UK Coal Operations Ltd

Michael Fallon Excerpts

Wednesday 6th November 2013 Westminster Hall

[The Minister of State, Department of Energy and Climate Change (Michael Fallon)]

I thank all those who have contributed to the debate, which has been passionate at times, but none the worse for that. I certainly recognise that the consequences of the fire at the Daw Mill colliery have been deeply felt in the communities involved.

Before I turn to the specific issues around concessionary fuel entitlements, I want to report more broadly on our response to the events that followed the fire. The fire began on 22 February, but the colliery had been at risk of closure since March 2012, and its operators, UK Coal Operations Ltd, had previously stated that they anticipated production would cease, possibly on a temporary basis, in early 2014. Unfortunately, the severity of the fire accelerated that timetable, and, as colleagues know, on 7 March, the company felt forced to announce the colliery’s closure.

It was clear from the outset that UK Coal’s management wanted to identify a way forward to secure the ongoing viability of the remaining business within the parameters of the law and propriety. There was a role for my Department in proactively supporting—yes, supporting—the directors of the company and their advisers to find a solution and to safeguard as many jobs as possible.

Over nearly five months in which UK Coal required support, officials from my Department co-ordinated a cross-Government response, with nine Departments and agencies involved, including Her Majesty’s Revenue and Customs, the Department for Business, Innovation and Skills, the Shareholder Executive, the Department for Communities and Local Government, the Health and Safety Executive, the Coal Authority, the Insolvency Service and Jobcentre Plus. HMRC also worked with the company to help to manage its tax obligations.

We wanted to ensure that there was a fully joined-up approach at national and regional level, which would include ensuring that statutory redundancy entitlements were considered and, where appropriate, processed and paid as quickly as possible through the redundancy payments service; agreeing that the Coal Authority would put in place flexible arrangements on certain payments that the company was due to pay relating to its subsidence security obligations; and enabling the company to secure a rebate on its business rates from North Warwickshire borough council, following a revaluation of Daw Mill.

At local level, BIS West Midlands and Jobcentre Plus met local authorities and other local partners to bring about a response to manage the impact of the closure on employees, local businesses and the communities that were directly involved. As right hon. and hon. Members will know, that involved several tailored, employee-focused events, attended by large numbers of the Daw Mill work force. Jobcentre Plus also provided the work force and local businesses with advice on entitlements and alternative employment, including links to local and national information sources and resources. I firmly believe that, taken overall, the collective effort, nationally and locally, demonstrated cross-Government working at its best, to support the company and its employees while the directors worked with their advisers to identify a way forward to secure the future of the business.

Despite the fact that UK Coal underwent a major restructuring in 2012, it soon became apparent, following the Daw Mill closure, that a viable future for the remainder of the company and its employees would be achieved only through further substantial restructuring of the business. So while it was, on the face of it, disappointing when on 9 July the company announced that it had entered administration, it was clear to me that that was the only way the business could secure a viable way forward.

Subsequently, as part of the administrative process, the Daw Mill mine was disclaimed, which resulted in its transfer to the Coal Authority and to the Crown, under law. That approach is consistent with insolvency procedures and the terms of the licence. The Coal Authority, as it would with any colliery where the licence had been disclaimed, has assumed responsibility for securing the site and ensuring that there are no public safety implications. I reassure right hon. and hon. Members, with respect to the new fire that broke out last week at the colliery, that additional controls and safety measures have been put in place to contain it and disperse the smoke.

In addition, the authority is responsible for settling any future subsidence claims by way of security bonds previously lodged with it by the mining companies. As a result, about 2,000 jobs were secured at UK Coal’s two remaining deep mines at Kellingley and Thoresby and at six surface mining operations; an innovative plan was developed by the directors of the company with the Pension Protection Fund, which also provided PPF protection on accrued benefits for employees. That led to the remaining mining operations being successfully restructured and their assets held in individual companies owned by a new business, which now operates as UK Coal Production Ltd.

