sfeCREI
t-US D O C U M E N T 1 3 T H E P R O P E R T Y
OF HER BRITANNIC MAJE3TY'S
C . ( 6 5 ) 87
29th J u n e ,
GOVERNMENT)
COPY NO.
5
9
1965
CABINET
FINANCIAL. POSITION O F THE COAL
INDUSTRY
M e m o r a n d u m b y t h e F i r s t s e c r e t a r y of G t a t e
S e c r e t a r y of S t a t e f o r E c c a o m i c
and
Affairs
T h e E c o n o m i c D e v e l o p m e n t C o m m i t t e e a t i t s m e e t i n g on
2 8 t h J u n e , 1 9 6 5 d i s c u s s e d p r o p o s a l s b y t h e M i n i s t e r of P o w e r f o r
i m p r o v i n g t h e f i n a n c i a l p o s i t i o n of t h e G o a l B o a r d ; a n d i n p a r t i c u l a r
p r o p o s a l s for a capital r e o r g a n i s a t i o n .
It w a s g e n e r a l l y a g r e e d t h a t
a c t i o n w a s n e e d e d ; a n d t h a t i n v i e w of t h e a t m o s p h e r e i n t h e c o a l
i n d u s t r y i t w o u l d b e d e s i r a b l e f o r a n a n n o u n c e m e n t t o b e m a d e of
G o v e r n m e n t a c t i o n b e f o r e t h e C o n f e r e n c e of t h e N a t i o n a l U n i o n of
M i n e w o r k e r s (N. U . M . ) on 6th J u l y .
There was however come
d i f f e r e n c e s of v i e w a b o u t t h e d e t a i l s of t h e a c t i o n t o b e t a k e n .
In
v i e w of t h i s a n d of t h e i m p o r t a n c e of t h e s u b j e c t I w a s a s k e d t o r e p o r t
on the p r o b l e m to Cabinet.
The coal industry's
difficulties
2.
Over the last few y e a r s the m a r k e t for coal h a s contracted f r o m
220 m i l l i o n to about 190 nmllion t o n s a y e a r and t h e r e i s no doubt it is
going to fail further.
If i t g o e s d o w n t o ( s a y ) 1 7 5 m i l l i o n t o n s i n 1 9 7 0 ,
about 240 pits will have to be closed.
T h i s will involve a r u n d o w n in
t h e l a b o u r f o r c e of a b o u t 2 8 , 0 0 0 a y e a r , n e a r l y a s f a s t a s i n r e c e n t
years.
There h a s been no general price i n c r e a s e for three y e a r s and
the National Coal B o a r d a r e now o p e r a t i n g at a l o s s : t h e i r budget for
1 9 6 5 - 6 6 i s n o w s h o w i n g a p r o b a b l e d e f i c i t i n t h e r e g i o n of £ 5 0 m i l l i o n .
It i s t h e r e f o r e e s s e n t i a l t o g e t t h e c o a l i n d u s t r y ' s f i n a n c i a l p o s i t i o n on
a satisfactory long-term basis.
The need for a capital
3.
reorganisation
The Coal B o a r d have liabilities to the E x c h e q u e r
of
some
£900 million on which they a r e e x p e c t e d to p a y i n t e r e s t c h a r g e s
£40 million a
4.
of
over
year.
Of t h i s a b o u t
£90 million r e p r e s e n t s accumulated losses
m a i n l y a s a r e s u l t of d e c i s i o n s i n p a s t y e a r s n o t t o p u t u p p r i c e s
much as was necessary to cover
£150 million or so represents
costs.
Of t h e r e m a i n i n g
£800
arising
as
million
colliery and coke oven a s s e t s which
t o d a y of l i t t l e o r n o e c o n o m i c v a l u e ( i . e . w h i c h a r e a c t u a l l y
cash l o s s e s or a r e expected to do so v e r y soon).
