British Coal Corporation

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British Coal Corporation

Hobart House
Grosvenor Place
London SWIX 7AE
United Kingdom
(071) 235-2020
Fax: (071) 2020 extension 34682

State-Owned Company
Incorporated: 1946 as National Coal Board
Employees: 105,000
Sales: £4.30 billion (US$8.30 billion)

The British Coal Corporation (BCC) is a state-owned undertaking, which has had a virtual monopoly in the output of coal in the United Kingdom since just after World War II. Though still among the largest coal producers in Western Europe, it has for many years been shrinking in size, and the range of its markets has narrowed. About 80% of its output is sold to the power stations, also state-owned, although in 1990, the Conservative government under Margaret Thatcher was actively proposing the privatization of the entire electricity industry. More than two-thirds of the United Kingdom’s electricity is generated by coal-fired stations, a proportion which has generally been higher until some of the newer nuclear power stations have come nearer to full output. Proposals in 1990, to use more imported coal at power stations and to use natural gas for some future additions to generating capacity, indicate that BCC’s sales and size may contract further. BCC’s prospects have also been influenced by the Thatcher government’s announcement of intent to privatize the company, an intention not shared by the parliamentary opposition.

The Coal Industry Nationalisation Act of 1946 set up the National Coal Board (NCB) to own and operate the coal industry from a date subsequently fixed as January 1, 1947. This measure was an early part of the incoming Labour government’s program to nationalize a large part of the country’s basic industries and utilities. It was also a reaction to the parlous condition of the coal industry under private ownership. Output and stocks had been falling and it had been impossible to recruit adequate numbers of mineworkers. In 1945 an official committee chaired by Sir Charles Reid, a leading Scottish coal owner and mining engineer, had produced a report that exposed the technological and organizational weaknesses of the industry and pointed to the need for complete restructuring.

Immediately before nationalization there were about 1,470 operating collieries, owned by over 800 firms. The NCB did not take over any of these firms but acquired their physical assets for the production of coal, coke, manufactured fuel, some of the primary by-products of carbonization, and bricks. The NCB also owned the entire national reserves of unworked coal. Only in coal did it have a virtual monopoly, but the NCB, the gas works, and the steel works produced nearly all the nation’s coke, and the NCB was one of the larger brick-making undertakings, responsible for about 12% of national output at its peak in the 1950s. The coal industry assets were given a lump sum valuation by a special tribunal. Other assets had to be separately valued, and this process took nearly ten years. The NCB eventually paid £394 million for its assets, of which £81 million were for the mineral reserves and the rest for operational assets.

The NCB licensed the smallest mines for private operation but operated everything else directly. No exact total of the original number of employees is available but it was probably 770,000 to 780,000. In terms of employment, the NCB at its inception was believed to be the largest business unit in the non-communist world. It was controlled by a board of nine members of whom the chairman, Lord Hyndley, was a former managing director of the largest colliery firm, Powell Duffryn, and the deputy chairman, Sir Arthur Street, had been a senior civil servant.

Because the undertaking was so large and had so many and such dispersed production units, it needed a carefully integrated structure of staff departments and subordinate levels. This was devised mainly by Street and proved remarkably enduring. The main business centers were 48 areas—later increased to 51 and then gradually decreased—each controlling up to about 20 collieries through an intermediate tier of Groups. Between the areas and the NCB was another layer of management consisting of eight geographically based divisions, soon increased to nine, each with a board which was a simplified replica of the NCB. This was a highly devolved structure and the NCB received many parliamentary and journalistic accusations of over-centralization. The second chairman, Sir Hubert Houldsworth, in office from 1951-1956, greatly relaxed the authority of headquarters and the accountability of the lower levels, and this relaxation was severely criticized in 1955 by an outside committee under Sir Alexander Fleck, chairman of Imperial Chemical Industries, which the NCB had appointed. Subsequently the lines of authority and accountability were more clearly defined and enforced.

The NCB was financed by loans from the government, on which interest always had to be paid. In the absence of any equity, the cost of servicing capital could not be adjusted to the current prosperity of the business. The NCB was by statute not required to make profits and until the 1960s was discouraged by the government from doing so, but it was required at least to break even on revenue account over a period of years. All proposals for price rises were submitted to the government, which usually delayed approval. These conditions made it difficult to achieve good commercial results.

This situation was made still more difficult by the constant pressure put on NCB by the government to provide the maximum output of coal, which could not be done without keeping large numbers of lossmaking collieries in operation and without repeatedly striving to recruit more miners. Such recruitment, in a strongly unionized industry involved granting substantial concessions on wages and hours. A further problem was that in some years the government expected the NCB, as a precaution, to augment supplies by imports. These had to be sold at home prices, although imports were much more expensive than home production. As a result the NCB had to carry in its accounts a financial loss from this source, which eventually amounted to £74 million.

