Coal Industry Bill

HL Deb 22 March 1982 vol 428 cc842-66

3.20 p.m.

The Minister of State, Scottish Office (The Earl of Mansfield)

My Lords, I beg to move that this Bill be now read a second time. This is the second Bill to make provision for financial support for the coal industry which has been introduced during this Parliament. The first became the Coal Industry Act 1980. I should like, therefore, to say a few words about why the new legislation is needed and to say how the Government see their future strategy for the coal industry, against the background of its recent history.

In 1947, the year of the nationalisation of the coal industry, there were 958 pits in Britain, over 700,000 men on colliery books and total United Kingdom production was 200 million tonnes. Total inland coal consumption was 187.5 million tonnes, and coal represented 90 per cent. of our national primary fuel needs. By 1972, however, the coal industry had been in decline for over a decade, as British industry, in common with the industry of the rest of the world, had grown increasingly dependent on cheap oil imports from the Middle East. It has become fashionable to talk about the coal industry as an archaic relic of a bygone age. In 1967–68 alone, 62 pits closed, and the reduction in men on colliery books was 43,000. In March 1973 there were 281 pits, 263,600 men on colliery books. United Kingdom coal production in the financial year 1972–73 was 140.5 million tonnes. In 1972 coal contributed only 36 per cent. of our primary energy needs compared with 48 per cent. met by oil.

It was with the realisation that these circumstances could change and in the belief that the coal industry should not completely founder that, under the then Conservative Government, the NCB in 1973 began to formulate its 10-year Plan for Coal. The intention was to restructure the industry, arrest its decline, replace old capacity, improve working conditions, and create a modern efficient and competitive industry, capable of expansion.

Plan for Coal could not have been more timely. After the first major oil crisis it became increasingly clear that imported oil could no longer be counted on as a cheap and reliable source of energy supplies, and that the energy market would shift back towards a greater reliance on coal.

Plan for Coal was approved by the Labour Government in 1974, with full support from both sides of the House. It was based on investment of £140 million per annum at 1974 prices for 10 years, compared with the annual capital expenditure by the NCB of some £80 million, and it was intended to place the NCB in a position of being able to satisfy an assumed demand of up to 150 million tonnes in 1985. Modernisation and efficiency were to be secured by an annual increase in productivity of 4 per cent. and by an annual closure of old capacity of some 3 to 4 million tonnes.

Investment under Plan for Coal has gone ahead and, indeed, has exceeded what was planned. However, the other main targets have not been achieved. It is also now clear that the market opportunities for coal, to which Plan for Coal was geared, are somewhat further off than was envisaged. This means that the coal industry is now having to adapt its plans and strategy in order to work within the parameters of its changed circumstances, while still seeking to secure competitiveness and commercial success.

The facts speak for themselves. First, in 1980–81 United Kingdom energy demand was 3 per cent. lower than in 1972–73. Total National Coal Board sales of coal were 117.7 million tonnes, compared with sales in 1972–73 of 136.6 million tonnes. Moreover, with production of 124.9 million tonnes in 1980–81, the NCB is supplying more coal than the market wants and is incurring the expense of having to put large amounts o coal to stock. Secondly, coal's competitiveness with oil has not improved to the extent that was thought. Since 1979 oil prices have not risen as fast as was feared; and the NCB, whose costs rose at an average of 4 per cent. per annum higher than overall inflation in the five years up to 1980–81, did not make the savings on costs which were hoped for. Finally, productivity, as measured by output per man shift, in 1980–81 was still below its 1972–73 level, and only during the past year have encouraging improvements in productivity been made.

For the reasons which I have outlined, the coal industry's progress towards financial viability and competitiveness has been delayed, and the taxpayer has continued to commit large sums of money to the industry, not only to provide it with funds for capital investment, but also to help finance the gap between the board's revenue and expenditure. The Bill will make it possible for the Government to continue this support of the industry, and its passage gives Parliament the opportunity to reappraise the industry's plans and progress. I am sure that we all share a common concern that the National Coal Board should progress as quickly as possible to a position of financial soundness and viability and play a key role in meeting our future energy needs. The Government's commitment to this is expressed in the substantial amount of public money which will be paid under the framework of this Bill.

The NCB's capital expenditure approval of £886 million for 1982–83 will ensure that its substantial capital investment programme of £805 million this year continues at broadly the same level. The grants to the NCB this year will be over £550 million. In 1982–83 the Government expect to pay to the NCB, subject to parliamentary approval of the Estimates, total grants of over £480 million. Such substantial sums express the Government's confidence in the industry's future potential. We believe that that future can be a secure and prosperous one, provided the NCB can overcome the problems which it faces. This will require a real effort from employees at all levels.

I have already indicated the main areas where improvement is needed. There needs to be a constant drive to keep down unit costs and to improve efficiency. The 3 per cent. improvement in productivity which has been achieved so far this year is encouraging, but it has to be seen in the context of the disappointing performance over the past decade, when there was no real improvement in output per man shift. The recent trend needs to be consolidated and bettered. If the productivity levels which Plan for Coal envisaged had been achieved, output per man shift today would have been 25 per cent. higher than it actually is.

Whatever the savings on its costs, the board can only win commercial and financial success if it can penetrate new markets and strengthen its position in existing ones. The most important area for the board to concentrate on in the short and medium term is the industrial market. However, businesses make their decisions on a commercial basis, and coal has to earn its way by demonstrating its competitiveness on pricing and in terms of reliability and quality of supply. To help industry, and to encourage increased coal burn, an extension of the availability of grants under the Department of Industry's Coal Fired Boiler Scheme was announced in the Budget: the scheme has been renamed the Coal Firing Scheme, and it now covers switching to coal firing from a wide range of oil and gas fired industrial equipment, including boilers, ovens, furnaces, kilns and driers. The minimum threshold for projects has been reduced from £25,000 to £15,000 and the scope of the scheme has been extended to cover several service industries. I very much hope that these changes to the scheme will contribute to its success.

The purpose of the Bill is to increase the borrowing powers of the National Coal Board, to increase the limits on the operating and deficit grants which the Government pay to the board, and to make small adjustments to the arrangements for the payment of social grants. Clause 1 provides for an increase in the borrowing powers of the National Coal Board and its wholly owned subsidiaries, from the present limit of £4,200 million to a new limit of £4,500 million, which may be increased by order to £5,000 million. Clause 2 extends the period in respect of which deficit grant may be paid to the board until the end of 1983–84. It also increases the total limit on operating and deficit grants from the present £590 million to a new limit of £1,000 million, which may be increased by order to £1,750 million.

Clauses 3 and 4 deal with social grants, and reflect the latest improvements to the schemes of payment which successive Governments have made to help with the particular problems of individuals affected by changes in the industry. In March last year, substantial improvements were made in the Redundant Mineworkers' Payments Scheme for people made redundant on or after 11th March, 1981 and Clause 3 gives powers to the Secretary of State to reimburse the board in full the cost of payments related to improved pensions under the new arrangements.

Clause 4 also stems from the improvements in redundancy terms and increases the limits on payments of grams to the board under Sections 6 and 7 of the Coal Industry Act 1977. The relatively modest increases reflect the cost of the improved terms, and also the fact that their introduction has led to a rise in the level of redundancies over the past year. I would emphasise, however, that the potential of the industry's future success can only be realised if those who work in the industry make a really determined effort to win through the present difficulties. I would not wish to understate these difficulties. They are very real and I know that there is no overnight solution. Nor is there a solution which the Government can produce on a platter. It is our job to set the financial guidelines and provide the financial framework which can help the board get back on course. The Bill will help us to do just that and it demonstrates our confidence that the board has the ability to succeed. It is in that spirit, my Lords, that I beg to move that the Bill be now read a second time.

