§ The Secretary of State for Energy (Mr. David Howell)
With permission, Mr. Speaker, I should like to make a statement about the National Coal Board's finances. As I have previously undertaken, I wish to keep the House fully informed of what is happening in the coal industry.
The board's requirement for external finance in the financial year 1980–81 was £884 million—£52 million more than the limit of £832 million announced in response to my hon. Friend the Member for Nelson and Colne (Mr. Lee) on 12 December. The board's announced external financing limit for 1981–82 of £886 million will be raised to £1,117 million. The funds will be found from the contingency reserve within the planned totals of public expenditure.
I shall be bringing forward legislation in future to increase the existing statutory limit on the board's borrowing and to allow continuing grant support for its operations and revenues. Meanwhile, I shall continue to make advances to the board out of the national loans fund.
Subject to the approval of Parliament, I propose to increase the amount of grants made available to the board in this financial year within the revised external financing limit. I will bring before Parliament shortly an order under the Coal Industry Act 1980 to increase the limit under section 4 of that Act of grants payable to the board from £525 million to £590 million. Subject to parliamentary approval of the necessary Supplementary Estimate, the cash limit of Class IV, Vote 5 will be increased by £70 million. I will also bring before Parliament, under the same Act, an order to increase the board's borrowing limit from £3,400 million to £4,200 million.
When I saw the board and mining unions this morning in a tripartite discussion I reviewed progress over the past four months and outlined my intentions. It was agreed that this would provide a satisfactory basis for further progress.
§ Mr. Merlyn Rees (Leeds, South)
I should like to ask about the figures announced by the Government, which mark a great change of attitude since the Minister's first approach to the matter in early February.
Is the Minister aware that the policy that is now being followed—whatever the argument about amounts—is a victory for common sense over a too-logical Treasury view about the public sector borrowing requirement? When one considers the activities of the National Coal Board one realises that there is no doubt that the private sector will benefit greatly from the expenditure by the National Coal Board.
Will the Minster assure the House that the package will enable the "Plan for Coal", which has been so well supported by the miners and the National Coal Board, to proceed unconstrained by financial limitation? [Interruption.] The "Plan for Coal" has been supported by increased productivity, and I have never known a Government yet who dig coal. What output do they project by 1985? The cash limit has been increased by £231 million. Is the Minister aware that, given the economic situation, it is our view that the figure is too low? It can be only a first step towards ensuring the future success of the "Plan for Coal".
Are the Government and the NCB in agreement on how much the cash limits were breached last year? The figure given is £52 million. What is the relevance of an increase 868 from £3,400 million to £4,200 million in the borrowing limit—that is a large amount—to the actual figure of a £231 million increase in the EFL for this yeas? An important aspect is the grant support, because it is basically what the argument was about a few months ago. We shall have a chance to return to that matter when we consider the legislation.
The way in which the figures are cast is not clear. That may arise out of their nature. They seem to add up to a £135 million increase, yet all the talk since the meetings this morning has been of an increase of £300 million. The two figures do not match. What is the total extra amount that will go to the National Coal Board?
Three months ago, the arguments were about National Coal Board expenditure for reducing imports, and expenditure to allow pit closures to go back to their normal fashion, through the usual consultative procedure, and also to deal with coal stocks. Will the extra money that the Government have provided enable the commitment made in February to be carried out?
One matter has been brought to my notice only this afternoon. Will the increase enable the expansion of new coal output in the Vale of Belvoir to continue? Overall, with regard to grants, does the Minister agree with me that the figures leave no room for margins or contingencies? Will he assure the House that in future the Government will reassess the situation in the coal industry on the basis of his approach today and not on the basis of his approach in February?
§ Mr. Howell
The right hon. Gentleman asked a considerable number of questions. I shall try to answer them all, but if I omit one I hope that he will understand.
The increase in the board's external financing limit is £231 million. That is the measure of the impact on the Exchequer. Within the total, the amount available for grant has been increased by £300 million. That includes social grant. It provides room for honouring the pledges that I gave to the House and to the industry in February and for the industry to proceed in a way consistent with the "Plan for Coal" and with a healthy level of investment.
