(c) crown copyright
Catalogue Reference:CAB/129/80
Image Reference:0037
SECRET
C.P.(56)
COPY NO,
87
24th M a r c h ,
1956.
CABINET
COAL, I N V E S T M E N T
M e m o r a n d u m b y t h e M i n i s t e r of F u e l a n d P o w e r
I t o l d m y c o l l e a g u e s e a r l i e r t h i s y e a r ( C M , (56) 8 t h C o n c l u s i o n s ,
M i n u t e 9) t h a t I w a s a w a i t i n g t h e s u b m i s s i o n b y t h e N a t i o n a l C o a l B o a r d
of a r e v i s e d d e v e l o p m e n t p r o g r a m m e f o r t h e i n d u s t r y .
I h a v e now
received the B o a r d s proposals.
f
2.
N e w l e g i s l a t i o n to e x t e n d t h e B o a r d ' s b o r r o w i n g l i m i t w i l l b e
n e c e s s a r y to g i v e e f f e c t t o t h i s p r o g r a m m e ^ a s t h e p r e s e n t b o r r o w i n g
powers will be exhausted by the s u m m e r .
I have a l r e a d y obtained the
a g r e e m e n t o f t h e H o m e A 3 E a i r s C o m m i t t e e t o t h e i n t r o d u c t i o n of a n e w
Borrowing P o w e r s Bill, and it is desirable that the Bill should have its
Second Reading e a r l y in M a y .
3.
T h e p u r p o s e of t h i s p a p e r i s t o a c q u a i n t m y c o l l e a g u e s w i t h
t h e g e n e r a l l i n e s of t h e B o a r d ' s p r o p o s a l s ai.^- £o a s k t h e m t o a g r e e t h a t
t h e B i l l r h o u l d i n c r e a s e iiie B o a r d ' s b o r r o w i n g p o w e r s b y £ 3 5 0 m i l l i o n s .
The B o a r d s Development
Programme
4.
I n v e s t m e n t , n e g l e c t e d i n t h e p a s t , h a s b e e n o n e of t h e m o s t
i m p o r t a n t t a s k s facing the B o a r d since its inception.
It i s e s t i m a t e d
t h a t t h e i n d u s t r y l o s e s a b o u t f o u r m i l l i o n t o n s of c o a l a y e a r a s s e a m
conditions d e t e r i o r a t e , as distances underground lengthen,
and as n u m b e r s
of f a c e s , d i s t r i c t s a n d p i t s r e a c h t h e e n d of t h e i r w o r k i n g l i f e .
Investment
i s t h e r e f o r e n e c e s s a r y f o r t h r e e p u r p o s e s - to m a i n t a i n c a p a c i t y , t o
i n c r e a s e capacity and to m e c h a n i s e .
5,
It i s c l e a r new that the o r i g i n a l " P l a n for C o a l " u n d e r - e s t i m a t e d
the difficulties i n v o l v e d ; both t h e t i m e a n d the m o n e y n e e d e d to sink n e w
pits and c a r r y out m a j o r r e o r g a n i s a t i o n s p r o v e d s u b s t a n t i a l l y g r e a t e r
than had been foreseen.
As a r e s u l t effective investment has fallen
behind that c o n t e m p l a t e d and it is only in the l a s t two or t h r e e y e a r s that
it c a n b e s a i d to h a v e g o t u n d e r w a y .
6
Despite the m i s c a l c u l a t i o n s and the inauspicious beginning the
results, when analysed, are not discouraging.
T h e m a j o r s c h e m e s of
r e c o n s t r u c t i o n so f a r c o m p l e t e d h a v e e a c h led to a v e r y m a r k e d i m p r o v e ­
m e n t in p e r f o r m a n c e .
Unfortunately the c o m p l e t e d r e c o n s t r u c t i o n
s c h e m e s a r e few.
Of t h e £ 1 2 8 m i l l i o n s s p e n t o n m a j o r s c h e m e s s i n c e
1 9 4 7 , s c h e m e s w o r t h o n l y £ 1 1 m i l l i o n s h a d b e e n c o m p l e t e d b y t h e e n d of
1955.
