EXPLANATORY MEMORANDUM OF THE TERMS OF SETTLEMENT OF THE DISPUTE IN THE

COAL-MINING INDUSTRY.

Nature of the Dispute.

The basic principle of the wages agreement entered into on the 18th June, 1924, was that wages rates in each district should be determined by the assignment to wages of approximately 87 per cent. of the proceeds of the industry in that district, after deduction of costs other that wages. But the operation of this principle was to be subject to the provision that in no circumstances were wages to be reduced below a level represented by current basis rates, plus the percentage additions to basis rates that were in operation in the several districts in July, 1914, plus an addition of 333 per cent. to the total. This rate of wages is called the "Minimum."

Throughout the past twelve months the state of trade in the coal-mining industry has become steadily worse, with the result that eventually wages in every district were "on the minimum"; that is to say, the principle of dividing the "net proceeds" in the proportion of 87:13 was no longer operative but had been replaced universally by the obligation to pay the minimum rates mentioned above, irrespective of the amount of the proceeds.

On the 30th June the owners gave notice to terminate the agreement, and on the 1st July made proposals for a new agreement. The essential feature of these proposals in their final form was that the operation of the 87:13 principle should be restored by the abolition of the general obligation to pay the minimum rate laid down by the 1924 agreement, and that any minimum rates that might be agreed upon must be fixed by districts, and have regard to their different economic circumstances. It was not in dispute that these proposals would mean for the great majority of the workers an immediate and substantial reduction of wages, and for all of them a potential reduction or further reduction. The colliery owners indicated that if the Seven Hours Act were suspended "considerably better terms" could be offered.

The Miners' Federation did not dispute the seriousness of the economic position of the coal mining industry, but they protested that, in view of the existing level of their wages, they ought not to be called upon to accept less favourable conditions of employment so long as other means of effecting economies in the working of the industry had not been fully and impartially explored.

Nature of the Settlement.

The Government have recognised that the coal mining industry as a whole is, under existing conditions, financially unable to continue either to give employment or to produce coal on a scale which the interests of the country demand. At the same time they have

before them the contention put forward by the Miners' Federation, and they desire to explore every possibility of obtaining a higher economic organisation of the industry.

They have therefore decided to institute a full enquiry with the object of investigating methods of improving its productive efficiency and its competitive power in world markets. This enquiry should be completed in good time before May of next year, and in the meantime the Government have agreed to assist the industry by filling the gap that lies between the level of wages provided by the minimum provisions of the national wages agreement of 1924 and the lower level of wages which would result from the colliery owners' proposals of 1st July last.

During this period the level of wages which the owners in each district will be called upon themselves to bear will be that which results, month by month, from the application of the 87: 13 formula, subject only to this; that, as between themselves and the Government, if the 13 per cent. share of the owners is estimated to represent more than fifteen pence per ton, the excess will be transferred to the payment of wages in relief of the Government subvention.

The wages actually paid to the men in each district will be at a level not less than the minimum provided under the 1924 agreement. The Government will pay to the owners the amount by which their wages bill at this minimum level of wages exceeds the amount which, under the preceding paragraph, they are themselves called upon to bear.

No subvention will be payable in any district if, and so long as, the level of wages under the 87: 13 formula may be raised by improved trade above the minimum level of the 1924 agreement (see first paragraph).

The question what proportion of the actual wages bill of any individual colliery is payable by the colliery owner will be determined monthly by calculating for the district as a whole the level of wages that would be payable under the 87: 13 formula; and the Mines Department will pay to each individual colliery the difference between its wages bill at that level and at the minimum level under the 1924 agreement.

