The Working and Management of an English Railway/Chapter 14

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The Working and Management of an English Railway by George Findlay
Chapter 14 — On the Relation of the State to Railways in England, and the Question of State Purchase of Railways


On the Relation of the State to Railways in England, and the Question of State Purchase of Railways.

As is well known, the relations of the State to railways differ in various countries to a very wide extent. For instance, in Belgium, practically the whole of the railways have been purchased by the State, and are worked by a department of the Government for the benefit of the public, very much as the Post Office is in England.

In Prussia, Bavaria, Wurtemburg, and most of the other German States, nearly the whole of the railways have been acquired by the Government and are worked as a Department of State; while in Austria, with the exception of one line, which is a State railway, the whole of the railways have been made and are worked by private companies, the Government merely exercising a certain power of control over the fixing of the rates and charges.

In France, some of the railways have been constructed and are worked by the State, and others have been made by private companies, but on a system of territorial concessions, by which these companies are secured against competition, and the Government, in consideration of this fact, exercise a complete control over the fixing of the rates. In India, the railways have been constructed under various conditions, some of them by joint-stock companies, as in England, but guaranteed by the State, while others have been built absolutely by the Government. In the United Kingdom, all the railways have been constructed by joint-stock enterprise, under the sanction of Parliament, without any subsidy or guarantee whatever; but Parliament, in granting the powers to buy land and make a railway, fixes the maximum tolls to be charged, and the Government, under various Acts of Parliament which have been passed from time to time, retains certain powers of inspection and control which will be more particularly detailed hereafter.

It may be said that, prima facie, anyone has the right to construct a railway on their own land and for their own use, and, similarly, a joint-stock company can be formed for any purpose by complying with certain formalities and by the process of registration; but when a number of individuals desire to form themselves into a company for the purpose of making a railway for public traffic, they require to obtain from Parliament compulsory powers for the purchase of land, whether the owners are willing to sell or not, to cross highways, divert roads and footpaths, to bridge rivers, and to make legal bye-laws, the breach of which shall be penal. Therefore, the first thing to be done by any group of promoters who desire to construct a new railway is to deposit a Bill, together with plans showing the course of the line and the limits of deviation. The Bill, if opposed, is referred to a Select Committee of the House of Commons, and subsequently to a like Committee of the House of Lords, and both these Committees sit and hear all the evidence that can be adduced, both on behalf of, and in opposition to, the Bill, as well as the arguments of the counsel employed on each side. The opposition usually proceeds from private land-owners, from Corporations and Town Councils, and from other Railway Companies who foresee competition from the new comers; but where a good case can be made out, and the Committee can be fairly satisfied that the construction of the new railway is required and will be for the advantage of the public, the powers sought for are usually granted, and the opposition is satisfied as far as may be necessary by the insertion of accommodation or protective clauses in the Bill.

The Bill having been sanctioned by Parliament, the company next proceed to purchase the land, and here they find the advantage of the powers they have obtained; for if they find a landowner unreasonable and exorbitant in his demands, they can serve "notice to treat," and claim to have the merits of the case investigated either by a sheriffs jury or by arbitrators, who will hear evidence and decide what is a fair price to be paid, which price the landowner is bound to accept. The case was widely different with the promoters of the early railways, who had to submit to the most excessive demands on the part of the landowners as the price of their consent to sell their land for the purposes of the railway, and we are told, for instance, that the land for the London and Birmingham Railway, which was liberally estimated to cost £250,000, actually cost three times that amount, or about £6,300 per mile, the most extravagant sums having to be paid for compensation, for consequential, damages for fancy prospects, and other unreasonable demands, in order to buy off the opposition of the landowners. Claims such as these are not heard of in these days, or if they were, they would at once be scouted by any jury or arbitrator before whom they were brought.

The growth of the traffic on the principal railways has brought about the necessity of widening or laying down additional lines of rails upon the principal trunk railways, and as this usually involves the purchase of additional land, and more or less interference with public roads and bridges, the operation has to be sanctioned by Parliament very much in the same way as if an absolutely new line of railway were contemplated, although there is not, as a rule, so much serious opposition to be encountered.