Moved, That the Bill be now read a second time.—(The Earl of Mansfield.)

3.32 p.m.

Lord Strabolgi

My Lords, we are grateful to the noble Earl, Lord Mansfield, for explaining the purpose of the Bill which, as he said, makes provision for Government financial support to the coal industry. It is an important Bill, providing investment—I do not like the word "subsidy"—in what is perhaps, with agriculture, our most important basic industry. I think that the Bill is also somewhat unusual in that it was passed by another place without a Division on either its Second or its Third Reading. Certainly, as far as these Benches are concerned, we shall do nothing to impede its passage, particularly as I understand, from the point of view of the industry, that the Bill should receive Royal Assent before Easter; and this is certainly in the interests of the nation.

As the Bill is mainly a financial one, I should like, if I may, to make a few general points about the industry, and to ask the noble Earl one or two questions about Government policy over certain specific matters which are causing concern. If I may say so, I think that it gives the wrong impression to describe these borrowings, which are really long term investment, as a subsidy. In spite of all that the noble Earl has said, the British coal industry has the lowest production costs in the EEC. The production costs, including interest payments and depreciation, in the United Kingdom are £35 per tonne compared with £44 in West Germany, £45 in France and £61 in Belgium. In the United Kingdom again, the price per tonne is £1.4, while in West Germany it is over £12, in France about £15 and in Belgium nearly £28. These continental countries also receive much greater Government grants.

I am sure that the House is glad to note that the coal industry has had a very good productivity record in recent months and, as the noble Earl said, output per man shift is increasing. Last month productivity was over 3 per cent. up on February 1981, and last November it set an all-time record. But there is a price to pay for this increased productivity, and I am concerned to see reports that, since the introduction of the productivity incentive scheme four years ago, fatal accidents have increased by 25 per cent. We remember the accident at Cardowan earlier this year. This was not, happily, so serious as was at first feared, although I am sorry to say that nine of the injured miners are still in hospital. However, I am glad to hear that they are on the road to recovery.

Although there were 35 fatalities last year throughout the industry, compared with 46 in 1979, that is still 35 too many. I hope that the Government and the NCB will do all they can to help increase research into safety and to encourage investment in efficient pits; because, my Lords, an efficient pit is likely to be a safer pit. But mining remains a hazardous occupation. There is, furthermore, the risk of pneumoconiosis. I understand that the National Union of Mineworkers has suggested that the Government should finance an extension of the NCB's pneumoconiosis compensation scheme, so that those miners who were previously excluded from the scheme as commuted cases, or their widows, could receive a lump sum of about £600.

I hope that the Government will look sympathetically on this proposal. The sum involved is not large. What we have to strive for continuously is a safer industry, and every pound of capital investment directed towards this end is surely money well spent. Too often we hear the word "subsidy" used by the party opposite, as if this was a one-way affair, when in actual fact we should regard these payments as long-term investments for the coal industry, the people who work in it, and through them for the nation as a whole.

Dealing with the long term, I should like now to ask the Minister about Belvoir, or the North-East Leicestershire project, as I prefer to call it. The NCB has spent £2 million on the planning inquiry. The Central Electricity Generating Board has stated in evidence that the capacity is replacement capacity, and needed to replace the existing pits in Leicestershire and Nottinghamshire which are becoming exhausted. The NCB, the NUM, the Department of Energy and the European Energy Commission all want this project, which will take about 10 years to develop, to go ahead. Indeed, every Member of another place took the same view during the debates on the Bill.

The board's application was made nearly four years ago. The inspector's report was sent in over a year ago. The decision rests, I believe, with the Department of the Environment, although that department is not directly responsible for the energy needs of this country. Surely the Department of Energy cannot be content to leave this important decision to another Government department? But it appears so, since the Under-Secretary of State for Energy, Mr. John Moore, said in another place during the Third Reading debate on 4th March, that this was a matter for his right honourable friend the Secretary of State for the Environment, and the noble Earl's right honourable friend the Prime Minister confirmed that on 11th March. I must, therefore, ask the noble Earl, who speaks for Her Majesty's Government, when we may expect a decision; why it has been so long delayed; whether the Department of Energy is being consulted; and whether this decision, when it is made, will be on environmental grounds alone—and I may say that the NCB are fully aware of their responsibility to the environment—or will our future energy needs be taken into account as well as the future efficiency of the coal industry?

It is a further matter of great disappointment that Government financial cheeseparing of the most shortsighted kind, by their own standards, has been extended to the essential oil-from-coal liquefaction project. The Labour Government had made £20 million available for this project and the present Government said initially that they would continue this. But now they have had second thoughts apparently, and Labour's £20 million has been cut back to a quarter—to £5 million—and the pilot scheme has not even been started.

This is a most important project and one that is vital to our future. North Sea oil will begin to run out early in the next century, which is under 20 years away, and by then we must have liquefaction sufficiently developed on a national and commercial basis, otherwise there will be little industry and no transport, except perhaps bicycles and horse transport. Perhaps the noble Earl will let us know, when he comes to reply, the latest position on liquefaction and the anticipated timing for the next two decades.

Lastly, I should like to ask about the new chairman of the National Coal Board, because the delay in nominating him is causing unease in the industry. Sir Derek Ezra has been chairman since 1971, and I should like to take this opportunity to pay a warm tribute to him and, from these Benches, to congratulate him on his splendid work for the National Coal Board, for which we are all indebted. Sir Derek is due to retire shortly. He has been with the NCB since 1947, a board member since 1965 and, as I have said, chairman since 1971. Sir Derek has an unrivalled knowledge of the industry and he will be difficult to replace.

I hope that the Government, when looking for a new chairman, will consider someone from the coal industry, or at least someone with knowledge and experience of the industry, because this is important. I hope that, for once, they will not follow precedent and appoint someone from outside—as they have done with other nationalised industries—who has come from another field, either from merchant banking or from the academic world, or even whoever is next in turn from the ranks of "the great and the good". I conclude by saying that I support the Bill. I hope that the House will give it a Second Reading and that it will pass rapidly through its remaining stages.

3.42 p.m.

Lord Tanlaw

My Lords, we wish to add our gratitude to the noble Earl the Minister for presenting this Bill and we also wish to confirm that it is not our intention in any way to obstruct it during its passage through your Lordships' House. However, in view of the total lack of debate in another place on this Bill, I am tempted to go into more detail than possibly I should normally have done on a Bill of this kind, which is primarily a monetary Bill.

My intervention in this debate is based on the background of a strong support from these Benches in the past for a healthy and vigorous coal industry, and acceleration of its modernisation programmes as outlined in Plan for Coal. It has long been recognised that, during a period of recession and a temporary oversupply in the world oil markets of the mid-1980s, the national coal industry will suffer a difficult period until the energy shortages foreseen in the 1990s become apparent and coal again takes a proper place and receives a profitable return for its contribution to the energy equation.

However, the Bill before us bears little or no relation to the overall policies which I have mentioned. It appears to be nothing more than a request to the taxpayer to subsidise in-built obsolescence in the deeper and more dangerous coal mines of this country. This view is not just my own, but is confirmed in the Second Report from the Select Committee on Energy, as shown in the conclusions reached in paragraph 33. The contention was also expressed by the committee in paragraph 28, that the cost of grants contained in this has, more to do with social than energy policy", and, should be borne on the appropriate Votes, which in this case would relate to employment protection or social programmes". The report then goes on, in paragraph 18, to criticise the departments concerned by saying that, it would seem safe to assume that the interests of the consumer and taxpayer were not uppermost in the minds of Ministers when they reached their decision". This decision, of course, refers to the reduced closure rate of uneconomic pits.

