GAS COMPANIES—ADDITIONAL CAPITAL.

HC Deb 06 April 1877 vol 233 cc686-99

MR. RAIKES,

in moving the following new Standing Order relating to Private Business, to follow Standing Order 188:— In every Bill by which an existing Gas Company is authorized to raise additional capital, provision shall be made for the offer of such capital by public auction or tender at the best price which can be obtained, said, he was not surprised that opposition to it should have been expressed by a number of persons in the country, who regarded their pecuniary interest as being materially affected thereby. He would be the last man in any way to blame those who had such interests at stake for endeavouring, as far as they could, to induce Parliament to adopt their view; but, at the same time, the House must be well aware that it could not be guided altogether by consideration of interests of that description, and that it had a duty to perform to the country at large. At the same time, he held that the proposed new clause could not be fairly regarded as infringing upon private rights, and it would really promote the public interest. Some people had endeavoured to inflame the public mind by hinting that this legislation might be followed by similar steps being taken with regard to other companies—railway companies, for instance—but it seemed to him that none of the reasons which should weigh with the House in agreeing to the change which he proposed would in any way apply in the case of railways. The proposed change was based entirely on the policy which had been adopted by Parliament in limiting the dividends of gas companies, and providing that those companies should be called upon, whenever they paid more than a certain rate of dividend, to provide for the public interest out of their profits. By the Gas Works Clauses Act of 1847 gas companies were allowed to earn a dividend of 10 per cent, if they could, and, after that, they might create a reserve fund up to the amount of one-tenth of their capital, which they might employ for purposes to which profits were applicable. It was also in some cases the practice that the companies should be able, out of these profits, to make up the dividends of the past 10 years to 10 per cent, in case of any of those years having fallen short of that amount; and having taken, as he thought, such exceedingly good care of the interests of the companies, the Legislature had provided that any surplus profits beyond the sum necessary for the purposes he had indicated should go in the reduction of the price of gas. It was in this spirit that he proposed this new Standing Order. He should be told that the Gas Companies Clauses Act of 1863 provided that shares in new capital were to be allotted to shareholders in a company at par; this provision was incorporated in various Acts; and on that the companies relied as enabling them to deal with their additional capital as they now did. But if the existing state of things in that respect were permitted to continue—if the companies were to be allowed to create new capital and to allot it amongst themselves at par, a capital which would command a premium in the market—there would be the greatest possible temptation to them to abstain from making any reduction in the price of gas, for the benefit of the consumer, and to create such capital, the interest of which would swallow up the whole of the balance above the 10 per cent divided on the old capital. His attention had been called the other day to the case of a company supplying a town of some size. The original capital was £16,000, which the company had contrived to get increased to £24,000, and now they came to Parliament for power to create "improvement capital" to the amount of £48,000 at 7 per cent interest. The value of their undertaking was such that they had been offered £110,000 for it by the local board, which they declined as being inadequate. The difference between £24,000 and £110,000 was the capitalized value of the amount which had gone into the pockets of the shareholders, and which ought to have gone into the pockets of the consumers. By the creation of new capital they would pocket a bonus which, he contended, ought to go to the public. He thought the House would commit a great mistake if it did not resolve steadily to carry out what he considered to be the clear intention of Parliament in its original legislation on this question. A Committee, presided over by the right hon. Gentleman the Member for Bradford (Mr. Forster), sat in 1875 on the subject of regulating the gas companies of the metropolis, and in consequence of its labours, in the following year the Gas Light and Coke Companies Act and the South Metropolitan Gas Company's Act were both found to contain clauses similar to that which he now asked the House to make general. He might be told that in those cases there was a quid pro quo in the shape of a clause arranging a sliding scale of prices in proportion to dividend; but what he proposed would not prevent any Committee from inserting such a clause in a Bill. Clauses providing for putting new capital up to auction or tender had been introduced into Acts for Nottingham, Swansea, Reading, Yarmouth, Exeter, Brighton, St. Helen's, Bristol, and Newcastle-on-Tyne. It could not, therefore, be said that the principle which he advocated was a new one, and he did not think that any person had a right to complain of that being done by a Standing Order which could be done by a Committee on a Private Bill. With regard to the Amendment which had been put on the Paper by the hon. and learned Member for Cambridgeshire (Mr. Rodwell), no one knew better than that hon. and learned Gentleman that, while there did not exist a better tribunal than a Committee of the House, as far as a broad general question was concerned, a Committee sometimes discharged its duties in a per- functory and hurried manner after the Preamble of a measure had been proved, and when questions of detail in connection with the various clauses remained to be considered. In places, therefore, where there was not a watchful and powerful corporation it might not be possible to secure such a clause when the Bill was before a Committee, and it was specially to give protection in such cases that he asked the House to assent to his Motion. However, he should have no objection to draft a clause which it should be optional to a Committee to insert as a sequence to the requirement as to putting new capital up to auction, and by which provision might be made for a sliding scale of price and dividend. It was now several weeks since he received a deputation of Parliamentary agents on the subject, and a copy of the Order had been forwarded to the agents. He had placed the Notice on the Paper for the week before the Recess, and he had endeavoured to secure early attention to the subject. At the present moment he had five unopposed Bills which had been adjourned until this subject had been brought before the House, and he had postponed them in order that all Bills should be placed upon the same footing this year. He trusted that hon. Gentlemen who would think their interests affected by the proposed Order would give him credit for not being actuated by any motive of hostility to them, but with an endeavour to promote what he believed to be the public good in a matter concerning his Department.

