HC Deb 22 April 1890 vol 343 cc1101-14

Considered in Committee.

(In the Committee.)

[Mr. COURTNEY in the Chair.]

Clause 2

(4.3.) SIR G. CAMPBELL) (Kirkcaldy, &c.

Before the 2nd clause is passed I should just like to ask the representative of the India Office whether it is usual, instead of saying in each case "The Secretary for India in Council," to insert a provision to the effect that wherever the term "The Secretary of State" is used, it shall mean "The Secretary for India in Council." It seems to me very misleading, and I think it would be better in every case to say "The Secretary for India in Council." I should like to know what is the usual practice.

*MR. W. H. SMITH

I have no doubt that the usual practice has been adhered to. All these Acts are drawn by one draftsman, and there is a common form.

Clause agreed to.

Clause 3.

SIR G. CAMPBELL

I wish to remind the Committee that this Bill was closured after 10 minutes' discussion on the Motion of the First Lord of the Treasury (Mr. W. H. Smith) and in the absence of the representative of the India Office. I am anxious for an explanation on several important points with regard to this clause, and, hitherto, we have had no proper opportunity for discussing the matter, or for obtaining an explanation. I wish to give the Under-Secretary for India (Sir J. Gorst) an opportunity of giving us some explanation, and, with that view, I propose to move to amend this clause by reducing the amount proposed to be granted by the sum of £500,000. There are many questions on which I should like to obtain information. It seems to me that this is a notable instance of that which I have several times drawn the attention of the House to, namely, the abuse, as I regard it, of the system of guaranteeing Indian Railway Companies. I am very much disposed to sympathise with what, judging from his action, appears to be the view of the Under Secretary for India, namely, that the less the House of Commons interferes with Indian affairs the better. An exception ought, however, in my opinion, to be made with regard to financial matters. When it is necessary to come to Parliament for powers to deal with financial matters, it is well that some attention should be paid to the demand, and that the debate should not be closured after a 10 minutes' interval. I think this is a not able example of the extent to which the system of Government guarantees is carried. I am told that there are hon. Members who intend to oppose this clause altogether. I do not quite sympathise with them, because I am very much in favour of Indian railways being-acquired by the State. Therefore, I am afraid I cannot vote with my hon. Friends. My opposition is not directed against the purchase of this railway, but is confined to the extravagant terms on which the projected purchase is based. I am afraid that we are bound to these extravagant terms, but I object to the vicious system tinder which we are continually guaranteeing new Indian railways. When the construction of railways in India was in its infancy it was wise and just that considerable guarantees should be given, and the profit paid to the promoters of the early lines was legitimate. This South Indian Railway is not one of those old railways, but is a modern line. I think the Under Secretary mentioned 1873 as the date at which the railway was guaranteed. It has never approached paying the guarantee. It has been a continual loss to the Government of India, and now they want to buy at a very large premium—I believe a premium of about 30 per cent. It must have been a very unprofitable contract; and if the people of India have had to pay a very heavy fine on account of the improvidence of such transactions, we certainly ought not to go on giving fresh guarantees, as has been done in the course of the last few years. I understood the other day that it was not proposed to give any more guarantees. I hope my impression on that point will be confirmed, and that we shall avoid such jobs in the future by having no more guarantees. I cannot understand how there is to be a profit out of the transaction which this Bill is intended to authorise. I should like the Under Secretary for India to tell us what is now proposed. I observe a very peculiar provision in the Bill, namely, that the Government should raise money by loan or by Debentures, or in the shape of Capital Stock. I know that in several cases these railways have been bought up by the Government of India—I think to the advantage of the State. The Bombay and Baroda Railway has not yet been bought up by the Government of India; but the Government have leased the railway on certain terms, and the result is that a very large addition has been made to the profits of the line— profits which are, to a great extent, earned by the leased line. I think that the £100 shares of that line now stand at something like £185. I am, however, as I have said, not opposed to the purchase of this railway. I only want to know that the terms are not extravagant, and that nothing is conceded to the railway beyond what, in the strictest terms of our bargain, we are bound to concede. I beg to move that the sum mentioned in the clause be reduced by £500,000.

Amendment proposed, Clause 2, page 2, line 15, to leave out £5,200,000, to insert £4,700,000.—(Sir G. Campbell.)