The right hon. Gentleman said that he thought that the figure was too low. That view was not expressed by the unions and the board when I met them this morning. They recognised that this package provides a tight and challenging financial regime, but it is one in which the industry's future healthy progress can be maintained. It is in the interests of the nation as a whole that there should be a healthy and competitive coal industry. The basis on which the "Plan for Coal" was cast was that there should be high investment in modern competitive capacity and that, as in any extractive industry, uncompetitive and old capacity should be closed. That is how an industry such as this one lives and progresses.
The right hon. Gentleman asked me about the Belvoir inquiry. The inspectors' report is with my right hon. Friend the Secretary of State for the Environment. That is a major issue of considerable importance and complexity, and I believe that it is right that the Government should have sufficient time to consider it. That is the current position.
The right hon. Gentleman also asked me about last year's EFL. The Government and the board are in agreement that that overran. The overrun is the cash figure 869 that I stated today. Part of the overrun arises from the fact that the board has not received a VAT refund. I hope that that answers all the right hon. Gentleman's questions.
§ Mr. Speaker
I propose to allow questions on the statement to run until 4.20 pm, which should allow all those hon. Members who wish to speak to do so, provided that questions are brief.
§ Mr. Patrick McNair-Wilson (New Forest)
I welcome this support for the coal industry, which is one of Britain's most vital industries, but does my right hon. Friend agree that it is essential to improve coal sales and that the weakening of the oil price will inevitably have an effect? Will he therefore have urgent discussions with the Chancellor of the Exchequer about the possibility of extending the scheme announced in the Budget to provide inducements for those who switch from oil to coal to include those who switch from gas to coal?
§ Mr. Howell
My hon. Friend is absolutely correct about coal sales. It is vital to increase coal sales, to reduce costs, and to increase efficiency. It is in that context that the financial arrangements make sense and will provide a realistic objective for the industry. My hon. Friend should know that this year it is planned to double the exports of British coal. Markets are opening up for British coal right across Europe, from Finland to Romania, opening up a path for the future for competitive coal sales that will greatly benefit a competitive coal industry.
As to increasing the demand for coal by improving facilities in industry, there is the boiler conversion scheme announced by my right hon. and learned Friend the Chancellor, which is the responsibility of my right hon. Friend the Secretary of State for Industry. I understand that the rules for that have now been set out and that there is considerable interest in it. Already 800 inquiries have been received about how to make use of it. I think that that is a good start and that we should leave the matter there for the moment.
§ Mr. John Morris (Aberavon)
What are the current prospects for development of the Margam coalfield in South Wales? Are the limits sufficiently large to allow a commencement to be made on that? Is the Minister aware of the importance of this development for industrial relations throughout the industry in South Wales, in that it would help any change in the industry, provide hundreds of jobs, and greatly boost an area that is so scarred by Government policies?
§ Mr. Howell
I am aware of the importance of that development. The question of individual pits, however, is a matter for the National Coal Board. The right hon. and learned Member should therefore address his question to the board.
§ Mr. John Hannam (Exeter)
In view of the sharp rundown in demand for coal, which began last autumn, how much of the £231 million increase in EFL is accounted for by increased aid towards the cost of the increased stocking of coal that is taking place?
§ Mr. Howell
I cannot give my hon. Friend a precise breakdown of the figures. He is right in saying that the serious problems created by the collapse of demand for coal last autumn provided the background against which it has been necessary to review the financial arrangements. 870 It is that, combined with the Government's intention to honour the commitments that I gave to the industry in February, which provides the basis for the figures today.
§ Mr. Dennis Skinner (Bolsover)
Is the Minister aware that against a background of recession, massive unemployment, and the rundown of factories that hitherto may have burnt coal, the £231 million is little more than cosmetic and will do little to resolve the problems of the industry, given the 40 million tonnes of coal now in stock? Does he appreciate that if the coal industry is to become leaner and fitter, to use the words so often used by the Prime Minister, we must ensure that coal is bought in far greater quantities than it is at present?
How will this measure reduce the amount of imports? How will it increase exports, which are slightly on the upswing at present? What attempts will be made to run down the amount of opencast coal extraction, which is 2 million tonnes more than in the previous year?
§ Mr. Speaker
Order. The hon. Gentleman knows that there is a time limit. He must be fair to other hon. Members.
