Sir: Decisions over economic policy involve the weighing of costs against benefits; an improvement in terms of one objective is balanced against a deterioration elsewhere (as where unemployment is increased in the name of reducing inflation). How does the closure of much of the coal industry measure up in this respect?
As the discussion since British Coal's announcement makes clear, electricity will cost more as a result of the 'dash to gas' than if existing coal-fired stations were used. The switch to gas means higher electricity prices, reduced competitiveness of energy-using industries and more inflation.
The impact on unemployment has been widely commented on. Taking into account the effects on industry supplying British Coal, and on those companies supplying goods and services to workers made redundant, the impact on unemployment will be about 80,000. Miners and others affected will find it extremely difficult to get a job. But even if a miner does manage to get a job, this merely changes the faces in the dole queue, not its length (since somebody else who would otherwise have got the job remains unemployed). The impact on unemployment, therefore, is huge and enduring.
The Government has attempted to make a virtue out of the size of the redundancy package on offer. It can be estimated that the total cost to the Exchequer of additional unemployment at this level would be some pounds 1.3bn in the first year (including one-off redundancy payments), and some pounds 600m (benefit and tax revenues lost) thereafter.
Since the Government is committed to limiting government borrowing, the effect must be sharper cuts in other spending programmes to finance the redundancy payments. This implies a further deterioration in public services and infrastructure and additional increases in unemployment.
Finally, the balance of payments will be worsened to the tune of pounds 500m to pounds 1bn by the costs of imported coal and by the profits remitted abroad by overseas companies supplying gas. This will inevitably mean more pressure on the exchange rate, further adding to inflation.
The balance sheet of the Government's abandonment of the coal industry is all on the debit side: higher inflation, higher unemployment, a deterioration in the balance of payments, and further cuts in public spending programmes. All costs, no benefits.
Corpus Christi College
October 14Reuse content