It is my intention to attempt to see how the Coal Industry Bill and the increased borrowings and grants contained in it, affect the taxpayer as well as the consumer in ways which were perhaps not at first sight immediately clear to its authors in the Department of Energy or the Treasury. I say this because, in spite of the very finely produced accounts of the National Coal Board, they do not show up clearly the real costs to the taxpayer in a way which is readily understandable. Furthermore, when these accounts are scrutinised by the Public Accounts and Select Committees, it should be borne in mind that there are only 18 Members of another place in this Parliament—none of whom appears to be in the Cabinet or the Shadow Cabinet—who are professionally qualified to interpret a balance sheet of any kind. It is all too easy for Government departments and nationalised industries to present their accounts and their accountability to the taxpayer in a form that is quite incomprehensible to the majority of Members of Parliament, and equally to the taxpayer.

Therefore, it is with some relief that I read somewhere recently that it is the Government's apparent intention to simplify all accounts for which they are responsible, both directly and indirectly, so that better controls and accountability to the taxpayer can be achieved. I shall return to this point a little later on.

Meanwhile, until this day of dawning arrives, as a non-accountant, I shall make an attempt to interpret the figures contained in this Bill in conjunction with the latest National Coal Board accounts and the effects the implementation of this Bill may have on them. If noble Lords will bear with me, I shall attempt to show—with, I hope, a minimum amount of arithmetic—the financial implications of the public spending contained in this Bill and its apparent reversal of the Government's economic policy intended to hold down inflation.

I wish now to return to the Second Report of the Select Committee of Energy, paragraph 33, in which the effects of the Coal Industry Bill have been summarised as follows, and they are exactly as the noble Earl the Minister has said. The committee states that this Bill, provides for an increase in the total outstanding borrowings of the NCB from £4.2b. to a possible £5b. It then goes on to say that the: Secretary of State may pay operating and deficit grants to the Board. The aggregate limit on such grants is raised from £590m. to a possible £1,750m. In other words, under this Bill, the taxpayer is being asked to subsidise in-built obsolescence in the coal industry to the tune of approximately £1 billion. The committee has made quite clearly the correct distinction between the extended borrowing powers already given to the Coal Board and the extended operating and deficit grants also proposed in the Bill before us. I intend to make the same distinction and to show what effects these very large sums could have on all future accounts of the National Coal Board and, possibly, on the end-consumer as well, be it in the form of coal or electricity.

Nothing has been said from the Government or from the National Coal Board to indicate that the interest charges on these extra injections of finance will be treated any differently from previously—in which case the increased capital borrowings for the board would appear to increase the interest burden by an extra £42 million per year. In the same way, the indirect grants payable to the National Coal Board in this Bill will add to the PSBR an interest burden of a further £162.4 million per year, giving an approximate running total of an extra £204 million per year as interest chargeable to the taxpayer. Coincidentally, this sum of £204 million per year matches almost precisely the current running deficit of the National Coal Board of £206 million per year, as shown in the latest accounts on page 46.

To my knowledge, nothing has been stated by Her Majesty's Government or by the National Coal Board to the effect that the Treasury is prepared to waive its requirement for a 5 per cent. return on capital employed. However, if we look at the Coal Board accounts, the calculations for capital employed, amounting to £2.39 billion, appear to be related only to the fixed assets, while the net current assets do not take into account the current net borrowings. As far as I am aware, this procedure is quite contrary to normal business practice and creates an air of unreality with regard to the Treasury requirement.

Nevertheless, if we accept the terminology of capital employed as shown in the accounts, it would appear that the Treasury is looking for profits in the region of £130 million a year, which, by any assessment, must be hopelessly optimistic against a current running deficit of £206 million a year. If this deficit total of £206 million is then added to the profit target anticipated by the department of £130 million, the board are then faced with finding an extra £336 million per year out of revenue in a market already over-supplied with coal and affected by a downward pressure on prices, with no real sign of an end to the industrial recession to increase demand.

I have the greatest sympathy for the chairman, Sir Derek Ezra, and appreciation for his board for the work which they have done up until this time. They are rather like the nut in the nutcracker: on the one hand they are under pressure to increase revenue to meet a Treasury target while, on the other hand, there is a falling demand with a downward pressure on prices. But the only way the nationalised industries can increase revenue is by increasing prices. If my calculations—which are rough in the extreme, I must admit—are even approximately correct, it would appear to me that the price of coal will have to be increased by about £3 per ton at the existing rate of output; that is, if the Coal Board is to fulfil the targets set by the Treasury and meet the additional interest charges on the new loans extended to it under this Bill. Unfortunately, however, even supposing this were either possible or practicable in real terms, a price increase of this magnitude would have considerable side effects on other industries which directly affect the rate of inflation and daily costs to the taxpayer.

The noble Earl will recall that, in all the calculations submitted by the Central Electricity Generating Board, a price increase of only 2½ per cent. per annum has been allowed for in calculating the future cost of electricity generated from fossil fuel power stations. A price increase of £3 per ton of coal would call for about a 9 per cent. increase in fuel costs to these power stations, which must in turn bring pressure for a large upswing in the price of electricity for industrial and domestic consumers alike—that is, if the CEGB is to produce its 5 per cent. return on capital target set by the Treasury.

It may be worth reminding the noble Earl the Minister that in a CEGB publication entitled Costs of Producing Electricity figures show that there has been a commendable increase in efficiency of generating costs by those power stations which were commissioned between 1965 and 1977, when the fossil fuel charges accounted for 83.2 per cent. of generation costs; whereas coal-fired power stations under construction today are expected to reduce this figure, and therefore the demand for coal, to 62.5 per cent. of the total generation costs, which include by the way the increased construction and interest charges for these new stations.

The reason for including all these figures is to attempt to show the very considerable effect on generation costs if there were a large increase in price on coal delivered to power stations. I shall make no attempt to calculate the increased generation costs in detail, but a £3 per ton increase in the cost of coal could increase the costs per kilowatt hour from 3.8p up to over 4p. The inflationary effects of such an increase, even on the most efficient coal-powered stations built, will inevitably be carried on to the consumers and add to the national inflation statistics.

I am sure it is not the intention of the Government or the noble Earl the Minister to pursue a policy of public expenditure which would in any way aggravate the economy to increase inflation dramatically at this time. Therefore, I hope he will first consider seriously the proposition made by the Select Committee on Energy which suggested that the deficit and operating grants contained in this Bill should be treated entirely separately from the overall financing of the production of coal. These are social grants—some would even call them "ransom" money—and have little or no connection with the promotion of an efficient and modern coal industry in this country.

Secondly, will the Government consider scrapping the rates of return on capital for the nationalised industries which, when all is said and done, are figures taken out of the air by the Treasury officials and bear no relation to responsible industrial forecasting? I doubt whether taxpayers will be either impressed or misled by Government statements insisting publicly to the chairmen of nationalised industries that these targets must be met; while at the same time propagating a public spending policy for the nationalised industries which is claimed to be anti-inflationary, yet in practice is quite the reverse.

I have attempted to show, using the figures contained in the Bill, coupled with the accounts of the National Coal Board, that the time has now come for a complete revision of the kind of thinking which has led to the introduction of this Bill, without apparent further consideration of its side effects on other nationalised industries, the taxpayer, the consumer, or the economy as a whole.

