This company was acquired in 1968 by Sankey's, the present name being given to it when the Wickes Corporation of America bought in. By 1976, it was trading with Sankey's as a 50–50 partnership from combined large do-it-yourself and trade centres. In March, according to Sir Derek Ezra's chairman's statement, it had 13 stores with 20 more due to open in 1980–81. Sir Derek and Lord Robens were fellow directors of the company. The partnership has since been dissolved, the assets being shared between the partners, thus adding to the Sankey empire. Before then, the company had paid £4.5 milllion for 10 sites around the country providing 300,000 sq ft of retail warehouse space.

There is then the British Fuel Company, which is a partnership between the National Coal Board and Amalgamated Anthracite Holdings Limited, the latter owning slightly more than 50 per cent., the board having a £4.7 million stake, according to the balance sheet of Amalgamated Anthracite Holdings Limited.

This firm is engaged in the fuel distribution, road haulage, builders' supplies, heating engineering and car sales and servicing business. In 1980, it launched Focus Home Centres, a chain of do-it-yourself superstores. Sir Derek Ezra is a director. Lord Robens is a director of Amalgamated Anthracite Holdings Limited.

As the Co-operative Retail Review remarked in October 1980, Yet another entrant has appeared in the increasingly crowded DIY market in the form of 'Focus Homecentre Ltd' a joint subsidiary of the National Coal Board and the British Fuel Co. The NCB is already active in the sector with its 'Sankey Homecentres'. There is an overwhelming case for the National Coal Board to withdraw from the retail marketing field. It is using public money to compete on unfair terms with private enterprise. It is using money which would be better spent on mining equipment and the modernisation of our coal industry as the taxpayer would expect. I hope, therefore, that the Government, and my hon. Friend the Minister in particular, will look to the board to divest itself of its non-mining assets as soon as possible.

11.40 pm

The Under-Secretary of State for Energy (Mr. John Moore)

I know that the House will be grateful to my hon. Friend the Member for Orpington (Mr. Stanbrook) for raising this subject. Our procedure for debates on the Adjournment gives the House a valuable opportunity to discuss from time to time not only questions of vital concern to individual citizens but important and interesting questions that lie a little outside the mainstream of our debates. In the limited time that I have available, before I come to the detailed points that my hon. Friend raised, it may be helpful if I give a broad description of the background and the nature of the National Coal Board's non-mining interests.

As the House knows, the core of the board's non-mining activities date back to 1947, when the newly formed board inherited on nationalisation a remarkable range of assets from the former colliery companies. Over the years, there have been changes and developments and at present the board's non-mining activities are organised under two wholly owned subsidiaries which, in their turn, hold the board's interests in non-mining operating companies.

The first of those holding companies is National Coal Board (Coal Products) Ltd., which holds all the NCB's investments in the making and processing of coal products, principally solid smokeless fuels and coal tar and their derivatives. The report and accounts of the holding company are included in the NCB's published report and accounts. In 1980–81, the last complete year, National Coal Board (Coal Products) Ltd's assets were £144 million, its turnover £233 million, and it made a loss, after interest and tax, of £10 million.

The other holding company is National Coal Board (Ancillaries) Ltd., which holds the board's interest in the distribution and retailing of fuel, brickworks, Iand, computer services and engineering. Last year its assets were £84 million, its turnover £377 million, and its profit after interest, tax and minority interest, £11 million.

That range of activities embraces a number of companies which operate in different markets and are faced with different problems. For example, the largest single operating subsidiary in terms of assets and turnover is National Smokeless Fuels Ltd., which operates the board's coke ovens and solid smokeless fuel plants. As the House knows, the market for both industrial coke and solid domestic smokeless fuels is contracting. National Smokeless Fuels Ltd. has therefore been forced, despite its efforts over the past years to bring its capacity into line with demand, to face uneconomically low levels of throughput that have forced up its costs.

Last summer's report by the National Economic Development Council on industrial energy prices highlighted the problems that that position caused both for NSF and for consumers of foundry coke. Following that report, the Government were able to arrange, as my right hon. Friend the then Secretary of State announced on 29 June, for NSF to reduce its list prices for foundry coke by £10 a tonne so that our foundries would no longer be at a disadvantage in purchasing from NSF rather than importing coke.

The board also owns Thomas Ness Ltd., which distils tar and manufactures and sells pitch, solvents filtering material, and a range of building materials that it has developed as a means of offsetting the contraction in the market for its main products, tar and pitch. The board also has interest in Staveley Chemicals, whose activities include the refining of benzene, an important byproduct of coke making, and its further processing into other chemical materials.

As my hon. Friend said, the board also has other interests. Like other nationalised industries, the NCB carries out international consultancy work, which is a valuable means of broadening the board's experience and can help to secure export orders for British equipment manufacturers. The companies involved are British Mining Consultants Ltd. and Coal Processing Consultants Ltd.