§ Mr. Skinner
Is the Minister aware that the Secretary of State for the Environment has sat on the Vale of Belvoir inquiry report since last November, which is longer than the inquiry took?
§ Mr. Howell
Unlike the hon. Gentleman, I think that the mining industry understands, first, that a doubling of coal exports can scarcely be described as a slight upswing. Secondly, I am amazed that he should dismiss as cosmetic these very substantial figures, providing a major tranche of investment in modern capacity and in pits producing profitable coal. That is an insult to the industry and to the commitment to the industry of many thousands of people in it. As to the major investment for the future, this means not only substantial orders for mining equipment but prospects for providing coal at competitive prices on home and overseas markets on an increasing scale. That is the kind of future to which the industry has given its support. The hon. Gentleman should have the courtesy to do the same.
§ Mr. Nigel Forman (Carshalton)
I welcome the Government's financial commitment to the future of this vital industry. Can my right hon. Friend tell the House or provide figures later showing what exactly have been the increases in productivity that have helped to make this possible? Secondly, does he still have a commitment from both sides of the industry this morning that the uneconomic pits will be run down at an appropriate rate?
§ Mr. Howell
The productivity increase is now running at 3 per cent. per year. It was agreed in February that the accelerated closure programme in relation to uneconomic pits should be withdrawn, but good progress is being made in relation to closures on the basis of the established consultative machinery. This is a necessary part of an industry that is investing massively in new capacity. The other side of the coin must be, as it was from the start in the"Plan for Coal", that there should be closures to enable competitive coal to be produced and new jobs to be provided for people in the industry.
§ Mr. A. J. Beith (Berwick-upon-Tweed)
Does the Minister agree that investment in the industry needs to be matched by reinvestment by the Central Electricity 871 Generating Board in coal-fired generation instead of the constant search for green field sites for nuclear power stations?
§ Mr. Howell
We already have one of the highest coal burns for electricity generation in the world. There is no doubt that if coal prices are competitive industry will take the opportunities provided by the latest Government grant scheme and invest in coal-burning equipment to replace higher-priced oil-burning equipment. The price incentive is there, but those using coal will need reassurance that there will he regular supplies of coal for them to convert and use for raising steam in industry.
§ Mr. T. H. H. Skeet (Bedford)
Is my hon. Friend aware that the trilogy of the National Coal Board, the British Steel Corporation and BL are costing the taxpayer £2.4 billion every year? That is roughly equivalent to the total sum spent on primary education or the total yield of petroleum revenue tax last year. When shall we stop having one system of economics for the coal miners and an entirely different one for the rest of the country?
§ Mr. Howell
My hon. Friend's summation of the trilogy of those three industries brings home clearly the vital need to ensure the health and finances of our nationalised industries so that the burden on the taxpayer and on public finances is minimised. My hon. Friend is absolutely correct. The coal industry, however, is a major potentially profitable energy industry for the future, provided that we can produce competitive coal and invest not in madcap schemes but in profitable, high-pay-back coal mining developments. If that investment is maintained, there is the prospect of a vital key industry for wealth creation in the future.
§ Mr. George Foulkes (South Ayreshire)
Does the Secretary of State agree that even more effective use could be made of our coal resources by developing the processes of gasification and producing petrol from coal? What steps is he taking to speed up work on those two processes, particularly in Scotland?
§ Mr. Howell
My hon. Friend the Under-Secretary of State for Energy announced the other day the support that the Government will give towards the liquefaction process development at Point of Ayr. I hope that the NCB will be succesful in obtaining the support of private enterprise and other parts of industry in a development of that kind.
Research on gasification is very well advanced in this country, but at present the economics still lie over the horizon of reality. It is estimated that the cost of synthetic natural gas would be considerably higher than any currently available or projected prices for fuels or gas. The time will come, however, when those economics may change. By that time we shall have done the necessary advanced research and have the technology well under control.
§ Mr. Tom Ellis (Wrexham)
What does the Secretary of State estimate will be the effect upon the NCB's borrowing requirement of the biggest commodity surplus in the Community—the British coal mountain—not only in terms of the cost of stockpiling, allowance for degradation, and so on, but in terms of loss of revenue to the NCB? Dees he agree that this amounts to virtually the whole of the external financing requirement for the 12-month period, but that it is nevertheless better to 872 proceed along the lines that he has suggested than to adopt the pre-war practice of putting the pits on a one- or two-day working week?