Therefore, I hope that the noble Earl the Minister will confirm that in future the nationalised industries will soon be able to present their accounts in a form more closely aligned with the statutory requirements of private sector industries; in particular that the financing by grant or loan in the Coal Industry Bill before us will be clearly identified by purpose and intent in the balance sheet, so that social and political measures are isolated under a separate Vote from the trading accounts, and can be judged accordingly by the taxpayer at a general election.

The Government would do well to take note of a statement by the Domestic Coal Consumers' Council in their latest annual report, which said that, we have told the NCB that we intend to press on resolutely with a policy of seeking more and better information about their finances in order to respond positively to price increase proposals. This is just one fairly small section of taxpayers who are bewildered by the figures published by a nationalised industry, as they cannot see the effect in terms of their daily life or the way in which their money has been spent.

If the noble Earl the Minister confirms that the Treasury requirement of 5 per cent. return on capital employed will still apply to the National Coal Board in the years to come, I also hope that he will give his definition of the term, "return on capital employed". In particular, will he say whether the current liabilities—that is, the existing borrowings, plus those contained under this Bill—will not be applicable to this formula? It would appear to me that, whatever calculations are used, the National Coal Board is grossly under-capitalised in its fixed assets, and this fact is confirmed by the chairman, Sir Derek Ezra, in his statement on page 3 of the accounts, in which he says as follows: the Board's difficulties are part of the overall problems arising from financing arrangements for public enterprises, where the whole emphasis is on short-term 'cash limits'. These make no distinction between the finance required for current operations and that for fixed investment. This, and the inclusion of the external funding requirements of public enterprises in the PSBR make the implementation of strategic investment programmes more difficult. A solution to this problem must be found, to the benefit of both public and private sectors, which are closely interdependent". The chairman's plea to the Government is similar in its terms and in its urgency to those of other chairmen of nationalised industries, like British Rail, who appear to have difficulty, as do many others, in interpreting the present Government's policy on capital investment; in particular, the lack of distinction between short-term cash limits and long-term financing for modernisation.

It would be quite wrong to pursue these wider issues involved at this time. However, I would be grateful if the noble Earl could perhaps solve one problem for me, which is to explain in the simplest terms as to how long-term capital investment in fixed assets is inflationary, and short-term subsidising in-built obsolescence is not.

There is one further thought which occurred to me while preparing for this debate, and it is simply this. I wonder whether the problems that are being experienced with communication between the chairmen of all the nationalised industries and the members of the Government of the day are primarily due to an inability on the part of the Government Ministers to understand some of the basic terms used in balance sheets, and which affect the operation of any company, whether it be the sweet shop on the corner or one of the biggest commercial enterprises in Europe. Having read and listened over a number of years to speeches given by Ministers, and terms like, "return on capital employed", "net current assets", "revenue and capital", "gearing", and all the normal jargon of a business in the market place, from the way these terms are used it is quite clear to me that they do not understand what they mean. If this is the ease—I apply these remarks equally to members of the executive of the National Union of Mineworkers—it is small wonder that the efficiency and the accountability of this great industry is in such disarray.

I want to end as I began with stating that it is the desire of all of us on these Benches to see the strengthening of the coal industry take place over the next 14 years, in order to meet the demands of the 1980s at a profit for all those who are employed or connected with it. Therefore, we wait with increasing impatience, against a background of 3 million unemployed, for the Government to agree a long-term capital programme, which has to be implemented now if it is to be effective, and which bears no relation to the short-term cash limits contained in this Bill.

Our warnings of the past about the dire consequences of lack of investment in the coal industry have apparently gone unheeded. They may pass unheeded again, so perhaps the Minister may pay attention to a warning of a completely different kind which was reported in the Guardian on Friday 19th March: The National Coal Board press office said that one of their miners at Silverwood Colliery had fled in terror from the pit after confrontation with an apparition at the coal face". The report described the apparition as representing a mine worker in a distressed condition wearing an outdated helmet and a tattered old pullover and waistcoat. The Coal Board went on to say that a miner had been killed near the same spot 14 years before this incident occurred". The question I ask is whether the apparition was from some tragedy 14 years past, or was it an omen for the state of the coal industry 14 years hence?

4.1 p.m.

The Earl of Lauderdale

My Lords, it would be churlish not to join with the noble Lord, Lord Strabolgi, in saying a fond farewell to Sir Derek Ezra, whose achievements for the industry over many years have been outstanding. Sir Derek himself knows that he has his cirtics, but I am certainly not one of them. I have always admired what he has accomplished, and, as noble Lords know well, whenever I speak in a debate on coal I am really speaking about one of my loves, because I sat for a mining constituency for many years, and nobody will accuse me of wanting to bash either the industry or the splendid men in it.

I was much interested in that part of the racy exposé of the economics of the industry which I could understand given by the noble Lord, Lord Tanlaw. I do not know whether he is an accountant by profession. Listening to him, I could not help saying to myself that accountants are barnacles on the backside of industry. However, he drew attention—rightly, in my view, and not a minute too soon—to the urgency of getting a clear distinction which everybody can understand between capital and trading accounts. Members of your Lordships' House on both sides have said that time and again when addressing successive Governments. We have pleaded for it, but we have never received a proper answer.

Because of that, it is possible, on the one hand—and the noble Lord, Lord Tanlaw, was closer to the truth than I should like to admit—to describe social grants as ransom money, or something very like it, while on the other we have the position taken by the noble Lord, Lord Strabolgi, that there are no subsidies, that it is all investment for the future. Whether they are subsidies or investments for the future, we all know that a Conservative Government were innocently optimistic in the last Coal Bill several years ago, and I wonder whether they are not still being so.

Perhaps it is important, before we rejoice in the great help the Government are now proposing to give the industry, to remind ourselves of the trenchant comments which stemmed from the unanimous conclusions of the Select Committee on Energy in another place when looking at the Department of Energy's estimates for 1981–82. I will quote a few lines from that report, repeating and stressing that this was unanimously agreed by an all-party committee: The aggregate limit on … grants is raised from £590 million to a possible £1,750 million. We have pointed out that the practical effect of the extra financial support is to enable the surplus output created by the continued operation of uneconomical pits to be exported at subsidised prices… We have argued [that] a programme to phase out high-cost, uncommercial pits would bring down the average cost of the Board's coal and might lead to an increase in sales to the home market based on a genuine competitive advantage". Those were significant and serious points made, I repeat, by an all-party committee in the other place. That committee finally concluded: We shall return to this matter in our examination of the estimates for 1982–83, paying particular attention to the need to ensure that the additional funds made available by the Government to the Coal Board have been spent on the purposes for which they were granted and that the taxpayer is not being asked to pay twice over for the consequences of the Government's change of policy". The change of policy referred to was of course a consequence of the crisis in the industry just over a year ago. The figures concerned are enormous and they are partly to enable the board to match up with and join in resisting the importation of cheaper coal.

The difficulty the industry has to face—and I believe it is the wider context of which the industry needs to be reminded and of which we should remind ourselves—. is that, in the generation of electricity, coal is steadily losing ground to nuclear power. As a matter of fact, once the first two PWRs are commissioned, the nuclear content in the generation of electricity will be about 18 per cent. Should the Severn Barrage come into being, that, on the face of it, would eat into the Coal Board's market by a further 6 per cent. Thus, the Coal Board is up against it in competition with other sources of energy.