Nevertheless, for ten years the NCB kept fairly well in line with government expectations. From 1950 it embarked on a long-term plan for reconstructing the collieries with the best prospects, sinking some new ones and closing the worst, but this plan took a long time to complete. From 1952 it took over the small, lossmaking opencast mining previously conducted by the Ministry of Fuel and Power and began to develop it into a consistently profitable business. In piecemeal ways it significantly improved labor productivity and began to play a major part in a fundamental revolution of mining techniques. In particular within the NCB organization James Anderton, general manager of the St. Helen’s area in Lancashire, invented the shearer-loader, which was later developed to become the most important cutting and loading machine throughout the world. Despite the need to retain capacity, at great expense, which meant that six of the NCB’s nine divisions were usually loss-making, excellent profits were made in the east Midlands, Nottinghamshire, Derbyshire, and Leicestershire; and Yorkshire, while the west Midlands broke even. There were also profits from non-mining products, notably coke and some manufactured fuels. From 1948 to 1956 inclusive the NCB maintained the required break-even financial result and coal output was raised from 200 million in 1947 to a plateau of 227 to 228 million tons in the mid-1950s.

From the late 1950s the market for coal changed permanently. For technical reasons the railways rapidly began to abandon steam traction and the gas industry first turned to using oil as a feedstock and then to the natural gas that was found in abundance beneath the continental shelf. Above all, oil became abundantly available at reduced real cost and only the most cheaply produced coal could compete with it.

U.K. coal consumption peaked in 1956 and after 1957 there was a marked downturn, with a rapid rise in unsold stocks that had to be financed. Though the decline in demand was checked for a few years in the early 1960s, it soon resumed. For the NCB the difficulties were increased by two factors. Firstly, the program of colliery reconstruction and new sinkings, which had been undertaken in response to governmental pressure for more output, came to full fruition after demand had turned down and exacerbated the new problem of surplus capacity. Secondly, the government began to seek more profitability from the nationalized industries from 1961 onwards. If the NCB had charged international prices in its first ten years, it might have made annual surpluses of around £200 million, but in the 1960s it was hard to make any profit and the government appeared to regard coal as a declining industry. When a new official energy policy was announced in 1967, it was based on a four-fuel economy with coal in the last place.

The NCB had to make a drastic response to these conditions. From 1956 to 1961 it was chaired by Sir James Bowman, a former mining trade unionist with an excellent grasp of labor relations, and then between 1961 and 1971 by Lord Robens, an ex-cabinet minister who fought a public battle in the political arena on behalf of coal. The great tasks were to make coal more attractive to consumers in terms of quality and price, and to reduce capacity to match reduced demand. Cost control was aided by the progress of the great technical revolution in mechanized mining. Every effort was made to continue installing the new equipment, although there was little money to invest in other improvements. The falling number of jobs made it possible to keep a tight hold on the level of wages and seemed to have stimulated a better response from workers as shown by a great reduction in the number of unofficial strikes. Reductions of capacity continued apace. The number of collieries and of workers was reduced by more than half and the output of coal by more than a quarter in ten years. From 1961 to 1969 prices in real terms generally held firm, but declined in the lowest cost coalfield of the east Midlands, and Yorkshire.

Other economies were made by adjusting the administrative structure to suit the reduced size of the undertaking. A threetier hierarchy replaced the original five tiers through the abolition of divisions and groups in 1967, and the number of Areas was gradually reduced. Finances also had to be adjusted. A reconstruction was statutorily approved in 1966 and applied retrospectively to 1965. Of the £960 million of loan capital, £415 million were effectively cancelled by using the sum to write off the book value of colliery and coke oven assets that had been closed down or reduced to unremunerative levels, and the interest on the remaining £545 million was reduced.

Efforts were made to gain additional revenue through modest diversification, mainly by way of joint ventures with private sector companies. These included retail and wholesale distribution of coal and heating appliances, chemical manufacture from the by-products of the coke ovens, and above all entry, in association with Continental Oil Company and others, into exploration and exploitation of the natural gas—and later oil—beneath the North Sea. This last was a very successful venture, as it brought a 50% share in one of the major gas fields.

Despite all these efforts, deficits were kept to low levels only in some years, although in others the NCB broke even or even did very slightly better. In 1970-1971 there was a minute surplus but by then costs were rising steeply, mainly because of inflation in the price of inputs. Productivity was ceasing to rise enough to absorb other increases in costs. Capacity had been so far reduced that output at 133 million long tons was less than could have been sold remuneratively. The miners were becoming restive about the relative decline of their pay in comparison with that in other industries. There were extended national strikes in 1972 and 1974, from which the miners extracted large increases in pay without doing much more than restoring their old relative position. The strikes did, however, encourage further switching to other fuels and led to heavy losses at the NCB. The two strikes caused the government to pay grants totalling £231 million to keep the NCB’s deficit within statutory limits. Another financial reconstruction in 1973 cleared accumulated deficits and wrote off other capital, reducing the NCB’s liabilities by £450 million altogether. The possibility of the NCB requiring regular subsidiaries was also considered.