£150 million represents assets which are
further
of v e r y d o u b t f u l v a l u e
a r e expected to b e c o m e v a l u e l e s s in the next few
-1­
A
are
making
years.
and
5.
The plain fact is that after the w a r the Coal Board
encouraged to invest large
sums
in o r d e r t o e x p a n d output
220 million tons a year or m o r e .
t h e m with excess
to
T h e decline in the m a r k e t h a s
capacity and with m a n y high cost pits which
thought to be needed to get the tonnages
Proposals for
was
capital
left
were
required.
reorganisation
6.
E v e r y b o d y is a g r e e d that the coal industry cannot be expected
a n y longer to m e e t the capital c h a r g e s on the p r e s e n t capital s t r u c t u r e .
7,
The Economic Development Committee agreed unanimously
t h a t t h e £ 9 0 o d d m i l l i o n of a c c u m u l a t e d d e f i c i t s a n d t h e £ 1 5 0 o d d
million representing assets which are already worthless (say
£ 2 5 0 m i l l i o n i n t o t a l ) o u g h t t o b e w r i t t e n off i m m e d i a t e l y , a t a c o s t
t o t h e E x c h e q u e r of a b o u t £ 2 5 m i l l i o n a y e a r .
8.
T h e g e n e r a l v i e w of t h e C o m m i t t e e ( t h e T r e a s u r y r e s e r v i n g
their position) w a s that a further £150 million, representing a s s e t s
w h i c h e v e r y o n e r e c o g n i s e s w i l l i n a f e w y e a r s b e of l i t t l e o r n o v a l u e ,
s h o u l d a l s o b e w r i t t e n off i m m e d i a t e l y , a t a c o s t t o t h e E x c h e q u e r o f
about another £15 million a y e a r .
9.
T h e C o a l B o a r d w o u l d b e c o n t e n t t o w r i t e off t h e
£150
million
not i m m e d i a t e l y but over the next few y e a r s provided they w e r e
of i n t e r e s t c h a r g e s o n t h e
to the Exchequer
o f i.7j
relieve
£ 1 5 0 m i l l i o n at once (at a n i m m e d i a t e
million).
T h e C o m m i t t e e felt that to
cost
relieve
t h e C o a l B o a r d of i n t e r e s t c h a r g e s o n s o m e of t h e i r c a p i t a l w o u l d
an unfortunate precedent.
S i n c e it s e e m s i n e v i t a b l e t h a t
f u r t h e r w r i t i n g off w i l l h a v e t o b e m a d e
over the next few
be
the
years,
t h e r e w o u l d b e a l o t t o b e s a i d f o r w r i t i n g t h e f u l l a m o u n t off
at
once and getting the m a x i m u m i m m e d i a t e effect
with
on r e l a t i o n s
the N . U. M.
10.
The T r e a s u r y , on the other hand, a r e
a d d i t i o n a l c o s t t o t h e E x c h e q u e r of w r i t i n g off
£150 m i l l i o n i m m e d i a t e l y .
If, h o w e v e r , i t i s
m o r e s h o u l d b e d o n e t h e y p r e f e r w r i t i n g off t o
payments.
Effect
11.
on
concerned about the
the additional
agreed that something
waiving the interest
prices
T h e M i n i s t e r of P o w e r t o l d t h e E c o n o m i c
C o m m i t t e e t h a t e v e n if t h e w h o l e
£4-00 m i l l i o n w e r e w r i t t e n
i m m e d i a t e l y it w o u l d s t i l l b e n e c e s s a r y f o r t h e
some price increases this autumn.
would obviously be less.
be needed f r o m time to
Subsidies and
Development
Thereafter
off
Coal Board to
B u t t h e s i z e of t h e
make
increases
smaller price increases
would
time.
closures
12.
