HL Deb 21 December 1965 vol 271 cc1003-11

5.43 p.m.

Order of the Day for the House to be put into Committee read.

Moved, That the House do now resolve itself into Committee.—(Lord Stonham.)

On Question, Motion agreed to.

House in Committee accordingly.

[The EARL OF LISTOWEL in the Chair.]

Clause 1 agreed to.

Clause 2:

CAPITAL RECONSTRUCTION, AND APPLICATION OF FUNDS, OF BOARD

2.—(1) All outstanding liabilities of the Board to the Minister in respect of any advances made to the Board by the Minister before 28th March. 1965, or in respect of any expenses and liabilities incurred as mentioned in section 28(1)(a) of the Act of 1946 before that date, other than liabilities in respect of interest for the period beginning with 31st December 1964 and ending with 27th March. 1965, shall be extinguished; but—

(b) the Board shall credit the sum of £415,000.000 to their reserve fund;

EARL FERRERS moved, in subsection (1)(b), to leave out "£415,000,000" and to insert "£372,000,000". The noble Earl said: After such a debate as we have recently had over money, I tremble to put forward an Amendment which deals with any sum of money, let alone millions of pounds. The object of this Amendment is in fact quite simple. It is modest, if not in size at least in intent, and it is simply to give the noble Lord, Lord Stonham, a chance, which I am sure he welcomes, of clarifying to the Committee an issue which has been, and is, very clouded.

Your Lordships are aware that this particular clause of the Bill, Clause 2, deals with writing off a sum of £415 million of debt of the Coal Board. What in fact it does is to transfer this debt of £415 million from the Coal Board to the taxpayer. I think it is right and just that your Lordships should be able to ask for the reason why the figure should be £415 million; and it is the answer to this question which has remained peculiarly obscure through all stages in another place, and indeed on Second Reading in this House. I thought that, as the noble Lord is always anxious to be fair and to make issues perfectly clear, he would welcome the opportunity of explaining precisely why £415 million is the figure which is chosen, because this matter does basically end up by being arithmetic.

The noble Lord, Lord Stonham, I know, disagrees with this because he said so on Second Reading; in fact he said so twice. He said: That is not a question which could be decided by calculation."—[OFFICIAL REPORT, Vol. 271 (No. 19), col. 666; 14/12/65.] Later on he said: I emphasise that this was not arithmetic, but judgment. With the greatest respect to the noble Lord, I do not think it is quite good enough. I do not think he can say one word, "judgment", and then off goes £415 million. I think we should consider what the Government's judgment is moved by and find out what reasons prompted their judgment to come to this figure. If it is a question of judgment, I should like the noble Lord, Lord Stonham, to put to your Lordships the facts which led the Government's judgment to consider that £415 million was right, and not £515 million or £315 million, or indeed, as my Amendment says, £372 million. What were the reasons? In dealing with this huge sum of money, your Lordships know that judgment on its own, although it is extraordinarily important, is not sufficient, and it must be backed up by facts.

In fact, the White Paper does do precisely this: it gives the facts. Paragraph 7 of the White Paper gives the facts and the figures, and I would suggest for one reason: to back up the figure, and rightly so, which Her Majesty's Government are suggesting Parliament should transfer from the Coal Board to the taxpayer. But the facts the White Paper gives only add up to £372 million and not £415 million, if you take into account the £15 million which the Government have decided to allow the Coal Board because it is not permitted to raise its prices until April 1 next year. In essence, what paragraph 7 says is that £140 million should be written off for 150 pits, £110 million for 100 pits, £16 million for coke ovens and £91 million for the accumulated deficit. In addition to that, £15 million, as I have explained, was the sum allowed for the Coal Board because it was not allowed to raise its prices. Those figures amount to £372 million, the figure which appears in my Amendment.

There is, of course, a discrepancy between this figure and the £415 million which appears in the Bill, and my question to the noble Lord is quite simple: Why an extra £43 million? Why do the Government wish to write off this extra £43 million? And I would say with the greatest respect to the noble Lord, Lord Stonham, that it is no use getting up and saying "judgment" and sitting down again—though even that would be one better than his honourable friend, the Parliamentary Secretary, in another place, who said it was "part of the rounding up exercise", which I think is one of the most extraordinary and unconventional arguments I have ever heard for disposing of £43 million.

I feel slightly sorry for the noble Lord, Lord Stonham, because I realise he has got a rotten brief. He somehow has to defend writing off £43 million for no specific reason. I should not care to be in his shoes. The only consolation I can give him is that it will give him an opportunity to display the skill which—I was going to gay we all know he has, but I think it would fairer to say, which none of us doubts he has, of arguing a bad case very effectively; but I hope that he will do so with conviction this time, because I really think that we want an explanation as to why this extra £43 million is to be written off.

Amendment moved— Page 3, line 43, leave out ("£415.000,000") and insert ("£372,000,000").—(Earl Ferrers.)

