The subsidy, working out at pounds 5 a tonne, would help to swell the market for British Coal by 20 million tonnes a year, taking the next financial year's expected sale to about 60 million tonnes.
The extra production would equate to 18 to 20 pits and 20,000 miners' jobs, while enabling the corporation to match world market prices. British Coal would be left to decide which pits to close.
In a separate move, Norman Lamont is seeking to impose value-added tax on household fuel bills in the Budget. The Treasury has been forced by the Prime Minister to abandon plans for extending VAT to other zero-rated items but is insisting on reducing public debt by applying it to fuel.
The coal recommendations, likely to be published as firm proposals in the trade and industry select committee's final report on Friday, come after hints yesterday from Tim Eggar, the Minister for Energy, that the Government would accept a three- to five-year subsidy.
The success of the committee's plan - which might extend the lives of several more doomed mines - also depends, however, on proposals covering imports of cheap French nuclear-generated power, via the underwater cross- Channel Interconnector, and orimulsion, the cheap slurry-based coal substitute; a scaling down of open-cast mining; and a slowing down of moves towards an open market in coal purchase by regional electricity companies.
All those issues will be discussed in detail by the committee today. Moreover, while the overall thrust of the agreement so far reflects what the Government appears minded to adopt, Labour committee members have not abandoned their quest for a formula to save almost all 31 mines.
That attitude was reflected last night by one Labour Shadow Cabinet member, but a compromise was also predicted. Committee members are expected to urge an end to licensing gas fired power stations and to costly closures of nuclear power stations. They are expected to highlight the substantial savings flowing from fewer redundancies.
Dr Michael Clark, a committee member and Tory MP for Rochford, said on BBC television last night: 'Surely it is better that we subsidise the coal industry rather than subsidise unemployment.'
The thrust of the committee's deliberations demonstrate the scale of the Government U-turn now being contemplated to appease critics, including those on its own backbenches, and the role of the MPs' committee - select committee reports are generally ignored.
For his part, Michael Heseltine, President of the Board of Trade, warned on Channel 4 News that there were no 'easy solutions' to coal 'problems'. Both right-wing Tories and Mr Eggar said yesterday that a longer-term subsidy would not be tolerated. It emerged, meanwhile, that the cabinet committee studying rescue possibilities has rejected the option of saving pits by expanding the market for coal. That would rule out, for example, curbs on imports of cheap world coal or of electricity from France.
Mr Heseltine has persuaded cabinet colleagues to subsidise coal to keep open some pits after getting the go-ahead in principle for a subsidy last week from Karel van Miert, the European Commissioner responsible for competition policy. Downing Street yesterday pointed out that energy subsidies were common in Europe, and Germany subsidised its coal industry.
But a subsidy would have to be time- limited to be lawful. The Cabinet remains divided over its extent and the period for which it should be paid. Mr Heseltine was arguing for at least five years to allow pits to become commercially viable.
Cabinet colleagues, including Michael Howard, the Secretary of State for the Environment, wanted it to be limited to three years. Mr Heseltine appeared last night be losing that battle. The money would be most likely to take the form of a direct subsidy from the Treasury, rather than a levy on consumers' electricity bills.
Lord Wakeham, John Major's cabinet 'troubleshooter', will chair a cabinet committee meeting to try to defuse the row before the Prime Minister's return from India on Thursday evening.
Labour leaders plan to campaign against the pit closures, in spite of the Government's U-turn. 'We want all the pits saved,' said a Shadow Cabinet member. 'Subsidies are no solution. They can be withdrawn. What we want is the market to be rigged back in favour of coal.'
Options likely to be pressed by Labour include cuts in open-cast mining, measures to stop gas-fired power stations supplying 'base load' electricity, and curbs on the sale of expensive nuclear- powered electricity and cheap French imports.
End nuclear subsidy, page 6
Leading article, letters, page 18
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