Yet the NCB’s prospects were improving. In 1973 the United Kingdom entered the European Coal and Steel Community, giving the NCB freedom to fix its own prices. It was able to use this freedom because the huge rise in oil prices in 1973-1974 transformed the energy market. Coal prices were raised to cover the recent large increases in production costs, yet coal retained a cost advantage over oil, very notably in electricity generation. The NCB, which for the first time was headed by a man who had spent his career within the organization, Sir Derek Ezra, chairman from 1971-1982, produced a Plan for Coal that was endorsed by the government. This plan involved replacing obsolescent by new capacity to stave off a prospective decline in output, in the hope—which proved vain—of proceeding to renewed expansion ten years later.

The revival of the NCB was less dramatic than had been hoped. Higher coal prices made opencast mining very profitable, but the cost of inputs continued to increase for deep mining. Labor productivity stagnated, and there was both employee and political resistance to the closure of badly lossmaking collieries. The troubles of the steel industry caused the shrinkage of an important market, and after 1979 the general industrial depression and permanent decline in some heavy industries were further blows. There was competition from cheaper foreign coal, and coal and other solid fuels were at a marked disadvantage in competition with gas for domestic heating. Sales and output of coal made a small recovery for a couple of years after the further huge rise in oil prices in 1979, but the long term trend was slightly downwards. Some of the non-mining businesses, which had been regrouped in two subsidiary holding companies in 1973, contributed valuable profits, but coke ovens fared badly as their markets shrank, and other holdings were not popular with governments. Nearly all the brickworks were sold in 1973. The North Sea gas and oil holdings were compulsorily transferred to the British National Oil Corporation in 1976, with no compensation for loss of expected profits. On the other side of the account, all the reconstruction under the Plan for Coal had to be financed by loans at high rates of interest. For seven years from 1974 onwards, the NCB generally made operating profits in excess of any operating grants received from the government. However, in all but two of the years, this profit became an overall deficit, mainly due to high and rising interest charges.

The 1980s were a traumatic time for the NCB. The problems of market stagnation or contraction, the high costs of some collieries, and high interest charges continued and were reinforced by extreme pressure from the Thatcher government to get rid of financial deficits. Proposals to meet this situation by accelerating colliery closures almost precipitated a strike in 1981. The strike was averted by the provision of government money, though it left a legacy of suspicion. Nevertheless the NCB made much more progress in matching capacity to needs during the brief chairmanship of Sir Norman Siddell in 1982 and 1983. He was both firmer and more persuasive in the pursuit of individual closures. After his retirement, his replacement, Ian MacGregor, who as chairman of British Steel had withstood a national strike in the steel industry, re-aroused the old suspicions and helped the miners’ leader, Arthur Scargill, to bring his union into confrontation with the NCB and the government. After an overtime ban from October 1983 there was a bitter year-long strike from March 1984, which the miners lost.

These events created both an urgent need and a better opportunity for a restructuring of the NCB and its business. Its finances were in ruins and needed a large injection of government money to restore them: losses were £875 million in 1983-1984 and £2,225 million in 1984-1985. Confidence in the ability to maintain a regular supply of fuel had been shaken and although the market was buoyant in 1985-1986 because of the need to restock after the strike, sales subsequently fell to a lower level than before. However, the right of management to manage had been thoroughly restored.

Sir Ian MacGregor’s function appeared to have been to defeat the strike; he had little lasting effect on the structure of the NCB. The main changes were carried out under Sir Robert Haslam, a mining engineer whose business career had been mainly outside the coal industry and who was chairman from 1986. He concentrated on improving efficiency, cutting out sources of loss, and matching the size of the business to the size of the market. In four years after the strike, the number of collieries was reduced from 169 to 86, and the number of employees from 221,000 to 105,000. The remaining collieries were given more productive equipment with an insistence on its more intensive use. Productivity rose by 90% and colliery costs fell by one-third. A higher level of total output was obtained by the extremely profitable opencast method. The organization was simplified, with only four areas—in Yorkshire and the Midlands, where costs had long been lowest—and the remaining collieries elsewhere forming groups which reported directly to national headquarters. Many of the non-mining businesses were disposed of, partly in response to government pressure, and steps were taken to reduce capacity and improve the organization of the lossmaking coke division. A new image was sought by changing the NCB’s name to British Coal Corporation in 1987.

These changes gave rise to heavy restructuring costs and the burden of interest charges remained severe. As a result, deficits continued and amounted in four years to over £1,000 million. However, operating profits recovered in 1985-1986 and were much higher in relation to both capital and turnover than for many years before the strike. It appeared that although the market remained precarious, the BCC had been sufficiently reshaped to have a better chance of coping with its difficulties.