Yet the Coal Board need not, or should not, be unduly frightened because, when one compares the capital cost of providing a new kilowatt/hour capacity, one finds that oil works out at more than 7p; that the Severn Barrage, if it is amortised over 25 years, would work out at 6p; but that the Severn Barrage, if amortised over 50 years (which might be more reasonable when the time comes), would come down to 3p. That is roughly the price of new energy capacity from coal; but, when one comes to nuclear, one finds that Sizewell B will be 2p per kilowatt/hour capacity and Hinkley Point 1.5p. Here is a measure of the competition coal has to face.

It is relevant in that context to remind ourselves that Selby will be a tremendous step forward, replacing the old Yorkshire coalfield, producing probably 10 million tonnes a year for a century, at a capital cost of about £1,000 million, which is not high for capacity of that sort. It will bring a wonderful change—namely that the wages content will decline from an average of 48 per cent. elsewhere to only 18 per cent. I join the noble Lord, Lord Strabolgi, in anxieties about the depredations upon common sense that originate under the aegis of the Department of the Environment in regard to Belvoir. If and when Belvoir goes ahead, no doubt that will replace the Leicestershire coalfield on terms similar to Selby. If coal is to keep its position and defy world competition, costs must go on coming down, so the old pits have to go, as the Select Committee stressed.

Although it is true—and we welcome it, and we must honour the miners and, indeed all concerned, for it—that productivity in 1981–82 was of the order of 3 per cent. to 4 per cent. more than in 1980–81, that is still lower than the Plan for Coal target. That was an increase in productivity of 4 per cent. per annum. But what surely is important to bear in mind is not simply that there is, or should be, a good domestic market for coal; there is an enormous overseas market. It is interesting to look at the estimates made by the World Energy Conference a few years ago as to the world reserves of energy. The estimate was that there is enough oil for 25 years, enough gas for 45 years, enough uranium for 70 years, and that there is enough coal in the world for 300 years for all the world's needs.

The World Energy Conference pointed out, furthermore, that if one takes only a 1 per cent. per annum growth in the world industrial societies' economies, and of course a great deal less for the less developed countries, it looks as though the world's need of energy by the year 2020 will be rather more than three times what it is today. Indeed there is every reason to expect the world coal trade in the early part of the next century to be as lively and widespread as is today the world's trade in oil. So coal has it in itself to take up the eventual oil/gas deficiency, although there is a factor of about three to one in thermal efficiency as between coal on conversion to oil or gas and the alternative fuels.

The question is: can the United Kingdom coal industry grasp this opportunity over the next generation? In this House we all know that the lead time on any major energy project is of the order of 10 years. So we are now talking about anything that might happen in the mid 'nineties. Therefore the early years of next century are only about 10 years on from now in terms of lead times, and that surely argues the immense urgency of disentangling the Coal Board's muddled finances. I am not blaming the Coal Board, but I am blaming the tradition that capital account on the one hand and trading account on the other are hopelessly muddled up and confused. So it is quite easy to say here that every miner is subsidised to the extent of £35 a week. That is not a term that I especially like, and I know that the noble Lord, Lord Strabolgi, does not at all like the word "subsidy". But there is an element of subsidy, as there is also an element of investment, and these need to be disentangled.

Far the most encouraging feature of the coal industry now is—and I am sure everyone will agree—the enormous bank of common sense among the men. We have all recently heaved a sigh of relief at the decision of the miners to pursue what I would choose to call a steady course. Much depends on their leadership from now on. I greatly hope that the new president of the National Union of Mineworkers—a man of enormous ability and, may I add, charm as well—will focus on trying to make the best of the industry, rather than, let us say, falling back on attitudes that might amount to confrontation. The greatest asset of the coal industry is the men. I think that the greatest liability is the muddle of the accounts.

4.14 p.m.

Lord Taylor of Gryfe

My Lords, before dealing with the subject of the Bill, I, too, should like to add my word of tribute to the work done by Sir Derek Ezra as chairman of the Coal Board. His quiet efficiency has been impressive, and while joining the noble Lord, Lord Strabolgi, in that tribute, I would not go along with him entirely on the job description for the new chairman of this nationalised industry. I hope that the Government will find a man who can interpret the policies of the Government, live with the Treasury, give leadership to the workforce, and explain to the public the objectives of his business. If the Government get a man who has all those qualities, they will be very fortunate. I have never felt that the fact that Peter Parker never drove an engine made him a better chairman of the Railways Board. So I wish the Government well. The appointment of chairmen of nationalised industries is an extremely difficult task. I often feel that there should be a course at the Civil Service College for potential chairmen of nationalised industries.

I now turn to the Bill. We on these Benches will support it. We are talking about very large sums of money, and when the taxpayer sees a Bill of this description, like any other investor he has to look at the prospectus. Invariably when one looks at a prospectus one looks at three main headings: First, has the industry a future? Secondly, is it efficiently run? Thirdly, should the taxpayer be asked to carry the total burden of the investment, or are there any other sources of finance available to the industry?

I consider that sufficient has been said today in connection with the future of the industry, and I am sure that the noble Lord, Lord Taylor of Mansfield, who is to follow me in the debate, will add his weight and experience to the case for the industry having a future. However, like other noble Lords who have spoken, I believe that the question of coal as a competitive fuel source will require that costs be kept in mind, and of course the hope is that investments like Selby will make that possible.

The second question is: is the industry well run? What is its track record? What has it done in the past few years? In productivity terms it has met its targets. In 1979–80 it increased productivity by 2.24 per cent., in 1980–81 productivity increased by 2.32 per cent., and last year by 3.5 per cent. Absenteeism used to be one of the great plagues of the industry. In 1977 it stood at 17 per cent., in 1980 it was 12 per cent., and last year it was down to 11 per cent. In terms of streamlining the industry and slimming it down, we note that in 1947 there were 704,000 employees, while in 1981 there were 226,000.

I always believe that the other great criterion of good management is labour relations, and here again, although there have been much-publicised confrontations between workers and employers in this industry, I consider that the labour relations have not been too bad, and I am sure that we all rejoiced in the acceptance of the last wage agreement. I should like to say as an aside—and this is perhaps a Social Democratic point—that the avoidance of strikes has been due in some part to the fact that the miners' union is a democratic union, and it observes secret ballots, rather than votes at the local football ground, in deciding where and when a strike might take place. So, in terms of running the industry and meeting its targets, if I were looking at the prospectus of this company I would say that the trends are encouraging.

I should like to say a few words about the running of the industry and the management, since recently Mr. Patrick Jenkin, the Minister in another place, has said that he is going to restructure nationalised industries, recruit more part-time directors to the boards, and then recruit in the Treasury a number of economists who will again monitor the performance of the industries. That is quite apart from the monitoring that goes on in the particular Ministry to which the industry is responsible. So we are going to get a new structure in what is a reasonably well managed industry at the moment.

Yesterday the Sunday Times had an interesting article on this subject in which it pointed out that this Government were always regarded as the non-interventionist Government. In fact, in the running of the nationalised industry and in the Coal Board there is a great deal of Government intervention, which must blunt the edge of good and efficient management. Let me describe the situation according to yesterday's edition of the Sunday Times. It says that there will be, a majority of non-executive directors in the latest establishment fashion. Finally, the Treasury is recruiting a cheap six-man unit of economists and industrial accountants to monitor the board's performance against agreed objectives". Then it goes on to say we should look at what will happen. First, planners and managers make their plans. Then they must convince non-executive directors; the board then submits plans to sponsoring Ministries and the Treasury, which draft alternative briefs for their political chiefs, who eventually decide in a cabinet committee. For simplicity, I ignore the Monopolies Commission and Commons Select Committees…". In fact, the National Coal Board, whose record I have just described, is going to be one of the candidates for the Monopolies and Mergers Commission audit team, who will shortly investigate.

