CAPITAL RECONSTRUCTION OF THE COAL INDUSTRY (Hansard, 1 July 1965)

§ THE JOINT PARLIAMENTARY UNDER-SECRETARY OF STATE, HOME OFFICE (LORD STONHAM)
My Lords, I hope that it will be for the convenience of the House if I now repeat a Statement, made by my right honourable friend the Minister of Power in another place, on the capital reconstruction of the coal industry. I will use his own words.
"I am, with the assistance of my Energy Advisory Council, making good progress in the formulation of a national fuel policy. Meanwhile, the Government are satisfied that the coal industry is substantially over-capitalised and that the burden of its debt must be reduced to correspond with the realities of the situation and the prospects. The coal market has 1036 contracted by about 30 million tons in the last eight years: many uneconomic pits have been closed and discussions in the Energy Advisory Council suggest that some further contraction may be unavoidable in the years ahead. I reckon that these developments affect in all about £400 million of the Board's capital debt. The Government propose that this amount of the Board's debt to the Exchequer should be written off. This will make a major contribution towards finding a basis for a healthy and viable coal industry capable of providing funds for further colliery investment from its own earnings. In addition, the Government are prepared to enter into discussions with the industry for a scheme to provide special funds to speed the disappearance of uneconomic collieries. The funds would be available to accelerate the provision of alternative industrial development in the areas mainly affected, and also to assist the industry in meeting the social and human costs arising from this programme.
"I will, when the necessary consultations are completed, lay a White Paper before the House explaining Government policies for coal in the context of national fuel policy and our proposals for legislation on coal later this year."

EARL FERRERS
My Lords, the Statement which the noble Lord, Lord Stonham, has just made, is, I think, of great importance to the coal industry. He said that £400 million is to be written off. According to my reckoning, this corresponds to approximately 35 per cent. of the total capital. By any standards that is a colossal sum of money, and we shall, of course, wish to study this Statement very carefully.
The Statement said that this was being done in order to bring the coal industry into line with the realities of the situation and the prospects. One is tempted to ask the noble Lord precisely what are the prospects. Can he say whether the Government have in mind any particular quantity of coal per year that will be required to be produced? The noble Lord referred to a drop of 30 million tons per year over the last eight years. He followed that with the fact that some 1037 pits have been closed and that others would probably be closed, and went on to describe this as "developments". I should have thought that word a trifle inappropriate. It might more reasonably be described as contraction of the industry.
Can the noble Lord say how this £400 million is made up? Is the accumulated deficit of the Coal Board to be written off, or only some of it; and, if some of it, how much? How much will the interest on £400 million amount to? Can the noble Lord give a clear assurance that when this capital is being written off there will also be closures of the most uneconomic pits operating at the moment? If we are to have a reorganisation of capital where a certain amount of capital is being written off, and if the same pits are operating, clearly the result will he some form of hidden subsidy. If the noble Lord will give an assurance that at the same time the least economic pits will be dealt with in a suitable fashion, I think that the House will be very grateful.

§ LORD HASTINGS
My Lords, before the noble Lord replies, may I ask a question about the special funds to which he referred? Are they to provide new industries in areas where pits have been closed—for example, in the South-East Northumberland coalfields, where the County Council and local authorities are embarking on building the new town of Cramlington? It occurs to me that it would be unfair if they were left out of any bounty which the Government are giving in this respect.