Another point of contact between the railway and the State is the power of control, within certain limits, possessed by the Board of Trade. Before any new railway or branch line can be made use of, it must be examined by the Inspecting Officers of the Board, and the permanent way, bridges, stations, and signals must be certified by them as being satisfactory and in accordance with a schedule of requirements laid down by the Board, and to which all railway companies are bound to conform. The same applies to any new line, or siding, or any interference, however slight, with the lines upon which passenger trains run. All accidents involving the least injury to life or limb, whether of passengers or the servants of the company have to be reported to the Board of Trade, who, in every case where they consider it necessary, appoint one of their Inspecting Officers to view the locus in quo, and hold an enquiry upon the spot into the circumstances of the mishap, hearing evidence, and reporting to the Board of Trade. A summary of these reports is submitted to Parliament annually.

The Board of Trade have also power to compel the companies to make use of a proper system of communication between passengers, guards, and drivers, to impose regulations as to the use of level crossings, to order bridges or subways to be constructed in lieu of level crossings, to insist upon the running of workmen's trains where they consider it necessary, and to call for various statistical returns from the railway companies.

In 1873, an Act was passed entitled the "Railway and Canal Traffic Act," which contained provisions of great importance as affecting the railways in this country. Divested of various minor enactments and of all unnecessary verbiage, the essential principles of this Act were as follows:—

(1) A new tribunal was constituted consisting of three "Railway Commissioners," one of whom was to be of experience in the law, and another of experience in railway business, who were to decide all questions of difference between any two railway companies, or between a railway company and a canal company or between any individual and a railway or canal company, upon the application of either party to the difference.

(2) It was ordained that where two, railways formed part of a throughout route between two given points, one of the said companies might call upon the other to afford facilities for the conveyance of through traffic over the lines of the two companies, by giving written notice of the through rate to be charged and the route to be travelled. If the company receiving the notice objected to the rate or the route, the matter was to be referred to the Railway Commissioners for decision.

During the fifteen years that this Act has been in force, the Railway Commissioners have had a considerable number of cases submitted to their judgment, and although their decisions have not at all times escaped severe criticism, it cannot be denied that they have dealt fairly and equitably, on the whole, with the questions which have been brought before them.

During the last few years a demand has arisen from certain quarters for fresh legislation in a spirit apparently hostile to railway companies, although mistakenly supposed to be in the interest of the general public. The promoters of this agitation have assumed that the rates and charges of the companies were too high, and that the commerce of the country would benefit if the State were empowered to fix the rates, instead of leaving the companies to do so within the limits of their toll powers. The companies have strenuously opposed this demand, on the perfectly logical ground that Parliament, having sanctioned the existing railways, with power to take certain tolls for their use, upon the faith of which the capital for their construction had been subscribed, had no just claim to deprive the shareholders of a portion of their profits, unless it was prepared to compensate them for their loss. It is also argued, and is easily susceptible of proof, that the railway companies, so far from having unfairly taxed the trade of the country, as is asserted by their assailants, have been its best friends, and have done everything in their power to foster and encourage it; treating the public fairly and liberally, and keeping well within their powers as regards tolls. They would, indeed, have been suicidal in acting otherwise, for their course is shaped by men of business, who are well aware that the prosperity of trade means the prosperity of the railway companies, and that, in short, the welfare of each is dependent upon the other.

The public, however, it is to be feared, are far from realising how much the companies have done for them, or how the conditions of railway transit, both for passengers and merchandise, have been revolutionised in their favour in these modern times, without the companies reaping any additional remuneration, the maximum tolls being now precisely what they were when the railways were first authorised, while in every other respect the scene has entirely changed. The stations, which were once of the most primitive description, consisting of little more than a platform and an office, have been replaced by costly and elaborate structures, replete with every kind of accommodation, and erected at a large expense; the trains are luxuriously fitted up with every modern appliance for comfort and convenience, and run at a rate of speed never dreamt of in the earlier days; the merchandise is carried in express goods trains from one end of the country to the other within the twenty-four hours; vast sums have been spent in providing warehouses and depots, machinery and appliances, where, in the old days, the companies simply took their tolls for the use of the rails and left others to find the accommodation; and yet, for all these advantages, they exact no increased payment. On the contrary, during the last few years great concessions have been made to the traders in the matter of rates; and wherever, it has been shown that a particular industry could be, developed or created by the quotation of low rates, or the granting of any other facilities, the companies have always been willing to meet the case in a liberal spirit, recognising the fact that in so doing they were consulting their own best interests as well as those of the public.