The Economic Development Committee also discussed the
p o s s i b i l i t y of g i v i n g s o m e s p e c i f i c s u b s i d y t o t h e C o a l B o a r d f o r
a l i m i t e d p e r i o d on the condition that the B o a r d and the N. U. M.
c o m m i t t e d t h e m s e l v e s t o a d e f i n i t e p r o g r a m m e of s p e e d i n g u p t h e
necessary closures.
T h e s u b s i d y m i g h t s t a r t at £10-15 m i l l i o n and
t a p e r off t o n o t h i n g b y 1 9 7 0 .
T h e C o m m i t t e e w a s divided on the
m e r i t s of t h i s a p p i * o a c h .
- 2­
3EGRET
9 £
13.
( a )
T h e a r g u m e n t s in f a v o u r a r e a s follows
ti
­
It i s g o i n g t o b e h a r d t o g e t t h e B o a r d a n d ( p a r t i c u l a r l y )
the
N a t i o n a l U n i o n of M i n e w o r k e r s t o p r e s s a h e a d a s f a . s t a s i s
n e c e s s a r y with the closure p r o g r a m m e .
Some additional
incentive is needed to get t h e m c o m m i t t e d .
( b )
The subsidy could be p r e s e n t e d as a contribution to the
costs
of p h a s i n g t h e c l o s u r e p r o g r a m m e o n s o c i a l g r o u n d s a s
against i m m e d i a t e closure, which would be the reaction
of p r i v a t e l y o w n e d i n d u s t r y t o u n e c o n o m i c p i t s .
( c )
1 4 .
( a )
Such a subsidy would still further
immediate price increases. The arguments against such a scheme were
subsidies
would indeed tend to encourage the m i n e w o r k e r s
for keeping uneconomic pits open.
If t h i s
it would i n c r e a s e the C o a l B o a r d l o s s e s , and
p r e s s u r e on the G o v e r n m e n t to continue and
subsidies.
The Coal Board a r e
strongly opposed to subsidies;
would be content with the capital reorganisation
( c )
for ­
It w o u l d b e difficult in p r a c t i c e to r u n d o w n t h e
and they
to p r e s s
happened
intensify
increase
( b )
reduce the need
Losses themselves
a r e a powerful incentive to
and
scheme.
closures
which a r e delayed not on social g r o u n d s but b e c a u s e
B o a r d h a s to c o n s i d e r the effect on r e l a t i o n s with
the
its
w o r k e r s.
15.
T h e m a j o r i t y of t h e C o m m i t t e e t h o u g h t n o n e t h e l e s s t h a t
woiild b e w o r t h w h i l e e x p l o r i n g with the Coal B o a r d the
it
possibility
of a s c h e m e d e s i g n e d t o c o m m i t t h e B o a r d a n d t h e N a t i o n a l U n i o n of
M i n e w o r k e r s to an accelerated
closure
programme.
Summary
16.
( l )
I ask my colleagues
­
T o a g r e e t h a t a c a p i t a l r e o r g a n i s a t i o n of t h e C o a l
should be undertaken.
Board
(The n e c e s s a r y legislation
could
be included in a Bill which will in any case be needed
relation to the B o a r d ' s borrowing
( 2 )
(3)
powers.)
T o a g r e e t h a t t h e a m o u n t t o b e v / r i t t e n off s h o u l d b e
million
in
£400
immediately.
To authorise exploration with
the Coal Board and
the
N . U . M . of a s c h e m e u n d e r w h i c h t a p e r i n g s u b s i d i e s w o u l d
b e g i v e n r e l a t e d t o t h e l o s s e s of u n e c o n o m i c p i t s a n d t i e d
t o a d e f i n i t e s c h e m e f o r s p e e d i n g u p c l o s u r e s of t h e s e p i t s .
(4)
To agree that we
should seek to keep to the m i n i m u m
i n c r e a s e in coal p r i c e s this
autumn.
G. B.
D e p a r t m e n t of E c o n o m i c A f f a i r s ,
29th June,
1965
3 . 7/. 1 .
the
6