H o w e v e r p e s s i m i s t i c a l l y i n c l i n e d o n e m a y b e a s a r e s u l t of t h e
past, t h e r e i s solid g r o u n d for believing that as m o r e and m o r e s c h e m e s
a r e completed output will i m p r o v e .
0
tU 7.
T h e n e w p r o g r a m m e i s a r e v i s i o n of t h e o r i g i n a l " P l a n f o r C o a l "
a n d is d e s i g n e d to m a i n t a i n a n d expand t h e i n v e s t m e n t b e g u n u n d e r t h e
first.
I t e n v i s a g e s a c a p i t a l e x p e n d i t u r e d u r i n g t h e n e x t t e n y e a r s of
a p p r o x i m a t e l y £ 1 , 0 0 0 m i l l i o n s , of w h i c h £ 6 0 0 m i l l i o n s i s p l a n n e d to b e
s p e n t in the y e a r s 1 9 5 6 / 6 0 ,
In a d d i t i o n £ 1 0 0 m i l l i o n s w i l l b e n e e d e d
for a s u b s t a n t i a l new housing p r o g r a m m e , for d e v e l o p m e n t s in s m o k e l e s s
fuel production and other contingencies.
8.
T h e r e s u l t s i n t e r m s of d e e p - m i n e d o u t p u t e x p e c t e d f r o m
investment a r e as follows:Year
1955
I960
1965
1970
this
Million Tonr
210
218
230
240
I h a v e b e e n a t g r e a t p a i n s to i m p r e s s o n t h e C o a l B o a r d t h e i m p o r t a n c e
of n o t i n d u l g i n g i n c v e r - o p t i m i s m ,
I believe there is a strong disposition
n o w to b e m o r e r e a l i s t i c a n d I t h i n k t h e s e f i g u r e s c a n b e t r e a t e d w i t h
reasonable confidence.
1
9.
A s s u m i n g t h e r e a l i s a t i o n of t h e c o u v e s i o n p l a n t o o i l , a n d t h e
m a i n t e n a n c e of o p e n c a s t p r o d u c t i o n a t l e a s t a t i t s p r e s e n t l e v e l
( 1 2 m i l l i o n t o n s p e r y e a r ; t h e n a c h i e v e m e n t of t h e s e d e e p - m i n e d o u t p u t
f o r e c a s t s s h o u l d enable us to m e e t the i n l a n d d e m a n d f o r c o a l in the
y e a r s i n d i c a t e d , to e h m i n a t e c o a l i m p o r t s and to i n c r e a s e c o a l e x p o r t s
somewhat above their present level.
10.
W e c e r t a i n l y c a n n o t h o p e to o b t a i n o u t p u t s anything like t h e s e
w i t h o u t i n v e s t m e n t on f i e s c a l e i n d i c a t e d .
If i n v e s t m e n t w e r e n o w b r o k e n
off, n o t o n l y w o u l d i t b e i m p o s s i b l e t o s t a r t n e w m a j o r s c h e m e s , b u t
m a n y of t h o s e a l r e a d y i n p r o g r e s s w o u l d h a v e t o b e a b a n d o n e d .
P r o d u c t i v e capacity would fall by as m u c h as 40 million tons in ten y e a r s .
M u c h of t h e i n v e s t m e n t of t h e p a s t s i x y e a r s w o u l d b e w a s t e d b e f o r e i t
h a d a c h a n c e to c o m e t o f r u i t i o n .
When new capacity h a s been provided,
t h e e f f e c t i v e u s e of i t m u s t d e p e n d o n m a n a g e m e n t a n d m e n .
But
c a p a c i t y is t h e f i r s t r e q u i s i t e ; a n d in o u r p r e s e n t c i r c u m s t a n c e s w e
have no a l t e r n a t i v e but to m a k e its provision p o s s i b l e .
The Government
m u s t , of c o u r s e , r e s e r v e t h e r i g h t to r e v i e w t h e d e v e l o p m e n t p r o g r a m m e
f r o m t i m e t o t i m e i n t h e l i g h t of c i r c u m s t a n c e s .
Financing the
Programme
11.
D u r i n g t h e p e r i o d 1 9 5 6 - 6 0 the B o a r d e x p e c t to c o n t r i b u t e
£300 millions from internal r e s o u r c e s towards capital expenditure
which m a y r e a c h £700 m i l l i o n s .