§ LORD STONHAM
My Lords, I suggest that the noble Lord, Lord Hastings, awaits the publication of the White Paper which will give the details of these particular proposals regarding the special funds. Apart from that I should say that it is the intention, so far as the Government's general policy with regard to development is concerned, that there should be no distinction between an area where redundancy has just been created and one where it will be created in the future, if the new industry and if the social and human costs arising from this programme need attention.
I will do my best to reply to the many questions which the noble Earl, Lord Ferrers, addressed to me, but if I forget 1038 any, perhaps he will remind me. First of all, in regard to the net annual saving to the Board, the Board will be relieved of interest payments of about £18 million a year, and their loan repayments will also be reduced. The precise amount, as the noble Earl will understand, will depend on the way blocks of capital with varying repayment terms are dealt with in the scheme that is being worked out.
With regard to the Board's financial and capital position, I would not argue with his arithmetic in reaching a figure of about 35 per cent., but the value of fixed assets at March 28, 1964, was £8306 million; current assets stocks, and stores, etc.—was £203.7 million, and the accumulated deficit on current account was £91.3 million, making a total indebtedness of £1,125.6 million. The writing off of £400 million, which I mentioned in the Statement, includes the deficit of £91.3 million on current account, because we consider that it is not right to burden the industry to-day with the results of past undercharging, for which the noble Earl's Government were responsible. He will remember the enforced payment by the Board of losses on the import of American coal, costing the National Coal Board some £70 million, which goes a long way towards meeting the accumulated deficit.
As to the reasons for the situation that has arisen, here again the previous Government must accept a great measure of responsibility; because, doubtless with the best of intentions, the industry was over-capitalised as a result of the decisions taken in the '50s by the Party opposite to expand the industry to meet a high level of demand, of the order of 230 to 240 million tons a year—decisions which proved, in the light of hindsight, to be wrong. Because the industry was over-capitalised as a result, this reduction has to be made.
In regard to the closure of uneconomic pits, I am sure that the noble Earl will be aware that this has been going on all the time. Indeed, a typical example of the assets likely to be written off is a pit waiting closure which is making losses on running costs, even before any contribution to interest, depreciation and unavoidable overheads is met. But I can give a categorical assurance on this point.
1039 The noble Earl seemed to find some contradiction between writing off and my mention of further development. There is no contradiction between closing down uneconomic pits and writing off redundant capital, and the development of good pits and spending money on them. Indeed, it is expected that in the years ahead the National Coal Board will be spending some £500 million on further capital development, a great part of which, it is expected, will be raised from its own resources.

§ LORD BYERS
My Lords, this Statement probably means that a considerable number of coal miners will become out of work or redundant. Would this not be a suitable moment for Her Majesty's Government to consider giving a tax incentive, as they do in Canada, in Eire and in other countries, to encourage mineral exploration in this country, so that this skilled manpower could be properly used? Will the Government bear this suggestion in mind?

§ LORD STONHAM
My Lords, I am most grateful to the noble Lord for that suggestion. As he says, this contraction will mean redundancies, but it is the Government's intention to make quite sure that these redundancies do not result in unemployment. As the pits become exhausted or uneconomic, the men thus becoming redundant will be needed to fill vacancies in other areas, or they will be able to be employed in new industries which it is the Government's intention to set up where necessary. But the suggestion that the noble Lord has made will be considered by my right honourable friend.

§ LORD BYERS
My Lords, I am grateful to the noble Lord. We must remember that these men are skilled. There is no encouragement at the moment to do mineral exploration in this country. In Ireland, a considerable amount of money has been spent trying to find new deposits. I think that this might be a suitable moment for the Government to look at this.

§ VISCOUNT MILLS
My Lords, I congratulate the Minister and the Government on the announcement that has just been made. There is nothing more discouraging than to be landed with a load 1040 of debt on which interest has to be paid, with no sign of its coming down. I am sorry that the Minister added some observations of his own which tried to fasten on the late Government the results of their attempts at forecasting. His own Government are pretty good at trying to forecast, and we shall see what the results are there, to.
I should like to say that the Coal Board are doing a magnificent job, under the leadership of an esteemed Member of your Lordships' House. They are trying—and not only trying; they are succeeding—to increase their efficiency. They have been doing this month after month (I understand that that is what the noble Lord means by "expansion"), as well as opening up new pits, which has to be done as others fall out. I, for one, welcome this Statement. In my view, it is a good step, and the Government are to be congratulated.

§ LORD STONHAM
My Lords, I warmly welcome and thank the noble Viscount, Lord Mills, for what he has just said. I am sure that, coming from a former Minister of Power, it will be a considerable pleasure to my right honourable friend Mr. Lee. I welcome still more what he said about the coal industry. Coal prices have been stable for a number of years. There has been no general increase since 1960 and no selective increase since mid-1962. It is true that the coal industry has increased its efficiency more than almost any other industry in the country. So far as development is concerned, the first fully automated pit is just coming into operation. And it is development of this kind on which the new capital is being spent. I also welcome the words of the noble Viscount with regard to my noble friend Lord Robens of Woldingham.
I do not think it is generally recognised throughout the country, as it should be, what a truly gallant and successful fight has been put up in the coal industry against all sorts of odds. It must never be forgotten that our balance of payments owes a great deal to the coal industry. Coal is our one major indigenous mineral, and we shall be depending on the coal industry for our base-load power for many years to come. In reply to the noble Lord, Lord Byers, may I say that we realise that not only is the coal industry an important source of national capital, but the men who work the mines are a 1041 supremely important source of national capital. We shall use their skill first in the mining industry and then, in the cases where that is not possible, to the utmost advantage within the national economy.