Motion made, and Question proposed, That in every Bill by which an existing Gas Company is authorised to raise additional capital, provision shall be made for the offer of such capital by public auction or tender at the best price which can be obtained."—(The Chairman of Ways and Means.)

MR. RODWELL,

in moving as an Amendment to leave out all the words after the word "capital," and to insert the words— It shall be an Instruction to the Select Committee to consider the expediency of provision being made for the offer of such capital by public auction or tender at the best price which can be obtained. said, he could assure the House that it was not without great reluctance that he found himself in opposition to his hon. Friend the Chairman of Ways and Means, and he was quite sure the House would give him full credit for the spirit of his concluding remarks. He did not see his way to accepting the compromise which had been suggested by the hon. Gentleman; for it appeared to him (Mr. Rodwell) the hon. Gentleman had put himself out of Court by the argument he had used in reference to it. He had certainly never seen any disposition on the part of Committees to shirk business, or to refuse to listen to any claim put forward. He reminded the House that this was a question which affected the interests of the millions upon millions of money invested in gas shares in this country. He believed that something like £100,000,000 was invested in those securities in this country, and it occurred to him that the proposed Standing Order was not one which could be passed sub silentio as it were. He had accepted the responsibility, and had brought forward his Amendment in order to give the Select Committees, before whom these Bills would have to go, a discretion in dealing with these matters, and to prevent the passage of a hard-and-fast law on the subject from which no company could possibly escape. For that would be the effect if this Order were agreed to. He imagined there would be no power to the Standing Orders Committee to set aside such an Order as that, and every Bill affecting gas companies must go into Committee with, so to speak, a rope round its neck; it would amount to a repeal of the existing law of 1863. He believed the Order would be a mischievous one, and that it would operate most unjustly and injuriously against both the shareholders and the public. He believed if the subject were left to be dealt with in the ordinary way, as it would by his Amendment, it would satisfy all parties. It seemed to him to be a strong measure to introduce a Standing Order affecting the interests of vast property, the effect of which would be the actual repeal of a clause of an Act of Parliament. The clause in the Act of 1863 which would be affected by this Order was in the following words:— Shares, stock, or any additional capital raised when the ordinary shares are at a premium shall be offered in the first instance to the existing ordinary share holders. Was it proper that a Standing Order from which there was no appeal what- ever should be made to repeal an Act of Parliament passed in 1863? He wanted to know whether that was a proper mode of dealing with such a largo question as this? They were, in fact, asked to repeal legislation on the faith of which persons had invested their money in gas property, and on the faith of which they paid the price they had done for those shares. It was a strong measure, and, in his opinion, one which was founded on neither justice nor reason. There was an error which seemed to be very popular, that gas companies were guaranteed 10 per cent. There never could be a greater fallacy. The fact was the law said after you had provided gas of a certain illuminating power and at a certain price you might divide 10 per cent if you could, and that all after 10 per cent was to go for the benefit of the consumer. That was a very different thing from saying they were guaranteed 10 per cent. A prudent man on buying gas shares took into account that he would be entitled to participate in future allotments of capital. He said to himself, "In the course of so many years I shall be entitled to some allotment under the Act of 1863." Were they, then, to override every principle of justice and the principle underlying every commercial transaction in life, to ask that man to give up the profits he anticipated on these shares? That was a question to which he wanted to hear some satisfactory answer given before the House divided on this question. Beyond that, it should be remembered that the price of coal and the state of the labour market might make it impossible for them to have any such dividend. In that case the value of gas companies' shares would become consequently depreciated. A comparison was drawn between gas companies and railway companies, and the latter being prosperous the hon. Gentleman might say to thorn in the course of time—"Your dividends are now far too large, they must be reduced." The fact was that railway companies being limited to 10 per cent had nothing whatever to do with the question now before the House, and he affirmed that Parliament was now asked to break a bargain which it had deliberately made. A question of the public interest in the gas supply had been raised, but he held that if such legislation as that now proposed were carried, it would operate not bene- ficially, but most prejudicially to the public. He would take for illustration a case, how the shareholders' interest in the gas companies might become prejudicially affected. It might be necessary to extend the operations of the gas companies to out-districts, a course which would necessarily incur a large outlay of their capital. But new capital was not always profitable capital, and if capital was increased the dividend for the ordinary shareholder would be pro tanto diminished. If then, they put their capital into the hands of strangers the ordinary shareholder would be an actual loser by such a transaction. Parliament had no right to deal with the property of gas companies, unless they went before a Committee, when their case would be heard and their whole conduct reviewed. If a gas company applied for fresh capital, it was in the power of the Committee to say on what terms that capital should be granted. That was fair and legitimate, but this was an arbitrary and summary mode of dealing with the question—by a Standing Order directly at variance with the positive arrangement which Parliament had made. Whatever view the House might take of the Standing Order, he hoped they would. give him credit for having called; its attention to a subject of considerable importance, and a subject which ought not to be lightly dealt with. He hoped that importance would excuse him for having trespassed so long on the time of the House, and would conclude by moving the Amendment of which he had given Notice, and which stood on the Paper in his name.