There is no doubt that the agitation against the railway companies has arisen in consequence of the depressed state of trade which has existed during the last few years, not only in this country, but all over the world, many of the largest undertakings in the coal and iron industries having been carried on in fact with little or no margin of profit to those interested in them; but, whatever the cause of the agitation, it has had sufficient force to induce two successive Administrations to attempt legislation in order to satisfy it.

In 1886 Mr. Mundella, the then President of the Board of Trade, introduced a "Railway and Canal Traffic Bill," which met with vigorous opposition on the part of the railway interest, but Mr. Gladstone's Government fell before any decision was arrived at with regard to it. In the last session of Parliament (1888), however, a bill was introduced by Lord Salisbury's Government, and with some modifications in Committee became law, under the title of the "Railway and Canal Traffic Act, 1888," containing, inter alia, the following provisions:—

(1) The Railway Commissioners' powers, as defined by the Act of 1873, are renewed, and their body is re-constituted so as to consist of two appointed members (one of whom is to be of experience in railway business), and three ex-officio commissioners, one for England and Wales, one for Scotland, and one for Ireland, these latter being judges of a superior court, each of whom will preside in cases only which are heard in that part of the United Kingdom for which he is nominated.

(2) Town councils, county authorities, urban and rural sanitary authorities, harbour boards, chambers of commerce, trade associations, and, in short, almost every constituted body may become the plaintiff to the Railway Commissioners in any matter in which that tribunal has jurisdiction.

(3) The new Commission is invested with jurisdiction over disputes as to the legality of tolls, rates, and charges, and may enforce payment of them, may order traffic facilities to be granted, notwithstanding agreements between companies to the contrary, unless the agreements are confirmed by Act of Parliament, by the Board of Trade, or by the Commissioners themselves, and may award damages to aggrieved parties.

(4) Every railway company within six months of the passing of the Act, is to submit to the Board of Trade a revised classification of merchandise traffic, and a revised schedule of maximum rates and charges applicable thereto proposed to be put in operation, and is to state the nature and amount of all terminals proposed to be authorised in respect of each class of traffic. The Board of Trade are to consider the classification and schedule of charges, to hear any objections made by any parties whom they consider entitled to be heard, and on coming to an agreement with the company as to what the classification and schedule of charges are to be, are to embody them in a Provisional Order, submit them to Parliament, and bring in a Bill for an Act to confirm the order. If the Board of Trade cannot agree with the railway company, they (the Board) are to determine for themselves what they consider fair and reasonable, and report to Parliament, calling attention to the points of difference; certain machinery is then provided, by means of which Parliament will, in the end, decide between the Board of Trade and the railway company.

(5) Where complaint is made that a railway company unduly favours one trader or body of traders, or the traders of a particular district, by charging them less than they charge other traders or districts for similar services performed, the burden of proving that the difference in treatment does not amount to undue preference is cast upon the railway company. In deciding cases of alleged undue preference, however, the Commissioners may consider whether the lower charge or difference in treatment is necessary for the purpose of securing in the interests of the public the traffic in respect of which it is made; no difference, however, is to be sanctioned in the tolls, rates or charges for home and foreign merchandise in respect of similar services.

(6) Any person receiving or sending goods by any railway who believes he is being charged an unfair or excessive rate may complain to the Board of Trade, who, if they think there are reasonable grounds for the complaint, may appoint a competent person to communicate with both parties and endeavour to bring them to an arrangement.

Such are the leading provisions of an Act which the railway companies, it need hardly be said, opposed so long as there was any utility in opposition; but seeing that the majority was against them, they have recognised the wisdom of bowing to the inevitable, and loyally accepting this Act as a compromise of propositions of an even more extreme nature. They feel, however, that the railway interests have been hardly dealt with, and, in particular, that the introduction of the clauses providing for a revision (which may imply a reduction) of the tolls fixed by the Acts of Parliament authorising the construction of the railways, constitutes an extreme measure not warranted by the circumstances or by any failure in their duty to the public on the part of the railway companies. On the contrary, the Railway Rates Committee of 1882, after going very fully into the subject and hearing an immense mass of evidence, mostly offered in a spirit hostile to the railway companies, have recorded their conviction in the following words, which will be found in their report:—

"Your Committee, in conclusion, report that on the whole of the evidence they acquit the railway companies of any grave dereliction of their duty to the public … Your Committee find that the rates for merchandise on the railways of the United Kingdom are, in the main, considerably below the maxima authorised by Parliament."