I ask your Lordships this. Suppose you were running a private industry and you had, first of all, naturally and rightly, to convince your board. Presumably the function of a non-executive director of a nationalised industry—at least, this is how I have always understood it—is to monitor managerial performance and measure how far they are meeting the objectives, long-term and short-term. But that is now to be subject to a management audit by the Monopolies and Mergers Commission. It is then to be monitored by the sponsoring Ministry and the Treasury, and then back it goes again to the new team of accountants who will survey the progress. How will you get efficient management in any industry with that degree of intervention?

I counsel the Government, when I say that the taxpayer is being asked to commit himself to very large sums today, to ensure that the structure for spending that money provided by the taxpayer is such that it can be spent wisely, and is streamlined and efficient. I cannot understand the Government, who applaud private industry and say that one of their achievements is that they have slimmed down industry and have been able to streamline industry as a result of their policies. Yet it looks as though in the nationalised sector they are adding a heavy bureaucracy which will certainly blunt the edge of management and, if I may say so, make it extremely difficult to attract the right people to the chairmanship. The chairman is going to spend half his time, not running the industry but attending committees, investigations and inquiries, and that is not good, sound and efficient management.

If we agree that investment is necessary—the noble Earl, Lord Lauderdale, made the point about the hopes for Selby—the average production of tonnes per man-hour in the United Kingdom at the moment is 2.3 tonnes. The 23 pits which were scheduled by the NCB as possible closures were producing only 1.5 tonnes per man-shift. The Selby coalfield will produce 10 tonnes per man-shift. It is estimated that production costs at Selby could be £18.5 per tonne. Last year, the NCB delivered price to the power stations was £40 per tonne, so there is undoubtedly a case for investment of this kind.

Now if we agree that investment is necessary, we should be warned that, even though we are dealing with very large sums in supporting the industry today, just last week Sir Derek Ezra pointed out in the Financial Times that support will require to go on for at least another five years, and confessed that some of the bills for the last financial year's closing had not been paid to machinery suppliers because they had to keep within the EFL, the external finance limits—the rigid limits set by the Government. So we come to the question that if it is true and if it is right that there ought to be investment according to the Bill the funds made available for investment are all, as usual, to be channelled through the National Loans Fund.

I want to ask the Minister an interesting question which occurs to me at the moment, and it is this. Increasingly, according to the Budget, Government funding will be done on an index-linked basis. The NLF is simply the instrument for transmission of money raised in the gilt market to finance the nationalised industries. I am rather interested in what are the long-term borrowing anticipations of the nationalised industries if we are going to raise money in the market on an index-linked basis. You cannot possibly relate these two forms of borrowing, and it is an interesting point.

But I suggest that we ought to be breaking through these rigid EFL and PSBR controls. If you are borrowing entirely through the National Loan Fund, it means that there is a certain rigidity in your borrowing. This may have been all right when you had a comparatively high inflation rate and when, in fact, you had a negative interest rate situation so far as repayment was concerned. But if you are now borrowing on a 15-year basis, and the interest rate is declining, it is a rather different picture. You are not repaying in cheap pounds. So I should like to see the Government look at these large sums and ask, "Is there no other way of financing?"

We on these Benches are committed to a mixed economy, and there are opportunities in the Coal Board financing, as in other areas, for injecting private capital. There is no reason in the world why you should not experiment with the injection of private equity capital into the nationalised industries. It makes much more sense than the doctrinaire commitment to sell off nationalised industries. You should in fact look at the possibility of private investment being fed into the nationalised industries. I was encouraged to see in the Chancellor's statement the other day at least one glimmer of hope in the Telecom bond. Considering the long-term prospects of the Selby coalfield, I wonder whether a Selby bond, which would be on the market and available for private investors, might be an interesting experiment.

A number of people have been looking at this, and on Wednesday, 17th March, the Financial Times, in an article which begins, Mrs. Thatcher's Government is getting itself into a tangle over the nationalised industries", goes on to say: Preoccupied with the need to screw down nationalised industry spending, ministers have given little thought to some of the underlying problems. One of the weaknesses of present arrangements is the fact that for historical reasons most nationalised industries depend almost wholly on loan capital". When you consider the vast assets that are in the balance sheet of the National Coal Board, they should not be based on purely loan capital.

Then the Financial Times goes on to commend the report of the 100 chartered accountants who looked at the financing of state-owned industries. I hope that the Minister can be encouraged to read that interesting document because it points out that the constraints that are placed on the nationalised industries in this country do not exist in any other country in the world. The nationalised sectors in France, Australia or elsewhere do have the same kind of constraints which our nationalised industries have to live with.

I shall not quote the many recommendations which they make, but they say that the financing of nationalised industry should be more flexible, with greater access to the full range of private sector finance, giving a bigger role to management in pursuing the methods of financing best suited to their own widely varying circumstances. This would contribute a corresponding increase in commercial financial disciplines which might be more effective than the whole team of monitoring economists with which we are going to be saddled. It is for these reasons that from these Benches we will support the Bill in the hope that we can encourage the Government to look at this burden which is being placed on the taxpayer in the provisions of this Bill and see whether there is not a mixed economy solution.

4.32 p.m.

Lord Taylor of Mansfield

My Lords, I welcome this Bill because it gives an assurance that the industry will have a future. My reply to my namesake, the noble Lord, Lord Taylor, when he asks me whether the industry has a future, is this: As I see it at this moment, if this industry has no future then neither has the country.

I join with those who are grateful to the noble Earl for explaining the clauses. I wish he had said a little more about social grants, grants for other purposes and the deficit grant. But we will look at his speech tomorrow, when perhaps I shall find I am mistaken in that regard. Summarising the purpose of this Bill, it is quite simple to me: it is raising the limits of the borrowing powers of the National Coal Board to enable it to carry out the statutory requirements, both so far as today is concerned and so far as the future goes. In the other place there was general agreement on both sides of the House in welcoming this Bill. I should like to say that, as I understand it, all who are connected with the mining industry, the Coal Board and the unions, welcome the proposals that are contained in the Bill.

Before I come to them, I should like to make a digression. It has been mentioned. It was also mentioned in the other place. Only a few days before the Second Reading took place there was a very nasty accident in a colliery in Scotland, at a place called Cardowan. The miracle was that there were no fatalities; but many of those miners received very serious injuries. We heard today that nine of them are still in hospital, and unfortunately many of them are suffering from very severe burns. Imagine a man working in a 2½ ft. seam! I have some experience of that. You are not able to stand up, my Lords. So when the flames were travelling down the face the men were not able to stand and run away from the danger. They were there on their knees, and they were trapped.

The reason why I mention this matter is that it would be appropriate—although so far as we are concerned it is a little belated, but this is the first opportunity we have had—to join the other place in extending our sympathy to those who were injured, and at the same time we should join in paying tribute to the rescue parties and to all who expedited the passage of the injured from the pit. Just imagine getting stretchers in a 2½ ft. seam to bring the men out! Praise is due to all who took part in expediting the passage from the pit to the hospital, where the men, as I have said, are continuing to receive treatment.