Amendment proposed, To leave out from the word "capital," in line 2, to the end of the Question, in order to add the words "it shall be an Instruction to the Select Committee to consider the expediency of provision being made for the offer of such capital by public auction or tender at the best price which can be obtained,"—(Mr. Rodwell,). —instead thereof.

Question proposed, "That the words proposed to be left out stand part of the Question."

MR. SERJEANT SIMON

said, his object in rising was to take the opinion of the Speaker whether he (Mr. Speaker) could put such a question as that submitted by the Chairman of Ways and Means from the Chair. The Act of 1863 expressly enacted that the shares in any additional capital, under certain conditions there stated, should be allotted among the existing shareholders. Therefore, if the proposed Standing Order were carried, it would be in direct contravention of the provisions of that Act of Parliament. No mere vote of that House could repeal an Act of Parliament, and such a Standing Order, overriding an Act of Parliament, could have no legal or binding effect. There was another ground upon which the proposition of the Chairman of Ways and Means could not be put, and that was that they could not repeal an Act of Parliament unless by the substitution of another Act of Parliament; and the Motion of his hon. Friend the Chairman of Ways and Means would, in effect, if carried, repeal the Act of 1863. It would not even leave option to the directors; and those who took shares in the companies must suffer. The Act of Parliament of 1863 said—"You must not come before any Committee for a change of this law, unless you can show strong grounds." Now, any man reading those two things together must come to the conclusion, that if the Motion of his hon. Friend was agreed to by the House of Commons, great injury must result to those who invested their deposits in railway shares. It was only in consequence of the lateness of his instructions—he meant the lateness of the Notice he had received that this question was to be brought on—that he had been prevented from bringing the matter under the Speaker's notice beforehand, and thus giving more time for consideration. He ventured again to ask whether a Standing Order repealing in effect an Act of Parliament could be put from the Chair?

MR. SPEAKER

The hon. and learned Gentleman asks me whether this Standing Order can properly be put from the Chair, inasmuch as it repeals, as the hon. and learned Gentleman said, an Act of Parliament. Now, a Standing Order does not, strictly speaking, repeal an Act of Parliament. This Standing Order is in the nature of an Instruction to the Committee to insert clauses to give effect to that Standing Order. When these clauses are introduced as part of the Bill, in pursuance of that Standing Order, they will of course be incorporated in the Bill and if the Act of 1863, or any other Act of Parliament is affected, it would be by a Bill passed through its different stages in this House, and not by a Standing Order.

MR. MUNTZ

said, it appeared to him that the question, which was very simple, was whether the gas companies were made for the public or the public for the gas companies. A contract was made between the Legislature and the gas companies by which a monopoly was granted to the latter on certain conditions—namely, that when the amount of remuneration was exceeded, the public should share in the surplus by a reduction in the price of gas; but they had taken advantage of the position in which they were placed, and had attempted to evade the provisions of the Legislature, and instead of reducing the price of gas had issued new shares at a considerable premium and obtained for themselves larger profits than were intended to be given by the Legislature. He thought that while the companies had their monopoly untouched the public should at the same time have their advantage, as laid down by the Legislature more effectually secured to them; and he thought the advantage could be secured only by the passing of the Motion.