The board has a long-standing interest in fuel distribution and retailing. It has a substantial share of the wholesale market, but only about 5 per cent. of the retail trade. The board's holdings of land and its computer interests are also operated by subsidiary companies. The company that acts as its computer bureau does a third of its business with outside customers. Other activities include engineering, where the board has a small subsidiary which manufactures mining equipment and seismic exploration. In addition, the board has an interest in associated companies that manage and maintain boilers and heating plant, design and operate industrial boilers, including fluidised bed plant, and trade as builders merchants. The largest of those associated companies is J. H. Sankey and Son Ltd., in which the board holds a 60 per cent. share.

The present arrangements for the financial control of those subsidiaries date back to 1972. In that year, after a thorough review of the board's non-mining activities, the then Minister of Industry explained to the House those principles on which the board's non-mining activities would in future be organised. The statement is of such importance that it may help the House if I quote it verbatim: The utility of some of these activities to the Board has been challenged. Following our review, the Board has agreed with me on a reorganisation, which will allow it to concentrate on its main activities. This reorganisation, which the Board will be implementing as soon as it can, will enable any new financial requirements of the ancillary activities to be met from the private sector, which I believe is the right source. In order to make private sector participation possible, these ancillary activities will be organised as separate subsidiary companies, some of which will be wholly-owned in the first instance, which will be grouped under two holding companies. All these companies will be registered under the Companies Act. One holding company will become responsible for what are now the activities of the Coal Products Division, including North Sea gas; the other for the miscellaneous group of activities mainly concerned with fuel distribution. The board of each holding company will include outside directors. The assets will initially be transferred at book value, but the board will carry out a full revaluation of the assets of each holding company, taking professional advice as necessary. The constitution of both the subsidiary companies and the holding companies will be such that private participation will be possible, and it is there that these concerns will look for the finance which will be required to carry on their work. But my consent will be required for the raising of new capital by a wholly-owned subsidiary. I believe that this is a proper and sensible arrangement."—[Official Report, 21 December 1972; Vol. 848, c. 1609–10.] Those principles have governed the Board's management of these activities ever since.

I should like to illustrate these points by reference to the case of J. H. Sankey and Son which my hon. Friend has mentioned. As hon. Members may know the board has held its interest in Sankey for many years. In the 1960s, the board adopted a policy of diversifying into new activities in order to protect the existing markets for coal products and its other existing interests. In particular, the board could see that the spread of home central heating was transforming the market for domestic heating.

At the same time, the board decided that the coal industry was at a disadvantage because, unlike the gas and electricity industries, it could not promote its domestic appliances through showrooms in the high street After some consideration, the board decided, in consultation with the Government of the day, to buy an interest in a builders merchant to act as a vehicle to promote the retail sale of domestic solid fuel-burning appliances. The board decided to purchase an interest in Sankeys. Originally, it purchased a 75 per cent. interest, which was subsequently reduced to 60 per cent. at the request of the Conservative Administration in 1972.

In accordance with the principles which were announced to the House in 1972, and which I have just quoted, Sankey's business is run as a separate management and financial unit, on commercial lines and at arm's length from the board.

Within that framework, Sankey's has been a success. I understand that when the board acquired its interest, Sankey's had six branches; at the end of its last financial year on 31 March, it had 116. Over the past 10 years, the firm's sales have grown from £20 million to £163 million, the assets employed from £8.4 million to £58.9 million; the profits from £335,000 in 1971 to £4.7 million in 1979–80. Like other companies in this line of business, Sankey's profits fell away last year in difficult trading positions, and the firm has still not returned to profit, although I understand that the management is taking vigorous action both to curtail costs and to undertake some limited expansion of the profitable parts of the company.

That history of growth clearly results from successful competition in the market. I have heard it suggested that the competition is unfair and has been achieved because of Sankey's access to subsidised funds. I believe that allegation to be untrue. Under the principles laid down by the previous Conservative Administration, the board has undertaken that Sankey shall not have recourse to public funds either directly from the National Loans Fund or indirectly through borrowing from the board unless the Secretary of State agrees. The National Coal Board has abided by those principles. Sankey's growth has been financed either by profits retained in the business; reserves grew from £167,000 in 1971 to just under £13 million in 1980–81, or by ordinary borrowings, on Sankey's credit, for which it pays an ordinary commerical rate.

My hon. Friend further asked whether we had plans to require the National Coal Board to sell its interest in Sankey's to the private sector. The Government's attitude to privatisation is well known; and it is my attitude also. We believe very strongly that the public sector should do only those things which it alone can do and that that sphere presents challenge and difficulty enough to the real talents of those who——

The Question having been proposed after Ten o'clock and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at eleven minutes to Twelve o'clock.