Business and Technology UK

The Effects of Nationalisation on the British Coal Industry

Although Britain had defeated the Axis Powers in the Second World War, the country was falling from its status as the world’s sole economic heavyweight. 1945 was the second consecutive year that GDP per capita had fallen. Influenced by economists like William Beveridge and John Maynard Keynes, British economic policy operated under the guidance of the “Post-War Consensus”. From the end of the Second World War until the election of Margaret Thatcher’s Conservative Government in 1979, British politicians from both major political parties agreed to establish Britain as a social democracy. A key element of the Post-War Consensus was its proposition of nationalisation as a method to increase output and to make utilities more available to the British people.

Between 1945 and 1951, Clement Attlee’s Labour government nationalised numerous major industries, including coal, electricity, railway transportation, and telecommunications. Broadly, such industries were nationalised to further the public interest; accordingly, the Coal Industry Nationalisation Act 1946 reads, “There shall be a National Coal Board… charged with the duties of:

a) working and getting the coal in Great Britain, to the exclusion (save as in this Act provided) of any other person.

b) securing the efficient development of the coal-mining industry.

c) making supplies of coal available, of such qualities and sizes, in such quantities and at such prices, as may seem to them best calculated to further the public interest in all respects, including the avoidance of any undue or unreasonable preference or advantage.”

Supporters of nationalisation often invoke the concept of economies of scale to argue that granting the state total control of a particular industry would make its operations more efficient by reducing the average cost of producing one good. In a 2020 article for The Conversation, Professor Emeritus Colin Bamford cited this argument in favour of the nationalisation of Northern Rail. Bamford argues that, by increasing the volume of operations handled by one body, the initial cost of constructing large railway networks, trains, and railway stations is divided among the increased number of train journeys. Subsequently, the body’s new comparative advantage should enable it to charge less for train journeys than all other competitors.

In the context of nationalising the British coal industry, supporters of nationalisation go on to argue that nationalising the coal industry increases production. If the economies of scale argument is to be accepted, this increase in production results in a reduction in the cost of producing an additional unit of coal, meaning that the Board should be able to set lower energy prices for consumers.

By examining changes in coal output and the cost of domestic heating for the average consumer, one can assess the effects of state control of the coal industry. Between 1946 and 1952, coal production in the UK increased from 193.1 million tonnes to 228.5 million tonnes, an increase of 18%. In the same period, however, the cost of domestic heating also increased by approximately 20%. This suggests that the National Coal Board experienced diseconomies of scale; an increase in output resulted in an increase in cost per unit, which was responsible for the increase in consumer prices.

In this case, the diseconomies of scale were caused by management problems within the Board. Section 2 of the Coal Industry Nationalisation Act 1946 stipulated that “The chairman and other members of the Board shall be appointed by the Minister of Fuel and Power”. Hence, unsuccessful operations arose. By granting a Cabinet Minister the power to choose the individuals who would run the coal industry, it became inevitable that the chairman and members of the Board would not be chosen purely upon their managerial acumen. Three of the Board’s eight chairmen had no executive experience prior to managing the Board. Prior to Alfred Robens’ appointment to Chairman of the National Coal Board in 1961, he had no experience in the energy industry. While the legislation specified that board members should be “qualified as having had experience of, and having shown capacity in, industrial, commercial or financial matters, applied science, administration, or the organisation of workers”, this did not guarantee effective operation of the coal industry. In the first four decades after the nationalisation of the coal industry, total coal production in the UK decreased by 44%, despite the National Coal Board’s ambitious targets to increase output.

One common hypothesis for the decline of the British coal industry is the availability of cheaper alternative energy sources. Advocates for nationalisation argue that the decline of the coal industry was caused by the increased availability of oil in the North Sea and the growing use of nuclear power. Oil exploration in the North Sea became increasingly popular in the middle of the 1960s, and the country’s first nuclear power station was opened in 1956. However, the availability of alternative energy sources does not suffice as an explanation for the decline of the British coal industry. If anything, these criticisms further expose the failure of nationalisation. For nationalisation to be effective, long-term demand for the commodity that has been nationalised must be guaranteed, or else the resources devoted to nationalising the industry would have been put to waste. If coal had remained under private control after World War II, the diseconomies of scale caused by the National Coal Board would not have occurred, and the coal industry might have remained competitive for much longer. Moreover, fewer resources would have been devoted to the soon-to-fail industry.

Ultimately, the National Coal Board failed as it could not adapt to changing market circumstances. It set ambitious, arbitrary targets, and its leadership often had insufficient experience in the energy sector. Throughout the era of state control for the coal industry, the price of domestic heating for the average consumer increased. If anything, the National Coal Board’s commitment to “further the public interest” had the inverse effect.

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