SIR EDWARD COLEBROOKE

thought the hon. Gentleman the Chairman of Ways and Means had done good service in bringing this question forward; but he was in the position which, perhaps, several other hon. Members found themselves in—namely, that the subject was new to him, as the facts were only known to those hon. Members who had been accustomed to sit on Private Committees. He asked the hon. Gentleman whether it was fair, looking at the importance of the interests involved, to attempt to decide the matter—a matter which really affected an Act of Parliament—by a mere Resolution of the House. Committees had, as a general rule, the power of relaxing the severity of Standing Orders; but the present was an exceptional case, as it was proposed that the Resolution should be imperative, and applied to all cases; and when once passed, it would be impossible to repeal it. He asked whether it would not be a dangerous precedent to pass that Resolution. He quite agreed with the hon. and learned Member for Dewsbury (Mr. Serjeant Simon) that, in substance, the Resolution would have the effect of repealing clauses in former Acts. He thought the Chairman of Ways and Means had quite failed in his argument to show that the interests of the public and of shareholders in gas companies wore irreconcilable. No doubt they were antagonistic in certain cases, and he was far from saying that in those instances the utmost vigilance ought not to be exercised in order to ensure that the public should be cared for; but that was different from saying that one rule should be adopted for all cases. The Chairman of Ways and Means had shown from the precedents he had quoted that there was a tendency in present legislation to deal strictly with gas companies. Why, then, not leave the question raised by the Resolution to the Committees? The Committees were alive to the importance of the question, and there would be no danger in allowing things to take their own course. On the whole, he was favourable to the Amendment.

MR. YOUNG

said, that an enormous sum of money depended on the decision of the House. There could be no doubt that there had been a bargain between the gas companies and the public. One of the most important points of that bargain was, that when the shares were at a premium, if more capital was required those shares should be distributed amongst the shareholders; and that bargain could not be varied without the authority of an Act of Parliament without doing a great injustice. He thought there were few, if any properties against which so many raids had been made during the last few years as the gas companies. They did not deal in this way with any other vested interests, and he protested against their being treated as public nuisances, which would be the case if the Motion of the hon. Member for Chester (Mr. Raikes) were agreed to. He thought they were entitled to some consideration for having done a useful work at a time when few were willing to undertake the risk. What would the metropolis have done without its gas companies? Gas property had not always been a paying property, and he knew families that had hold gas property for years without receiving dividends.

THE CHANCELLOR OF THE EXCHEQUER

said, the House must bear in mind, in connection with this subject, that it was not a new matter, this question of dealing with the gas companies. It was a subject which from time to time during the last 10 or 20 years had been frequently before the House, and there had been important discussions with regard to it. It had led to a great deal of legislation, and to still more in the way of recommendations from Committees and persons in authority. They could not help feeling that the subject was one which naturally excited a great deal of interest; because, on the one hand, it undoubtedly touched the interests of a very large and, as was said, a very meritorious body of capitalists, who had done great service to the country; and it also affected more or less directly the capital engaged in other branches of industry; on the other hand, it did seriously affect the interests of the public. For some considerable time they had been endeavouring to find a solution which should be fair to the gas companies and to the public who were consumers of the gas, and a great deal of legislation not always entirely consistent with itself had taken place with a view to regulate this matter. There could be no doubt that the question of the issue of new capital and the manner in which it was to be allotted, whether to the shareholders at par prices, or to other persons at such prices as they might think fit to give for it, was one of the most difficult questions connected with the subject. This question had been solved in the case of a great number of gas companies connected with the metropolis by the Bill of last Session, and in other cases by providing that new shares should be offered for sale by auction. It did, therefore, appear that means existed at present, in spite of general legislation by Private Bills, of meeting the cases in that sense to which his hon. Friend the Chairman of Ways and Means had referred. They then came to the question whether they ought to go further, and by a Standing Order at once turn the balance entirely in favour of putting up all new shares to auction. No doubt his hon. Friend's clause was of rather a drastic character as originally proposed. It provided that in every Bill by which an existing gas company is authorised to raise additional capital provision shall be made for the offer of such capital by public auction or tender at the best price at which it can be obtained. That was a clause which made no allowance for the peculiar circumstances of a special case, and his hon. Friend was willing to modify it by a provision excepting those cases in which a Select Committee might take a different view. His hon. and learned Friend behind him (Mr. Rodwell) proposed to invert that provision, and to say that additional capital should only be put up by auction when the Select Committee expressly declared that it ought to be done. He doubted whether much benefit would come from that, because the Committee had already the power to do this. It was likewise a provision that did not cover the whole ground, because it did not cover the case of those Bills which did not go before a Select Committee, and which were dealt with by the Board of Trade or by a Provisional Order. It was acknowledged, therefore, that the question was not without difficulty when the House came to deal with it by a trenchant Standing Order. A Bill, on the other hand, afforded opportunities for frequent discussion, and on these occasions hon. Members were enabled to argue the question up and down and determine in what way the matter could be best disposed of. There, were no doubt, difficulties on both sides. But there was another principle which had been advanced by the hon. and learned Member for Dewsbury (Mr. Serjeant Simon), who was acting upon instructions, and he apprehended that the ruling of the Speaker on that point commended itself to the general sense of the House, and that was that the Act of Parliament could not be overruled in the manner proposed. But, although that was the case, the House was now dealing with a Standing Order which had been so far settled by Act of Parliament, and had been the subject of frequent and serious consideration. Without wishing at the present moment to express any positive opinion upon the merits of the different systems which had been advocated, he felt, and the Government felt, that to pass a Standing Order without further consideration which dealt with a subject that had been made a matter of legislation was rather a strong step. He would, therefore, suggest that the present discussion should be adjourned, and that more time should be given to consider what was the best mode of dealing with this subject. He thought what had passed had shown some of the difficulties in the way in a clearer light than ever before, and perhaps when the hon. and learned Gentleman himself (Mr. Serjeant Simon) had had more time to consider the matter and to study his instructions, he would be in a situation and the House would be also in a position to see its way more clearly to a solution of this question.