Question proposed, "That the words '£5,200,000' stand part of the Clause."

*(4.12.) THE UNDER SECRETARY OF STATE FOR INDIA (Sir J. GORST,) Chatham

I do not think I should be in order in following the hon. Gentleman in all the remarks on Indian railway policy which he has engrafted on his Amendment. But it will, perhaps, shorten the debate if I so far follow the hon. Member as to explain what is meant by this clause of the Bill. In this case it is not for the Committee to sanction any guarantee. That was done long ago. It is an inheritance which we have obtained from our forefathers. I believe that if it were in order to discuss the past with the hon. Member for Kirkcaldy, I could show that. the conduct of the Government in former days in guaranteeing these railways was not so extravagant and foolish as he seems to think. That is, however, necessarily a matter of ancient history with which we have at the present moment nothing to do. We came into an inheritance under which the Government of India was bound to pay the guaranteed interest on this railway, and we shall have to go on paying it.

SIR G. CAMPBELL

Will you mention the date at which the guarantee was given?

*SIR J. GORST

It was long before the year 1873; because in that year two railways then guaranteed were amalgamated under the name of the South Indian Railway. Since that time the Government have had to pay the guaranteed interest. They have to pay 5 per cent. on upwards of £3,000,000 of Stock. The hon. Member for Donegal (Mr. A. O'Connor) shakes his head. Perhaps he will allow me first to make my statement, and then he can make his. This was the state of things before the purchase was effected. The Indian Government had to pay 5 per cent. on £3,066,344 of Stock. That amounts to a sum of £153,317 a year. It also had to pay 4¾ per cent. on a further sum of £142,164 of Stock. That amounts to £6,753. The amount of guaranteed interest which the Government, therefore, had to pay on the Stock of the Rail- way Company was £100,070. They had, besides that, to pay a guaranteed interest on Debentures. They had to pay 3½ per cent. on the £756,300 of Debentures, amounting to £26,470, and 3¼ per cent. upon £313,700 of Debentures, amounting to £10,195. The total guaranteed interest which the Government had to pay on Debentures, therefore, amount d to £36,665, making a grand total which the Government of India had to pay to the company of £196,735. That was the state of things on the 1st of March of the present year. On that date the Secretary for India had the right to purchase the railway. Of course, it was his duty to consider whether it was to the interest of the taxpayers of India that he should exercise that right or not. The price he was to give was not a matter of discretion, as the hon. Member for Kirkcaldy seems to think. The bargain was made in the year 1873, and, if purchased at all, the railway had to be purchased at a certain specified rate. The Secretary of State had no choice in the matter. He could buy it at that rate or could let it alone. The price was settled by the contract made in 1873. It was a sum equal in amount to the value of all the shares and Stock of the company, calculated according to the mean market value during the three years immediately preceding (he expiration of the year during the six months after the expiration of which notice was given. The notice was given in March. The Secretary of State considered whether it would be for the benefit of the taxpayer of India that he should buy the railway at this price. He assumed he would be able to borrow the money in the English Money Market at the rate of 3 per cent.; at par. That is the assumption, and if the Committee will pass the Bill and allow the Secretary of State to operate upon the London Market no doubt that can be done. If the Committee choose to stop the Bill until advantageous terms are not available, the blame of imposing an additional burden upon the taxpayers of India will rest with the Committee and not with the Secretary of State. If the money can be borrowed, the amount required is the amount stated in this clause of the Bill.

SIR G. CAMPBELL

What is the premium to be paid?

*SIR J. GOBST

No premium is to be paid, but the price is settled in the contract.

SIR G. CAMPBELL

What is the price?

*SIR J. GORST

I have read it once. The price to be paid is to be equal to the amount of the value of the shares.

SIR G. CAMPBELL

What is the value according to the calculation?

*SIR J. GORST

I will tell the hon. Member if he will not interrupt me. According to the calculation, the sum of money which is to be paid is £5,267,557.

SIR G. CAMPBELL

What is the percentage on the original capital?