Now I come to the purpose of the Bill which, as I have said, is to lift the ceiling of the borrowing powers of the NCB. To put that in its proper context, we should understand that coal mining today is not merely a pick and shovel affair, as it used to be. The transport of coal from where it lies, where it has been placed by nature, to the surface is no longer by putting it in tubs which are drawn by ponies. Now the mining industry is a highly technical and mechanical operation; it has completely changed. The advance of technology has brought about changes in the getting, the transporting and the preparation of coal. The preparation is not unimportant because the customer wants as clean a product as he can get. A complete revolution has taken place in these operations. Today, as I see it, the mining industry is a highly capital intensive industry. What we required in terms of liquid capital before the technological revolution to sink a couple of shafts and equip the faces for production was peanuts compared with what is required today.

With your indulgence, my Lords, I shall give one or two examples to prove beyond any doubt whatever the assertion that the coal industry is highly capital intensive. First, my information is that the monetary cost to equip a coal face today—say 300 to 400 yards long—is £1 million. Before the war and since, the same length of face was split into eight or 10 units—or "stalls" as we used to describe them. A figure of £50 a unit would not be an under-estimate. Some of the equipment was purchased by the men themselves. The old coal owners found the flat sheets; they found the sleepers and the rails; but the men themselves provided the other tools that were required: picks, shovels, sylvesters, and so on. They brought that equipment themselves.

Number 2: Think of the new virgin coalfield which has been mentioned already today—Selby. It was referred to by Mr. Eadie in another place as, that jewel of the United Kingdom coal industry". I repeat what has already been said, that by 1988 or 1989 the hope is that it will be producing 10 million tonnes of coal a year. I would ask your Lordships to think what that means before Selby is in full production. It means an investment of £2 million to £3 million per week. In round figures that is £100 million a year. If the time of cutting the first sod to the time of full production is 10 years, as has already been said, that is £1,000 million before any production takes place.

May I give one more example? A month ago I read, and have since had it confirmed by one who was present, that at a conference of NUM branch officials in the Nottinghamshire area, the chairman of the Coal Board, Sir Derek Ezra, said: In Nottinghamshire alone in the last full year the Coal Board have invested £100 million". I do not mind confessing to your Lordships that I thought I had got one or two noughts wrong, because it is a staggering figure that £100 million in one year should be invested in only one area of the whole of the British coalfields. But he also added: "It is proving to be justified". I am pretty certain that what Sir Derek meant by justification was increased production and productivity. Without going into a lot of detailed figures, may I summarise by giving a quote from the latest report of the National Coal Board, from the chairman's statement. He said: The trends in operational efficiency during 1981–82 were most encouraging: (A) an overall OMS record of 2.47 tonnes"— that happened during May 1981— (B) overall productivity for the first quarter of 1981–82 was 4 per cent. above the quarter of the previous year". So the large sums of money that have been invested are now beginning to pay off, on the evidence of the chairman of the Board himself.

This is not the first Bill of its kind, although it may be the last before the general election; but I do not think it will be the last, taking the long-term view. The Bill gives the NCB the opportunity to invest in major projects at existing collieries and in providing new capacity for future energy requirements. Selby is the up-to-date example.

I believe myself that investment is the key to providing a highly efficient coalmining industry, not only in meeting current energy requirements but in securing future requirements. So far as energy requirements are concerned, today is important; but so is tomorrow. Since the agreement of 1974, to which the noble Earl referred, there has been a progressive increase in capital investment in the industry. In 1974 it was as low as £68 million; in 1981 it was £736 million. Coal-mining is an extractive industry, as we are all aware. It is once for all: there is no second helping. I quote from the latest annual report at page 19: Because mining is an extractive industry in which individual collieries become exhausted as the available coal is removed, substantial investment is necessary each year simply to maintain the industry at its existing size. Apart from essential replacement of plant and machinery, the main thrust of the board's investment programme is to provide capacity in new mines and at existing collieries where there are proved reserves of coal which can be worked economically". We have heard a lot today about subsidies. I do not accept much of what was said when I think of the interest payments, which is an indication that the Coal Board have some loans upon which they have to pay interest. Last year, interest payments were £256 million and an operating profit of £69 million was turned into a loss of £186 million. It would be interesting to know what loans have been received since the board took over the industry, the interest that has been paid and the grants, the net amount paid by the board.

In conclusion, there are two matters I should like to mention. The first concerns subsidence. No industry carries such a burden for subsidence as that carried by the coalmining industry. Our local Mansfield paper only last week reported that the Co-operative Society dairy, which was opened in 1950, only 30 years ago—an up-to-date dairy—has to be demolished because of subsidence. The latest amount that the National Coal Board had to pay for last year was £85 million. The interest payments of £256 million and the payment of £85 million, added together, make a pretty heavy burden for the Coal Board to carry. I wonder sometimes whether people south of the Trent—excluding Wales—where there are no coal-mining operations, realise the amount of this burden and what a serious matter it is not only to the Coal Board but to others who are affected. The NCB, rightly, are legally responsible for the repair of damaged property and, on evidence that comes to one, the board had a good reputation for dealing with it. It would be morally indefensible, as was the case at one time, not to repair damaged property or not to replace when damage is so extensive that the place has to be demolished.

The only other question that I want to put—it is becoming an annual one, and I hope that the noble Earl will have something definite to say to us—is about the Vale of Belvoir project. The application of the Coal Board to mine coal in the Vale of Belvoir was made in 1978. The inquiry took place and it cost the National Coal Board £2 million in planning requirements and consultative fees. The inquiry ended in May 1980. The inspector reported in December of the same year, and it is now getting on into 1982, but we still do not know the answer, or why the Minister for the Environment is procrastinating by not coming down, after all this time, and saying, "Belvoir shall" or "shall not be operated as a mining area".

I hope that the noble Earl will have something to tell us on that, because the Coal Board is anxious and the union are anxious—particularly in the areas of Leicestershire and Nottinghamshire, where I come from and where pits are likely soon to be exhausted—about what provision is being made to absorb the men, so that they can continue in the industry which is necessary for the energy requirements of the nation.

4.52 p.m.

The Earl of Mansfield

My Lords, I must first thank noble Lords who have given this Bill a general welcome. The debate has been an interesting one and, of course, it has gone down avenues which are slightly broader than the subject matter of this Bill. For instance, mention has been made by several noble Lords of the recent report of the Select Committee on Energy. As the House will know, the Government have not yet adopted a stance and, as it were, given a reply to the Select Committee, although it is true to say that my right honourable friend felt bound by a letter dated 11th March to write to the chairman pointing out a number of misunderstandings of fact, and that letter was made public.

What I must do is to reply to some of the points which noble Lords have made and answer some of the questions put to me. It may very well be that I shall not get round to all of them, or shall not be able to answer all the questions, but I shall read the Official Report with care and perhaps I may answer later any noble Lord whose question or point is not covered.

The first noble Lord to speak was the noble Lord, Lord Strabolgi, and the first point which he took up, which I should answer, was on the matter of productivity and safety. What I have to say to him is that there is no indication that the introduction of the incentive scheme in 1978 has led to an increase in accidents. The noble Lord pointed out, quite rightly, that fatalities in coalmines in 1981 amounted to 35 persons, and I agree with him that 35 is too many. But I equally must remind him that that figure was at a record low. The individual year's figures fluctuate up and down, but the average rate of fatalities in the four years up to 1977 was over 50 a year, while the average for the four years since 1977, during which the incentive scheme has applied, has been under 47. So I do not agree that the introduction of the scheme has, in any way, adversely affected safety in the pits.