SIR ANDREW LUSK

said, he had received no instructions on the subject; but he thanked the Chairman of Ways and Means for bringing this subject before the House. It was all very well for gas directors and coal proprietors to stand up for the interests of gas companies, but this was a very serious matter for the community, and he was quite certain that if the public out-of-doors understood the merits of this question they would support the Chairman of Ways and Means, in the same way as he (Sir Andrew Lusk) intended to do, in the action he was taking in the public interest.

MR. RAIKES

said, he could not, after the recommendation of the Chancellor of the Exchequer, resist the Motion for adjournment; but it had struck him, in consequence of the representations that had been made to him, that, as he could not pass a Bill through the House, the course he had taken was the best under the circumstances. He thought, however, that it might be competent for the Government to deal with it by a Bill, and the great interests involved might fairly ask for the most careful consideration. He hoped, therefore, the matter would be settled by Parliament either in the way proposed or in that form.

MR. W. E. FORSTER

suggested that the recommendation of the Chancellor of the Exchequer should be acceded to; but, at the same time, he thought the House ought to be informed whether the adjournment was to take place for the consideration of the Resolution of the Chairman of Ways and Means, or whether the subject was to be dropped, or whether the Government intended to introduce some general Act? Upon the general merits of the question he would not trouble the House; but on the strength of the contention he had maintained last year he should, if the Motion of the Chairman of Ways and Means were pressed, be prepared to support it, and give his reasons for doing so. Some of the objections which had been urged to it would apply as strongly to that of the hon. and learned Member for Cambridge-shire (Mr. Rodwell), whose objections would apply as strongly to a Bill as to a Standing Order. Last year, when some of the most powerful gas companies in the Kingdom were before Parliament, there was scarcely any opposition to the adoption of the auction clauses, and if any very strong opposition had been entertained to them a good deal would have been heard on the subject of vested interests. He trusted that if the question were postponed, it would be with the clear understanding that in all cases of Bills that came on this Session there would be full power given to the Committees to insert the auction clause if they thought it advisable to do so.

MR. ROEBUCK

said, that as there was a doubt whether this Standing Order would be a really Constitutional proceeding, the best thing would be to appeal to the Government to take the matter into its own hands, and deal with the subject by introducing a Bill. The House would then understand the whole proceeding, and would act in a Constitutional way, instead of doing an act which might be regarded as most despotic, and which might excite a feeling of great alarm.

MR. SERJEANT SIMON

wished to make an explanation. He had received no instructions in the matter, and he had used the phrase more from professional habit, stretching over a great many years, than anything else. He had formed his opinion of the proposal from reading the paper after entering the House, and therefore he could not have spoken from instructions.

THE CHANCELLOR OF THE EXCHEQUER

hoped the hon. and learned Gentleman would not think he (the Chancellor of the Exchequer) had meant more than a joke when he referred to the expression that had fallen from him.

Debate adjourned till Tuesday 17th April.