5.50 p.m.

LORD STONHAM

I should like to say to the noble Earl, Lord Ferrers, at once how grateful I am to him for extending to me his sympathy for possessing what he alleged was a rotten brief. I would repay his sympathy by extending to him my own sympathy for the fact that he has had to move a rotten Amendment; because, although I am grateful to the noble Earl for explaining his object so clearly, I am bound to point out that it would not be achieved by his Amendment.

This is one of the difficulties in explaining and understanding the situation—and if the noble Earl will look at Clause 2, he will understand what I mean. A reduction, or indeed an increase, in the Board's debt can be effected only by subsection (1)(a) of Clause 2; whereas subsection (1)(b), which he seeks to amend, only makes provision for a consequential entry in the Board's books. Therefore, the reduction in the figure of £415 million which he proposed in line 43 of page 3 would merely leave a sum of £43 million which the Board would be free to dispose of elsewhere in its books. That is the kind of waste and profligacy which I am quite sure that the noble Earl, and indeed any of your Lordships, would frown on most severely. I would mention that if that disturbing state of affairs did prevail, we, or the Minister, would have recourse to Section 29 of the Coal Industry Nationalisation Act 1946, and it would then avert that catastrophe.

Although, on the grounds that I have just mentioned, I know that the noble Earl will agree that his Amendment could not succeed, I want to do my utmost to satisfy him on the most proper request he has put to me regarding clarification of the basis on which the figure of £415 million was decided. I say to him, "do my best", because, as he himself has said, this point was thoroughly canvassed at every stage of the Bill in another place, and I myself on Second Reading here dealt with it at some length, without apparently giving the answer the noble Earl required. Lord Ferrers has taken the figures from paragraph 7 of the White Paper, quite properly, because they were the only figures available to him, in arriving at a total of £372 million; and deducting that from £415 million he gets an unexplained deficit of £43 million.

I will not repeat the figures in detail because the noble Earl has given them quite correctly. But I am bound to say that, to me, the explanation given in the White Paper is a model of frankness and clarity. May I just quote it again for the noble Earl: … the Government think it right, in view of the extent of currently unprofitable operations, to take a cautious view of the future earning power of the Board's colliery assets, and, with the contraction in the market which is now taking place and which seems likely to continue, to allow for some further increase in the amount of unremunerative investment which should he written off. I submit that the key phrases in the paragraph I have just read out are these: first, "the future earning power of the Board's … assets"; and, secondly, the need "to allow for some further increase in the amount of unremunerative investment" to be written off; and if your Lordships will refer to columns 666 to 668 of the Second Reading debate, you will note that I have already fully explained this.

This £43 million assumption is understandable, but nevertheless false. It arises because, as I pointed out before, although the fixing of the global figure was a matter not of arithmetic but of judgment, the noble Earl has insisted, because we have not given any specific figure for the over-valuation of colliery assets, on using only those figures in the White Paper to arrive at his total of £372 million and therefore has a gap of £43 million. I hope that the noble Lord will interrupt me whilst I am speaking if what I say is not quite clear. In fact, what the White Paper shows is that the book value of the pits in 1964 that were unable to contribute anything to their interest charges amounted to £250 million. This only indicated the approximate total of completely unremunerative colliery capital in 1964. That is the point. It was not a determination of the assets to be treated as valueless, because as we explain in paragraph 7 of the White Paper, some of the pits valued at £250 million which were unremunerative in 1964 may be expected to improve, while others now profitable, and therefore not included in the £250 million, will become unprofitable. There was, and there is, no certainty that the specific pits which made losses in 1964 will all be closed in the foreseeable future. Some pits which were included in this calculation may improve, while others, not included, may be expected to decline. Therefore, it is wrong to take the £250 million en bloc as an integral part of the £415 million. Is the noble Earl with me so far?

EARL FERRERS

Yes.

LORD STONHAM

Let me put it in another way. What in fact we are doing in this Bill is to write off £415 million of the Board's debt to the Exchequer; and the Board, with the Minister's consent, will write off in its books over a period assets equivalent in total to that amount as and when they become valueless. But at this moment we cannot say in every case which assets in which particular pits will become valueless.

What the Government have in mind in this cancellation of the Board's debt is to relieve the coal industry of the financial burden it could no longer support, and to provide the Board with a financial structure suited to the circumstances of the industry in the years ahead. To do this we have had to determine the amount of debt to be written off by reference to the earning capacity of the Board's assets in the future. In making this determination, the Government have had to have regard to the likely trend of the market for coal. In 1964-65 the total output of coal was 192½ million tons. And here I must repeat what I said on Second Reading, and what the noble Earl did not like; that there is no intention of arbitrarily cutting back to a target figure for future output. What we say is that, on the best estimates the Government can make, it would not be wise to count on being able to sell more than 170 to 180 million tons of coal in 1970. Understandably, this fall in anticipated demand led us to the view that reduced demand made it likely that the amount of the Board's colliery assets that would be unremunerative in the years ahead would be greater than the £250 million of assets which were completely unremunerative in 1964.