As part of the process of securing a viable way forward for the rest of the business and the majority of the work force, the directors and administrators had to take hard and, in many cases, unenviable decisions. It is obviously regrettable that job losses ensued and that many people continue to suffer as a consequence of those decisions, and I would not want to belittle that. However, I suggest that what happened was the “least worst” course of action to secure the future of the remaining collieries.

The hon. Member for Mansfield (Sir Alan Meale) asked me about closure aid. That can be paid only for mines that were pre-notified to the European Commission prior to the expiry of the coal state aid decision in 2010. Neither Daw Mill nor any other UK mines fell into that category. Several hon. Members mentioned pensions, and I am happy to debate the coal pension schemes. The taxpayer, of course, has benefited from surpluses in the past. However, scheme members have also benefited from above-inflation increases of more than 20% since privatisation. They continue to have a cast iron assurance that the cash values of those pensions will never fall.

The hon. Member for Bassetlaw (John Mann) wrote to me, but I have not yet seen his letter and I cannot pre-judge what the Serious Fraud Office might say about the issues he raises. However, I understand that the further restructuring this year involves much of the value of the group property being channelled precisely to support the pensions for employees and former employees.

As to concessionary fuel, it is important to understand the distinction between the national concessionary fuel scheme operated in my Department for the benefit of former employees of the British Coal Corporation, and private concessionary schemes operated by private sector coal companies, including UK Coal. Although they have a common administrator, they are governed by different arrangements. My Department’s obligations are governed by the national concessionary fuel agreements, which take the form of collective arrangements made between British Coal and the mining unions in the 1980s.

When British Coal was sold in 1994, the clear aim was to encourage a competitive industry to flourish free of the constraining influences of public ownership. It was therefore necessary to consider what, if any, of the corporation’s past legacy it would be reasonable and fair to expect private sector purchasers to bear. Among the things considered was the liability for the provision of concessionary fuel to former employees of British Coal and their widows or widowers who met the necessary criteria. It was decided that responsibility for those obligations should remain in the public sector, and they were therefore transferred to my predecessor Department in early 1995.

We currently service more than 69,000 beneficiaries, of whom approximately 57,000 are now in receipt of quarterly cash-in-lieu payments, while the remainder receive fuel. That has cost the Government some £1 billion of Exchequer funds. On the assumption that that will continue until 2050, we anticipate additional costs of some £450 million at today’s prices.

There is no obligation on the Government to fund private schemes that were the responsibility of private companies, and I do not accept that section 19 applies in the present instance. Our firm view is that, the liabilities having already been transferred to successor companies by the restructuring scheme, they cannot be transferred again through the same mechanism. I also have to consider not only the purposes and aims of privatisation but the wider context in which employees in other sectors regrettably lose entitlements to benefits on the failure of their former employer.

I fully appreciate, however, that the loss of concessionary fuel would have been a major blow to those originally supplied under the UK Coal arrangements, particularly when there is universal concern about energy prices. I understand, of course, that many of those affected are in poorly insulated houses or off-grid properties, as my hon. Friend the Member for South Derbyshire (Heather Wheeler) said.

It is correct that the Government should consider requests to support those who have suffered as a consequence of events. Right hon. and hon. Members will have heard the Chancellor’s response yesterday to my hon. Friends the Members for Selby and Ainsty (Nigel Adams), for Sherwood (Mr Spencer) and for Nuneaton (Mr Jones), who have been pressing the campaign, along with my hon. Friend the Member for North Warwickshire (Dan Byles). We are now carefully considering what we can do to help those who have lost their concessionary fuel allowances. I can, in the exceptional and extraordinary circumstances of the Daw Mill fire, confirm that we are considering the request for additional assistance. I hope to make an announcement shortly.

The Government support the coal industry and those who have, regrettably and through no fault of their own, lost their employment and some of the benefits that came with it. We are determined to consider the matter further.