§ Mr. Howell
I cannot give the hon. Member a precise breakdown of the cost of stocks or the difference between the cost of stocks at the pithead and the cost of stocks at power stations, but I reaffirm what I said at the beginning, namely, that the additional cost to the Exchequer and the taxpayer of the EFL that I have announced today is £231 million.
§ Mr. Tim Eggar (Enfield, North)
Is my right hon. Friend aware that his statement will be widely welcomed, especially in regard to his success in getting the agreement of both the NCB and the NUM? What assurances can he give us that the additional taxpayers' funds being given will go into profitable investment in new modern pits rather than into increasing wage levels?
§ Mr. Howell
It is absolutely central to the interests of the future of the industry that investment should continue at a high level, and that operating costs are organised with the maximum efficiency. If that is achieved, we shall have competitive coal. It will not only dominate the British market but go overseas, and produce new jobs and high profits for the British economy. It rests with the industry to maintain an efficient system to ensure that high investment is maintained, costs are reduced, and efficiency raised at every point.
§ Mr. Ioan Evans (Aberdare)
Will the Secretary of State agree that our coal reserves are one of our greatest economic assets and that his statement justifies the action taken by the NUM, and by the South Wales miners in particular, in making him have second thoughts on the cash limits? Will he now look at some of the projects that were put forward by the National Coal Board on the occasion of the previous cash limits, and consider again such things as the Phurnacite project at Aberdare for producing smokeless fuel?
§ Mr. Howell
My statement reflects the needs of the coal industry and the appropriate financial arrangements against the background of a collapse in demand that the industry faced, together with many other industries, last autumn and during the recession last year. It also reflects the need to honour the commitments that the Government made in February. In the light of that, the prospects for the industry, providing it reduces costs, are good in the longer term. But in the immediate future there is bound to be some continuing slack in the market and continuing difficulties. These problems will not be solved overnight.
§ Mr. Hal Miller (Bromsgrove and Redditch)
Can my right hon. Friend tell the House whether any of this additional money is to assist coal in competing with imports? If that is the case, will he look again at the possibility of using some of that additional money for helping the foundry coke industry, where there is grave difficulties at present?
§ Mr. Howell
I have already told the House that the Government are looking very seriously at the price of foundry coke and the difficulties there. I have already explained that to one of my hon. Friends.
There is no administrative ban or control on coal imports, but the commitment was made that the National Coal Board would have the funds to back out imports to 873 some of its major customers, such as the CEGB and the BSC, and move towards an irreducible minimum. Progress in that direction has been made.
§ Mr. Michael Welsh (Don Valley)
Is the Minister aware that the NCB and the NUM will be thankful for this moderate increase in borrowing power and grant? If, in the two years to 1982, the increase is to rise to £4,200 million, it is worth noting that that is the figure in section 1 of the Coal Industry Act 1980. Is the figure to be above that level? If so, does it mean that the action of the NUM has knocked the Coal Industry Act for six?
§ Mr. Howell
In my opening statement I explained what changes would be made under the existing coal industry legislation, but I also made it clear that there would be new coal industry legislation in the future. Indeed, when the Coal Industry Bill was going through the House it was always envisaged that there would be a need for further legislation in due course and the events of last autumn, particularly the collapse of the coal market, have accelerated the timing.
§ Mr. Kenneth Lewis (Rutland and Stamford)
Does my right hon. Friend agree that by any standards this is an increase of the commitment of the taxpayer to the coal industry? When he was having discussions with the unions and with the NCB, did he seek an assurance that the money would not be used to increase wages, and that there would be no question of a further increase in the year up to 1982 in order to meet an extravagant wage claim?
§ Mr. Howell
The principles to which my hon. Friend refers are those that must apply to all industries, and particularly to nationalised industries, where it is vital that maximum efficiency and maximum achievement in labour unit costs are obtained. It is the Government's declared aim and determination, through the operation of the external financing limits and their tight application, to see that costs are reduced and that efficiency is increased. At the heart of that lies the need to limit the growth of labour costs. If we do not do that we shall destroy jobs, destroy competition and destroy the prospects of our working people.