The Government also took into account the revenue prospects of the Board. Unfortunately, despite a respectable increase in productivity, the Board's revenue outlook, since the middle of 1963, has deteriorated almost continuously. The White Paper, indeed, made clear the Board's view that the benefits from the proposed capital reconstruction would not be sufficient to cover losses in the current year, and that, after some five years of price stability in the general level of coal prices, increases were necessary. The White Paper also made provision in the current year for the writing off of a deficit of up to £25 million. Since then the Board's revenue results for the first half of 1965–66, have been published showing a deficit of £44.6 million. I submit that this is further ample justification for our view that we should make allowance for some further deterioration in the earning power of the Board's colliery assets. The latest development, of which the Committee will be aware, is the reference to the National Board for Prices and Incomes. This shows that the Board now estimate that they require to raise additional revenue in the year 1966–67 of about £80 million. This bears out our contention that a cautious view ought to be taken of the future earning power of colliery assets, and it surely proves beyond doubt that the amount to be written off is reasonable.

The effect of the cancellation of debt on the Board's revenue account in 1965–66 will be to relieve it of interest charges of about £20 million and of depreciation to the extent of about £10 million. The amount of debt to be cancelled to which the noble Earl is objecting that is £43 million—would make a reduction of about £2 million a year in the benefit of the Board from relief of interest charges. The smallness of this in relation to the Board's £900 million turnover shows that the decision facing the Government was a matter of judgment rather than of arithmetic, and I hope that, in the light of facts I have quoted, particularly the further deterioration of the Board's revenue position, your Lordships will agree that our decision was right. I think it was just about right.

The noble Earl will remember the story of the firm's outing, when the employer asked the foreman what the beer was like. The foreman said "Just right". The employer was incautious enough to ask what "Just right" meant. "Well", said the foreman, "if it had been any better we wouldn't have got it, and if it had been any worse it wouldn't have been fit to drink." The position we are in here is really this: that if you were to chisel anything off this, then quite certainly it would do other than we want to do. It would make the Board's position such that they could not do what we hope they can do; that is, go ahead with a fresh start. Perhaps if it had been put any higher it could have been argued that it was not fair to the taxpayer.

Finally, I would remind the noble Earl that Section 2(3) of the Bill empowers the Minister to direct the Board to pay to him the whole or any part of any excess of the Board's revenue over their outgoings for any year. This provision was inserted in the Bill because there is inevitably some uncertainty about the future of the coal industry. The Government recognise that in the event of a fundamental change in the financial position of the industry, it would be unfair to the Exchequer and the general public, after taking on their shoulders the proposed massive cancellation of the Board's capital, if the Board were able to earn large surpluses, and, at the same time, to avoid making any adequate return to the Exchequer. The present situation does not lead us to believe that there is any early likelihood of circumstances requiring the use of this provision, but your Lordships can rest assured that this power is available to the Government and would be used if there should be a fundamental and favourable change in the financial position of the Board.

In the light of this safeguard, and in the light of the other facts that I have mentioned, and the explanation by which I have honestly tried to answer the noble Earl's question, I hope that he will feel able to withdraw his Amendment and let the Bill go forward with a fair wind.

6.6 p.m.

EARL FERRERS

My Lords, I am very grateful to the noble Lord for his answer to-day—indeed, I think he would be very worried if I were not satisfied, and if I were to press my Amendment, because I know that he is very anxious to get the Bill. Of course, I should not dream of trying to press any such figure into the Bill. I warned your Lordships that I thought the noble Lord, Lord Stonham, had a rotten brief but that he would make the best of it, and I think that on both grounds I can be considered right.

I thought the noble Lord's opening words were full of vindication of my opinion, when he began to argue on a complete technicality and said that my Amendment would not work because Clause 2 said something different. I thought he was going to rest the whole of his argument on that; and it would have been a pretty poor answer to the question. But the noble Lord did his best over this, and I am grateful. What is evident is that the Government have, in fact, used their judgment. Although they used the figures in the White Paper as a basis of argument for the first £372 million, they then used their judgment for the last £43 million.

I think that the noble Lord's simile of the gentleman with the glass of beer possibly pointed more to the truth about the figure of £400 million than he realised, when he said, "If it were any better we would not have got it". One is left with the impression that if the noble Lord's Government had asked for more than £415 million, they might well have run into trouble in another place, and therefore they set the figure as high as they thought they could get. However, I am very grateful to the noble Lord for doing his best to answer the point, and I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 2 agreed to.

Remaining clauses and Schedules agreed to.

House resumed: Bill reported without amendment; Report received.

Then, Standing Order No. 41 having been suspended (pursuant to the Resolution of December 13), Bill read 3a, and passed.