They therefore estimate that borrowings
of u p t o £ 4 0 0 m i l l i o n s w i l l b e r e q u i r e d i n t h a t p e r i o d .
But they further
e s t i m a t e t h a t a f t e r I 9 6 0 c a p i t a l e x p e n d i t u r e w i l l b e fully c o v e r e d by
depreciation provision from internal r e s o u r c e s .
Thus b o r r o w i n g s of
o n l y £ 4 0 0 m i l l i o n s w o u l d suffice to c o v e r t h e w h o l e p e r i o d f r o m now
till 1970.
12.
I h a v e c o n s i d e r e d w h e t h e r the B o a r d ought to m a k e a l a r g e r
contribution f r o m i n t e r n a l r e s o u r c e s during the next five y e a r s and I h a v e
f o r m e d the opinion that it would be r e a s o n a b l e to e x p e c t t h e m at l e a s t
to o v e r t a k e t h e i r e x i s t i n g deficit (about £ 4 0 m i l l i o n s ) , and c r e a t e a s m a l l
w o r k i n g b a l a n c e (say £ 1 0 m i l l i o n s ) and thus provide a f u r t h e r £50 millions,
T h i s w o u l d r e d u c e the n e t b o r r o w i n g r e q u i r e m e n t s to £ 3 5 0 m i l l i o n s .
A n e x t r a c o n t r i b u t i o n t o c a p i t a l of t h i s k i n d c a n , h o w e v e r , o n l y b e f o u n d
o u t of i n c r e a s e s i n t h e p r i c e of c o a l , a n d if m y c o l l e a g u e s a g r e e t h a t i t
i s d e s i r a b l e I w o u l d p r o p o s e to t a k e a f i r s t s t e p i n t h i s d i r e c t i o n i n t h e
c o a l p r i c e i n c r e a s e which will in any c a s e be n e c e s s a r y l a t e r this y e a r .
13.
F u r t h e r , t h e r e a r e good grounds for supporting the view
( e x p r e s s e d by the H e r b e r t C o m m i t t e e in r e l a t i o n to e l e c t r i c i t y ) that
n a t i o n a l i s e d i n d u s t r i e s ought to m a k e m o r e g e n e r o u s d e p r e c i a t i o n
provision than they now do.
Should the G o v e r n m e n t in due c o u r s e
d e c i d e to u r g e s u c h a p o l i c y on the n a t i o n a l i s e d i n d u s t r i e s g e n e r a l l y
and to s u p p o r t t h e m in the n e c e s s a r y p r i c e i n c r e a s e s , I do n o t t h i n k
t h e r e w o u l d b e a n y g r e a t difficulty in a p p l y i n g it to t h e c o a l i n d u s t r y .
In t h e m e a n t i m e , m y p r o p o s a l t o i n c r e a s e t h e B o a r d ' s b o r r o w i n g
p o w e r s by £350 millions is in no w a y inconsistent with the subsequent
a d o p t i o n of a p o l i c y of i n c r e a s e d d e p r e c i a t i o n p r o v i s i o n - t h e e f f e c t
would s i m p l y be that the G o v e r n m e n t would not r e e d to m a k e available
t o t h e B o a r d t h e w h o l e of t h e £ 3 50 m i l l i o n s w h i c h i t w o u l d b e e m p o w e r e d
to p r o v i d e u n d e r t h e B i l l .
A g a i n , of c o u r s e , t h e a d d i t i o n a l f u n d s w o u l d
r e q u i r e i n c r e a s e s i n t h e p r i c e of c o a l .
Conclusion
14.
I i n v i t e m y c o l l e a g u e s to a g r e e t h a t t h e B o r r o w i n g P o w e r s
B i l l s h o u l d i n c r e a s e b y £ 3 50 m i l l i o n s t h e u p p e r l i m i t of t h e a d v a n c e s
w h i c h , w i t h t h e a p p r o v a l of t h e T r e a s u r y , I m a y m a k e t o t h e B o a r d
towards financing their revised development p r o g r a m m e .
An
M i n i s t r y of F u e l a n d P o w e r ,
23rd March,
1956.
S.W.I.,
u .