§ Mr. Dick Douglas (Dunfermline)
Will the Secretary of State concede that what he has done clearly indicates that one cannot operate an extractive industry of the nature of the coal industry within the rigidity of external financial limits? He has given us a battery of figures of a financial mix. Will he set them against the output, sale and employment targets envisaged for the industry in the period under discussion?
§ Mr. Howell
I accept that a deep recession makes major difficulties for any industry, particularly the gigantic nationalised industries of the size and complexity of our coal industry. That is the reality. But that does not mean that it is not equally necessary to ensure that there are strict and closely observed external financing limits, because they provide the discipline for reducing costs and increasing efficiency that is necessary in these industries and is not always provided by the market as it should be.
§ Sir Anthony Meyer (Flint, West)
Now that the Government have made clear their commitment to the project for extracting oil from coal at Point of Ayr, will 874 my right hon. Friend confirm that it is up to the NCB to reduce its commitment in order to raise the necessary finance from private sources?
§ Mr. Howell
It is, indeed, up to the NCB, and I hope that it will be successful in building on the proposition put forward by my hon. Friend the Under-Secretary of State for Energy when he made his statement the other day. Naturally, I hope that the project will go forward.
§ Mr. John Townend (Bridlington)
Will my right hon. Friend tell the House whether he feels that the Government will ever be able to bring down the PSBR to a satisfactory level while we go on increasing subsidies to nationalised industries? In view of the latest round of grants, does he agree that there is no case in the next wage round for the miners to be paid a higher wage increase than industry generally, as happened in the last wage round, which now has to be funded by the taxpayer?
§ Mr. Howell
As I have said several times, it is absolutely essential for the competitive health of the economy—and the coal industry cannot escape from economic reality—that costs are kept to a minimum, so that the competitive cost of coal is minimised, and so that we sell as much coal as possible over as wide a number of markets as possible. We have a world to compete against. The world does not owe us a living, and if our costs are too high we shall not sell our products.
§ Mr. John Ward (Poole)
Is my right hon. Friend aware that private industry does not share his faith in the ability of the NCB to control its finances? It is a matter of considerable concern to private industry that once more it is being asked to shell out money by way of taxes in order to keep going an industry which, as a matter of economic sense, should start selling the vast stocks that it has built up and that nobody wants to buy because the price is too high. Can we now see the exercise to make industry leaner and fitter applied to all the nationalised industries?
§ Mr. Howell
I am answering questions only about the coal industry. However, that must be the objective and the aim. It is worth remembering that a high rate of investment in very profitable coal mining—although it happens to be in the public sector—is worth while in terms of sheer return and provides substantial custom for our advanced and successful mining machinery and equipment industries, which are world beaters.
§ Mr. Nicholas Lyell (Hemel Hempstead)
Although I welcome my right hon. Friend's emphasis on the coal industry's bright future, will he lose no opportunity to stress to those who work in the industry that £74 million will go down the drain this year on old pits that it had been hoped to close? Will he emphasise that a far brighter future and better working conditions are available for the 13,000 miners who work in the pits, if they transfer? Will he do everything to encourage that transfer and the consequent brighter future?
§ Mr. Howell
I cannot confirm the figure that my hon. Friend gave, but his sentiments are right. As I have warned, the period immediately ahead will be difficult for the coal industry. I do not wish to foster any false illusions about that. However, if we can maintain the momentum towards investment in profitable pits, new faces and 875 profitable production, the industry will have a bright future. In the immediate period ahead, the market will remain slack and there will be difficulties.
§ Mr. Tristan Garel-Jones (Watford)
Is any country in Western Europe or the world investing on the scale that we are in the British coal mining industry? Will my right hon. Friend confirm that if investment under the "Plan for Coal" continues on the basis of co-operation between the NUM, the NCB and the Government, it will lead to a firmer base for energy in Britain and to exciting prospects for exports to the rest of the world?
§ Mr. Howell
I think that we are investing the most per tonne compared with other Western European countries with deep coal mining industries. In terms of general investment in coal world-wide, massive sums are being put into the strip-mined coal of Australia, the United States of America and Canada. It is with that—given the heavy transport costs that that incurs—that deep-mined coal in Europe must compete. Britain can do that, provided that we concentrate investment on profitable opportunites and not on madcap, inefficient schemes that will benefit no one.