*SIR J. GORST

That is the price which is to be paid. I hope the rest of the Committee will understand the point. There is a contract fixing a certain sum of money. That sum of money is paid by the Secretary of State, and thereupon the line becomes the property of the Government. That being the sum, the interest, at 3 per cent. upon that sum, is £158,026, and there is a payment to be made to the Bank of England for carrying out the transaction, which amounts to £360 per £1,000,000 of Stock. That payment amounts, therefore, to £1,896. That is the cost of carrying out the transaction, making the total annual charge in the future, £159,922. Well then, inasmuch as the charge in question is £197,000, it is obvious that it is to the interest of the taxpayer of India that you should free India of that charge of £196,000 by incurring the liability for a future charge of £160,000. The annual saving to be effected to the taxpayer of India from the time that the transaction is completed will be £36,813. Now, that is the whole history of the transaction. The Secretary of State, having found that he could effect a saving of that amount to the taxpayer of India, gave notice to the Railway Company. The Government is now liable to pay that sum to the Railway Company. It only requires the sanction of the House to enable the Secretary of State to raise the money in the most convenient way—in the way in which it would be the least burdensome to the taxpayer of India to fulfil the obligation which is already incurred, and which the Secretary of State is legally bound to carry out. This explanation has been as short as I could make it, but I hope it has been satisfactory to the Committee. All that is really now required is that the House should sanction the Secretary of State borrowing in the London Money Market the sum of money which he has contracted to pay, because by doing it he will relieve the taxpayers of India from the obligation to which they would have been otherwise subjected.

SIR G. CAMPBELL

I really do not know why the Under Secretary of State should have such an extreme objection to explain to us the exact terms in which this railway is to be taken over. The bargain was not that the railway should be taken over at a fixed sum, but that it should be taken over at a price equal to the average price for three years succeeding the date of the notice. That involves a very considerable premium upon the original capital. I want to know what the price was at which each £100 of the railway was taken over? The market price, I gather, was £130, but I wish the Under Secretary to tell us exactly what the sum was.

*SIR J. GORST

I misunderstood the hon. Member's question. If he merely asks what was the mean market value I may tell him that is 131.116279.

SIR G. CAMPBELL

Now I understand it has been taken over at a premium of a little over 31 per cent. The result is that the railway, which has never approached paying the sum required to meet the guarantee, is to be taken over at a premium of 31 per cent. Such being the case, the calculation of the Secretary of State is that he can borrow money at 3 per cent., and that the result will be a large gain to the taxpayers of India. I want to know whether the Under Secretary can tell us deliberately whether there is any reason for believing that he can borrow in the English Money Market at par at 3 per cent. A further point I want to know is whether this £196,753 is payable annually—whether it is a permanent or a terminal annuity? If it is a terminal annuity is there not something which ought to be deducted?

*SIR J. GORST

The payment on one line is for 999 years, and on the other for 99 years. With regard to the price at which the Indian Government can borrow money, the hon. Member would do well to study the Money Market and the Times. My impression is that the Stock is above par.

(4.26.) MR. A. O'CONNOR (Donegal, E.)