But there are not wanting those who are advocates of measures of a much more sweeping nature even than those involved in the legislation of the last session, and who go so far as to propose nothing less than that the Government should become the purchasers of all the railways in the United Kingdom, and work them as a department of State for the benefit of the public, the assumption being that by the concentration of the management, the absence of competition, and the appropriation of the profits reaped by the existing railway companies to the reduction of the present rates and charges, great benefits must accrue to the public at large. This proposal is one which has been more or less the theme of discussion from a very early period, and indeed it is a fact not perhaps generally known that an Act was passed as long ago as 1844 empowering the Government to acquire the whole of the railways on certain terms, and that the Act in question has never been repealed. In the House of Commons on the 5th May, 1883, Mr. Watt moved a resolution to the effect:—

"That in the opinion of this House the time has arrived when the Government should appoint a Committee or Royal Commission to take into consideration the question of acquiring the railways of the United Kingdom in accordance with the provisions contained in the General Railway Act of 1844."

The motion was, however, negatived.

It is to be feared that supporters of this proposition have not fully realised the magnitude of the operation they recommend, and nothing is more probable than that, if it ever came to be carried out, the sanguine anticipations of its advocates, as to its financial success, would prove to have been based upon fallacy. The Act of 1844 authorised the transfer of the railways to the State at 25 years' purchase of their average profits for the three years antecedent to the purchase, and this sum would be represented by about eight hundred and twenty-five millions sterling; but if ever a scheme of the kind comes within the region of practical legislation, it will certainly not be carried out on the basis of an old and obsolete Act of Parliament, passed at a time when the railway system was in its infancy. To commend itself to the legislature of the present day, and to overcome the strenuous opposition it would undoubtedly encounter, it must proceed upon the principle of equitable treatment of the shareholders of the existing companies, who would have to receive not merely the capital they had sunk in the undertakings, but some reasonable compensation for its prospective value. We believe that if the principle of State purchase were decided upon, it would ultimately have to be carried out somewhat in the following manner:—

As regards the lines that are now earning a profit, Government should guarantee a rate of dividend, which might be taken at the average of, say, three years preceding the purchase, and this would certainly not be putting too high an estimate on their prospective value, which would have a tendency to increase in view of the Government guarantee.

As regards capital invested in railways constructed, but paying no dividend, the question is more complicated. Each case would have to be considered on its merits, but for our present purpose we may assume that the justice of the case would be roughly met by taking this capital at half its nominal value, the Government paying say, 2½ per cent, per annum upon the reduced amount in consideration of their obtaining the possession and control of these lines. Lines under construction and paying no dividend at the time of purchase might be taken at their nominal value, the Government paying 2½ per cent, per annum upon that amount.

A perpetual Government railway consolidated stock might be created, and the stocks of the different companies be converted into this Government stock on the principle of equivalents; that is to say, that, for example, supposing the Government consols to bear interest at 2½ per cent, per annum, a company whose invested capital was five millions, and who, during the preceding three years had been paying a dividend at the rate of 4 per cent., would receive eight millions of Government bonds.

The following calculation is only an approximate one, but it will afford some indication of the probable financial result of an operation of this kind, supposing it to have been undertaken at the close of the year 1886.[1]

The total amount of capital (including both share and loan) invested in the railways of the United Kingdom was in December, 1886  £828,344,254
The gross revenue earned in the year 1886 was ; £69,591,953
At the present time the capital is earning dividend at various rates, from nothing at all up to 12 per cent.; but the bulk is earning from 3 to 5 per cent., and the amount thus distributed to the shareholders in the year 1886 was £33,073,706
(The average for the three years 1884, 1885 and 1886 was almost identical.)
The capital invested in railways constructed but paying no dividend is £55,810,316, upon one-half of which, say £27,905,108, the Government would pay 2½ per cent 697,627
The capital of railways under construction on which no dividend is paid amounts to £1,541,444, interest on which at 2½ per cent, amounts to £38,536
Total interest payable £33,809,869
Add working expenses of the railways, which in 1886 were 36,518,247
Total outgoings 70,328,116
As against the gross receipts of 69,591,953
Deficiency 736,163

There would thus be, instead of the large gains anticipated, an. actual loss, of nearly a million sterling per annum; but this calculation proceeds upon the assumption that the rates and charges and the gross receipts would be the same as they are at the present time, whereas one of the principal avowed objects of those who recommend State purchase is that, as the profits of the shareholders would be reaped by the Exchequer, the Government would be enabled to reduce the rates and fares for the benefit of the public. Yet if the Government ventured to do this even to the very moderate extent of ten per cent., they would, even after making every allowance for any economy of working that might be effected by the concentration of management, at once find themselves with a deficit of several millions sterling per annum, on the working of the railways, to be made up out of other sources of revenue.