It will thus be seen that, within each district, all collieries will be treated alike. Their relative economic positions will be left undisturbed, and the industry will continue in the same way as if no financial assistance were being provided from the Exchequer. The assistance given will, of course, enable more pits to work and more men to be employed than if the 1924 agreement had been continued without Government assistance. It will, enable the industry to work at the same costs, the same prices, and on the same scale as if the colliery owners' proposals of 1st July had been put into operation. But it provides no guarantee that all pits will work, or that pits already closed will be reopened. Where the economic conditions of a pit are such that it would have not been kept open under the Mining Association's own proposals, the

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Exchequer subvention will not enable it to work. The better the course of trade and the higher coal prices rise, the greater, naturally, is the number of pits which will be workable, whether the subvention is paid or not. Similarly, better trade will automatically diminish the amount of subvention. On the other hand, if the course of trade deteriorates, and coal prices are low, the number of pits which will cease to pay, and will consequently be closed, will be larger, and the subvention, though at a higher rate, will be protected from indefinite increase by being restricted to a smaller number of pits. There is therefore no possibility, whatever the course of trade, of the Government being compelled to assume the burden of maintaining all and every pit regardless of its economic conditions, nor of the industry being removed from the regular pressure of supply and demand. Government assistance is limited during this temporary period. (assuring the continued activity only of those pits which would have been not too far below the average economic standard of the district to have been able to continue at work under the Mining Association's proposals.

In taking this decision to give temporary assistance to the industry, the Government have had to satisfy themselves that they are adequately safeguarded against the possibility of the amount of subvention being improperly increased either (a) by an undue lowering of prices, or (b) by the charging against the Exchequer of expenditure upon equipment, development, &c., which is not properly chargeable to revenue costs.

In regard to the first point, it may be repeated that the principle of the subvention is that colliery owners, both individually and collectively, are placed in the same position as they would have been under their own proposals of 1st July last. An arrangement merely to guarantee collieries against loss, without any opportunity of making profits, could afford no incentive either to maintain efficient progress or to trade profitably. Under the present arrangement every colliery and every district will suffer as a result of inefficient working or decreased returns, to the same degree as if the colliery owners' proposals had been in operation with no subvention. An individual colliery which cuts its own prices suffers the loss itself. Even a general reduction in a district can be effected only at the expense of profits in the district as a whole. The safeguard therefore against any unwarranted reduction in prices lies in the self-interest of the colliery owners themselves.

In regard to the second point, rules already exist under the 1924 Wages Agreement for regulating what costs are admissible as costs of production in arriving at the result of the 87: 13 formula. These rules, generally speaking, follow income-tax principles and are incorporated in the Agreement between the Government and the colliery owners. All accounts, whether district calculations of the 87: 13 formula or returns from the individual collieries, will be certified by chartered accountants as having been compiled in accordance with these rules, and, in addition, the Government reserve a power of audit.

Cost of the Settlement.

It

The cost to the Exchequer obviously depends upon the question what the level of wages in each district under the 87: 13 formula will prove to be. That will necessarily depend upon the course of trade; and calculations based on past results cannot afford any sure guidance. They provide, however, the only data available. may be estimated that, if the proposed arrangement had been operative during the comparable period 1st August, 1924— 1st May, 1925, the cost would have been about £7,500,000. If the conditions during its operation were the same as in the first quarter of 1925 the cost would be approximately the same. If the month of June, 1925 (the latest and worst figures available) were taken as the basis for the whole nine months, the cost would amount to about £24,000,000.

It is obvious, however, that the first figure relates to a period when the export market was less depressed than it is now or is likely to be in the near future, while the second figure reflects the seasonal depression in the comparatively prosperous Eastern Division, which supplies more than a third of the coal produced in Great Britain and depends chiefly on the home market. On the June basis, payments to this District would amount to nearly £700,000 a month, but it may reasonably be anticipated that, with seasonal recovery, especially in the demand for household coal, it will need no subvention at all during part at any rate of the next nine months. On the other hand lower proceeds may be expected in the exporting districts.

After surveying the whole position, and with all reserves for incalculable factors, the Government have decided to ask Parliament to authorise the expenditure of £10,000,000 at the present time. If this amount proves insufficient, further authority will be sought from Parliament.