City: Ruled by the policies of the madhouse

NOT SINCE the 1930s has industrial Britain experienced such a black, sad and devastating week. Even Friday's 1 percentage point cut in interest rates to 8 per cent was incapable of dispersing the gloom. Coming at the end of one of the worst periods in the short and undistinguished life of the Major government, it in any case smacked too much of desperation to be taken seriously. It was cheap public relations which will do little to buy off the expected backbench revolt. For most of British industry, it was too little, too late - too little to stop recession slumping into depression; too late to prevent the massive new round of job losses in the pipeline or stir consumer confidence out of its present malaise.

Judging by experience in the US, where the lowest interest rates in 30 years have failed to stimulate an uplift, further base rate cuts here over the next couple of months could prove equally worthless. In some ways the recession of the early 1980s, with its wave upon wave of job losses in manufacturing industry, looks similar to the present bloodbath. But in truth there is little comparison. For many, it feels much more like the 1930s.

However brutal and unpleasant the redundancy programmes of the early 1980s were, at least there was some sense of purpose and logic about them. Many may have been irrational and unjustifiable, but it was difficult to quarrel with the underlying need at that time for a leaner and fitter Britain, and a more competitive manufacturing and industrial structure freed from the yoke of outdated manning levels and working practices.

You can't make the same case for the present cataclysm. There is no cleansing process this time round, no sense of crusade. For many industries and communities, the recession has become like a visitation from the Terminator. Hasta la vista, as Arnie would say before blowing them away. And this time round, these are not enterprises dogged by wildcat strikes and poor-quality, uncompetitive products. Many of the factories, pits and plants facing closure are among the most efficient in Europe. It is now looking increasingly possible that the Government's decision to close down half the coal industry will mark the beginning of a much wider and more serious implosion of manufacturing industry, with dramatic knock-on effects into the utilities and service industries.

When the Independent on Sunday first broke the story seven weeks ago that ministers were planning to close 30 pits in one fell swoop with the loss of 25,000 jobs (in fact it was 31 with the loss of 30,000 jobs, but I know we were right at the time - I saw the confidential DTI document with the name of the Energy Minister, Tim Eggar, at the bottom), nobody took it seriously. All those who understood the industry and its specific problems said: we've known for a long time that the electricity industry wants to cut back on purchases from British Coal, and that as a result many pits will close and thousands of jobs will go. But nobody could quite believe the Government would be so politically inept or stupid as to announce and carry out the whole thing in one go, midway through the worst recession in living memory. As a consequence, our story had hardly any impact at all.

It wasn't until a couple of weeks ago that people started to realise it was for real. My God, the Government really was going to do it. More unbelievable still, it was Michael Heseltine, the great interventionist and one-nation Tory, who was presiding over the butchery. How or why he arrived at his decision is anyone's guess (at this stage he's certainly not telling me, or anyone else for that matter), but it is already clear that, on any analysis, it was a gross miscalculation on his part. He called it the hardest decision of his life. It was also undoubtedly his worst, one which I sincerely hope comes to haunt him beyond the grave.

The only possible explanation for the dementia that has overcome Mr Heseltine is that he became the captive of the policies of his predecessors. He must have believed he had no room for manoeuvre, no option.

Once the electricity industry had been privatised, it moved rapidly to diversify its sources of supply. The Government helped in this quest by approving licences for every gas-fired power station the industry wanted to build. That 'dash for gas', deliberately encouraged by the Government, is creating huge overcapacity in electricity generation, which in turn has led directly to a redundant coal industry. It doesn't matter any longer how efficient the coal industry becomes. British Coal could produce the cheapest coal in the world and it wouldn't make a bit of difference. The electricity industry is now locked into gas; it doesn't want or need coal, either British or imported, on the scale it once did - whatever the cost. It can readily be seen that this is a fiasco entirely of the Government's own making, unnecessary and avoidable.

It cannot make any kind of sense for the taxpayer to fork out pounds 1bn to close down half the coal industry at a time when the Treasury is desperately trying to cut public expenditure. Once the knock-on effect in local economies and the mining equipment industry of throwing all those miners on the slag heap is taken into account, the continuing cost in unemployment benefit and social security must be a minimum of pounds 400m to pounds 500m a year. That sort of money made available to the industry by way of subsidy would almost certainly have made it competitive with the cheapest coal in the world. Nor does it make any kind of sense to subsidise the nuclear industry to the tune of pounds 1.3bn a year by way of a levy on electricity users, and claim that coal is different and must stand on its own two feet. There is no logic whatsoever in what the Government has done. It is the politics and economics of the asylum - vindictive and irrational. I never thought I'd see the day when Arthur Scargill was made to seem like a moderate and reasonable man. This Government has managed it. Both in their handling of the economy and the coal crisis, ministers appear to have fallen asleep at the wheel. Unless something is done soon, the consequences are going to be bad, very bad indeed. If Mr Major doesn't know how to get us out of this madness - and judging by last week's events, his only talent is for exacerbating it - he should move over and let someone else have a go.