British Coal admits secret deal over pension fund: Labour energy team will question Heseltine about payments

LABOUR is to challenge a secret government agreement to finance British Coal's legal fight with trustees over pounds 960m of pension funds. Two trustees have described the Government's action as a scandal on a par with Robert Maxwell's raiding of the Mirror Group pension fund.

The Department of Trade and Industry refused to confirm the deal yesterday but BC admitted it. It also said the DTI had agreed to underwrite a pounds 109m interest-free loan which BC is due to pay into the fund today.

The trustees of the staff superannuation scheme are threatening to issue a writ this week to force BC to pay pounds 480m which it owes to a fund for redundant staff. Its next instalment of pounds 109m was due to be paid today but BC wants to pay it from its share of the pension fund's surplus. The trustees argue that this would be against the trust deeds which state that the company's pounds 480m share of the pounds 1bn surplus cannot be removed.

In the past, BC has left its surplus in the fund collecting interest, and saved money by taking a contributions holiday. The trustees argue that BC is trying to misuse the surplus of pounds 480m and to renege on an agreement to pay another pounds 480m, disadvantaging pensioners by pounds 960m in total.

Robin Cook, Martin O'Neill and Derek Fatchett, Labour's frontbench energy team, are to question Michael Heseltine, President of the Board of Trade and the DTI over the deal this week.

Richard Caborn, Labour chairman of the all-party trade and industry select committee, is to write to Mr Heseltine to query the payments and to ask if he planned to use the pension fund to pay the pounds 500m subsidy to BC which won support for his pit closure programme.

Frank Field, the Labour chairman of the social security select committee, said the committee would question Peter Lilley, Secretary of State for Social Security, about what plans the Government had for acquiring pension fund assets of industries that are to be privatised, including British Coal, British Rail and the Post Office. They may also question Mr Heseltine.

If the matter goes to court it could be a test case over who owns pension fund surpluses, how they can be used and whether the Government can acquire the assets of pension funds of industries being privatised.

British Coal already faces legal action from the National Union of Mineworkers over pounds 800m of pension fund assets.