But apart altogether from financial considerations, there are many and grave objections to the scheme, the most important of which may be briefly summed up as follows:—

The State purchase of railways would involve an objectionable amount of interference with the industries of the nation, and with the character of the people. The Government would become the direct employers of a vast army of men of all classes, from labourers to highly trained artisans, clerks and officials; they must come in contact with trades unions, face the question of employers' liability, and all the other difficult labour questions which from time to time agitate the industrial community, and at times they would even have to deal with strikes. In all matters of this kind, they, as a Government, would occupy a very invidious position as compared with the railway companies, who are merely mercantile bodies, dealing with labour as a marketable commodity, under the ordinary laws of supply and demand.

Trade would suffer from the absence of the efforts now put forth by the different railway companies, by granting low rates, constructing branch lines, and by other facilities to develop the competition of markets and to open up new districts.

The Government would be invested with a large amount of patronage, not only in the appointment and promotion of the staff, but in the placing of contracts for coal and iron and other materials, in granting railway facilities, and in many other ways, and they would always be open to the accusation of making use of this patronage for political purposes.

The policy of the railway administration, instead of being guided by one consistent principle, as at present, viz., the improvement and development of the traffic, with which the prosperity of the country is necessarily bound up, would, in all probability alter from time to time, as one party or the other succeeded to office, and this want of continuity would prejudicially affect the management of the railways, and the commercial interests so largely dependent upon them.

All experience of the working and of the scale of expenditure of Government departments is strongly opposed to the belief that so vast and difficult an undertaking as the administration of the railways of the country could be carried on economically and upon sound commercial principles by a department of State. Complaints would be innumerable, and the House of Commons, already overburdened with matters of detail, would, by the multitude of questions to be asked and answered, find its labours so much increased that the business of the country would be seriously interfered with. The traders, who have now the advantage of free access to the officials engaged in the management of the railways—men trained to understand their business and their needs, and willing and anxious to meet their views and assist their operations—would find themselves confronted by the attitude of a Government official, bound inflexibly by hard and fast rules, with no personal discretion, and with, above all, a great disinclination to incur any responsibility.

It only remains to add that in France, where the experiment of ownership of railways by the State has been tried for many years past on a very considerable scale, an agitation, is now growing up, as may be gathered from recent debates in the French Chambers, for the absolute sale of the State railways to private companies, on the grounds that the present system involves a very heavy annual loss to the Exchequer, and that any advantages which might be expected to result from the ownership of the railways by the Government are not reaped by the public, but are applied to the furtherance of political objects.

In Belgium, where, as before stated, the railways are worked as a department of the State, and the appointment of Minister of Railways is a political one, the patronage which lies in his gift is well known to be largely exercised for party purposes. Promotion in the service is entirely governed by consideration of the political tendencies of the individuals concerned, and when the Minister is a "Liberal" he will systematically refuse to appoint or promote officials who are known to belong to the "Clerical" party; while, on the other hand, if a "Clerical" Minister is in office, there is no hope of advancement for "Liberals " until their friends, in turn, succeed to power.

In Germany, where there has been considerable experience of the plan of working the railways as a Government Department, the financial result does not appear to be too encouraging. The Railway Department, it is true, figures in the Budget with a large annual profit, but this is only apparent, for the Landtag is every year called upon to vote supplies to be expended on the railways far in excess of the so-called profit, notwithstanding which loud complaints are heard of the want of sufficient plant for carrying on the working in an efficient manner.

The inference drawn from what is taking place in the older countries of Europe is in nowise contradicted by the experience gained from the result of the experiments tried in the new world at the Antipodes. The Victorian State Railways, which, until recently, were managed as a branch of the Government, somewhat on the plan adopted in Belgium, have now been committed to the charge of three commissioners, who are to be freed from all political influences, and to have absolute powers of control, as if the railways were the fruits of private enterprise, as in Great Britain. The same plan is about to be adopted by the Government of Queensland.

  1. The Board of Trade returns for the year 1887 are not completed at the time of writing.