The noble Lord also mentioned Cardowan, as indeed did the noble Lord, Lord Taylor of Mansfield. I am sure I am speaking for the entire House when I say that the conduct of all those who were involved in the rescue operation was absolutely exemplary, and the courage and fortitude of the injured men themselves excited the admiration of everybody in the country—not least in Scotland.

The next matter which the noble Lord, Lord Strabolgi, raised—and it was raised by a number of other noble Lords—was the question of Belvoir. I understand the points which have been made about this by several noble Lords. The fact of the matter, though, is that this is a matter for my right honourable friend the Secretary of State for the Environment. It is his job to consider the inspector's report, which is what he is presently doing, and it is his task to make his decision and to give it and publish it as soon as possible. I hope noble Lords will appreciate that, in those circumstances, it is impossible—and, indeed, it would be quite improper—for me to comment in any way.

The next matter which the noble Lord, Lord Strabolgi, raised was that of liquefaction—

Lord Strabolgi

My Lords, I am sorry to interrupt the noble Earl, but surely the Department of Energy have something to say about Belvoir. Are they being asked?

The Earl of Mansfield

My Lords, when a decision comes—and the noble Lord, who has been either in Government or, at any rate, on the periphery, if I may so describe a Lord in Waiting, knows—

Lord Strabolgi

I am sorry, my Lords, but I must interrupt the noble Earl again. I was not a Lord in Waiting. I had the honour of being Captain of the Yeomen of the Guard and Deputy Chief Whip.

The Earl of Mansfield

My Lords, that is a bit nearer the centre. But at the centre of Government, decisions like this are for the Government and I can say no more. May I get on to liquefaction? This Government have never swerved from their commitments to the board's oil-from-coal project. In May last year, we announced £5 million support towards the cost, construction and commissioning of the pilot facility. A decision to concentrate development on a single process facility based on liquid solvent extraction technology was then made by the board, in the light of the commercial interest, and we fully accept that decision.

We committed funds to extend process design studies, and we agreed to pay 53 per cent. of the cost of the three-month proving run on the small-scale equipment at the Coal Board's coal research establishment. This run was carried out in the period September to December last year to test the performance of the LSE process in conditions comparable to commercial activity. The results of this proving run have been encouraging in showing a satisfactory catalyst life, and further tests will be carried out this spring, with Government support, to assess process changes and also to confirm performance with different coals.

In addition to support from the Department of the European Community, the NCB is holding discussions with the private sector, with a view towards their financial support and participation in the project, and it is no secret that both BP and Phillips Petroleum are interested in the LSE process. BP participated in the proving run last year and made a valuable technical and financial contribution. Both they and Phillips are considering support for this further proving run, which should provide the information which they require before a decision to support construction of the pilot plant can be taken. The board have a free rein in their negotiations to form an industrial consortium to manage the project. This Government believe that the commercial discipline and technical experience of private industry are vital to the success of the project, and we endorse and encourage such participation.

That disposes of most of the points made by the noble Lord, Lord Strabolgi, except that about the chairman of the National Coal Board. I say at once that I join in the general acknowledgment of the House in thanking Sir Derek for all his efforts on behalf of the National Coal Board, and of the community, over a very difficult period of time. We are in the process of finding a successor to Sir Derek and I am afraid that I cannot comment further at this stage. That does dispose of the points made by the noble Lord, Lord Strabolgi. I have been thinking on my feet. If I in any way minimised his contribution to the efforts of the last Labour Government, which in many ways were deplorable, but not so far as he was concerned, then I apologise to him unreservedly.

I pass now to the noble Lord, Lord Tanlaw, who I think was concerned with the social considerations, not least, of this Bill and also with the incomprehensibility, or otherwise, of the National Coal Board accounts. I think he said that he was not an accountant. I certainly am not, although in another life I used to look quite frequently at fraudulent sets of accounts. I have to say to the noble Lord that the form of the National Coal Board accounts is a matter for the board. My right honourable friend the Secretary of State has given a direction to the board which requires that their accounts shall conform, so far as practicable, with the Companies Act 1948, as it has been amended, and the best commercial accounting practices, including statements of standard accounting practice.

The noble Lord then turned, so far as the taxpayer is concerned, to deficit and operating grants and asked in effect, I think, whether they should be considered to be social spending. Deficit and operating grants for the National Coal Board have nothing to do with the entirely separate social grants which take account of the industry's legacy of social problems. They have everything to do with the board's mainstream operation of producing coal.

The noble Lord suggested that we should scrap the required rate of return so far as the National Coal Board are concerned and waive their interest. The National Coal Board must justify to the nation the very large funds—as I think I have already said, over £800 million in the past year—which were made available for capital investment. They must offer a real prospect, on the basis of sound appraisal, of earning a proper return on capital. Similarly, the National Coal Board must service their interest costs like any business—or any citizen. Not to require this would, I feel, be suspending the laws of reality in favour of the board. The Government help the board to meet their interest costs on revenue account by means of the deficit grant on their operations, but we do believe that the true cost must be visible and must not be suppressed.

Lord Tanlaw

My Lords, I wonder whether the noble Earl can clarify one point for me. The accounts appear to show that the net current assets of the National Coal Board are outweighed by far by the net current borrowings. This is not normal commercial practice in a company which is to be considered solvent, and it is not normal commercial practice to use this formula for return on capital employed.

The Earl of Mansfield

My Lords, I take the noble Lord's point. The next matter was the question of long term investment which the noble Lord said is inhibited by a concentration on short term cash limits. This takes us to the financial guidelines which we set. The board are given these as to their external financing limits and their capital approval. The board's capital investment is continuing at a substantial level. I said in my opening remarks that their capital this year had been approved at £805 million and that next year it would be £886 million. However, commitment to the board's future which these figures represent does not minimise the need to set the board some financial guidelines in the form of external financing limits.

The other noble Lord who touched on this matter was the noble Lord, Lord Taylor of Gryfe, particularly on external financing limits. Speaking as an individual, if Ministers are ever allowed to, this is something to which future Governments are going to have to pay the very closest heed. One of the Government's principal roles in relation to the National Coal Board, is the same as for other nationalised industries: to set for the board a clear financial framework within which the industry will have to operate. The main ways in which this is done are the following: setting an external financing limit for each year, a capital investment approval and a limit on the amount of operating and deficit grants which the National Coal Board may receive. The external financing limit is the full measure of the board's demands on the public sector borrowing requirement and is an important tool of management for the board and for the Government. The previous Government recognised this. It was they who introduced EFLs during the economic difficulties which they encountered in 1976 to 1977.

So far as the National Loan Fund is concerned, the Government are the National Coal Board's banker. The board borrow from the National Loan Fund on terms which they certainly could not expect in the private market unless and until they had a full Government guarantee. I was very interested in the noble Lord's suggestion as to the importation of private capital into the National Coal Board's finances. I think the Government are ready to consider practical and realistic ways of introducing private capital into the nationalised industries, but any such capital must be against the background—I think this is common sense—of the particular industry's financial performance and difficulties. The Government's aim, as I think I have said, is to see the establishment of efficient, competitive, financially sound industry, and this of course applies particularly to the coal industry which we are considering today. But this target will require a great deal of dedicated effort by all those in the industry.

This Bill, as I said at the beginning, is an earnest (if that is the word), if any further proof is required, of the Government's commitment to the coal industry and to the National Coal Board. In the circumstances, therefore, I hope that noble Lords will realise the immense benefit of a Bill like this, short term as its aims are, to the industry and, most importantly, to its confidence over the next couple of years or so.

On Question, Bill read a second time, and committed to a Committee of the Whole House.