The right hon. Gentleman the Under Secretary for India has had the very great advantage of being able to lay before the House a satisfactory and complete answer to the questions addressed to him from above the Gangway; but those questions were of so elementary a kind that one might almost have been spared them. My objection to this clause is of a very different character. If hon. Members had the time and convenience, I should invite them to examine for themselves the figures which bear on this matter in the account which has been furnished to us by the Indian Authorities. They will find that no two of the statements furnished to the House of Commons are in accord with each other. The Indian Financial Statement with regard to railways, the statement of the moral and material progress of India, and Blue Books which relate to railways, the annual Report with regard to administration of railway work and other things, are all different. It is perfectly impossible to make any two of them agree. The same observation applies with respect to the figures of Indian finance; they are absolutely misleading. With regard to the loss by exchange, those railway accounts are so manipulated that it is almost possible to produce any result you set yourself to produce with respect to the railways. But we have had lately, during the last two years, some further and better light in regard to their condition than we had previously. I mean a Report by an officer—I think his name is Colonel Conway Gordon—in which he deals at very much greater length and more clearly than any of his predecessors with these railway accounts. What do we learn? I ventured to say in the House some months ago that the accounts of these railways were cooked. The Under Secretary of State for Foreign Affairs was very much shocked, and he said it was an unworthy suggestion; but I will quote an authority, which I think the Government cannot reasonably object to, and that is the authority of the Times newspaper, in an article reviewing this very matter of the Guaranteed Railways, including' the South Indian Railways. It says— That from first to last the grand total loss —actual and prospective — from thy Guaranteed Railways is set down at £34,844,000. "The State lines," the writer of the article says, Have been always known to be unprofitable as a commercial undertaking, however defensible for military reasons; but there is an incorrect impression as to the Guaranteed Lines. They have been looked on in the past as yielding a steady revenue to the State, but now we are told the state of things is the very opposite. The explanation is that a sort of juggle has been practised over the shifting value of the rupee. The liabilities of the Guaranteed Lines have been incurred in sterling, and in sterling must be paid, while the receipts have been counted in rupees at an advancing rate of exchange, thus making the railways to appear what in reality they are not. That is a perfectly fair criticism, though I quote it from the Times, and I think it applies to every branch of Indian administration, as well as the railways. But in order to show how impossible it is to arrive at an exact financial estimate in connection with this proposed transaction, I find from the Revenue Account, that from the opening of the railway to the 31st March, 1888, the line has cost the Government 1,917,313 tens of rupees. The Railway Report gives the loss down to the 13th June, 1888, as £1,948,000. These two accounts are absolutely irreconcilable, because the one which gives the loss in sterling shows a total which is much greater than that which gives the loss in rupees, whatever rate of exchange you may take. According to the Act of 1874, the rate of exchange was to be 1s. 11d., so that on this item alone there is an error of nearly £250,000. Under these circumstances, it is not unnatural that inquiries should be made as to the exact figures, whether in rupees or in sterling, that the Government bases its proposal upon when it asks us to agree to this Vote. The Government say that the adoption of this scheme will enable them to economise to the extent of £36,000 a year. Well, I demur to that statement. I think it proceeds upon a fallacy—the fallacy that because a certain half-year's accounts of the company showed so small a margin of receipts over working expenses that the Government had to pay for that half-year a large sum of money to meet the guarantee interest therefore that liability is certain to recur annually for 999 years. I say that this is a fallacy, and I base my objection to it on the accounts of the railway itself, from which I find that so far from such an amount of 'money being required in a normal half-year, no such sum has ever been required before, and it often happens that the earnings of the railway have proved nearly sufficient to meet the liability. Now, Sir, the capital expended to the 31st December, 1888, was £4,095,000. For that year, the net revenue, after paying working expenses, was £160,000. The amount required to meet the guaranteed interest on the capital paid up and expended was, I think, £213,004. If you deduct the net revenue for the year at £160,000 from the total guaranteed interest, the balance for which the Government is really responsible is only £53,345. I do not know the rate at which the Government of India can borrow money in the London Money Market at the present time; but taking the account for the year 1888—the last year for which I, at any rate, have been enabled to obtain a complete account— it is perfectly clear that it requires nothing like £5,000,000 to meet the liabilities. I think the sum of £1,700,000 at the very outside would amply and adequately provide any funds necessary to secure the annual income for meeting any liabilities on the part of the company. If the Indian Government are able to raise money at 3 per cent., you do not want more than £1,750,000 to meet this liability. Now, the Government, for some reason or other, have apparently jumped at the opportunity of acting under the terms of the contract with the company, and have given notice of their intention to purchase the railway, and to purchase it under circumstances which are abnormally unfavourable. If they had considered the amount which they had been called upon to pay over and above the net Revenue during the last 10 years, they would have found that they did not require anything like the amount of money they now ask for. The arrangement as to price was entered into in the original contract in 1874, and it was practically the same as was embodied in the contract with the Carnatic Company 16 or 18 years before that. When the Government chooses, at a certain period, to give notice to buy up the line on the average of throe years' price of the share capital, is it not perfectly plain that the market value of the share capital has absolutely nothing whatsoever to do with the financial history of the line? Whether the line is making an enormous fortune or whether it is a hopeless failure, the Government guarantee of 5 per cent. will always keep the Stock up to the figures at which it now stands, namely, 131, and that is the price which is secured by the shareholders whenever they wish to part with their shares. In the case of a railway which, as a going concern, pays such a dividend as to justify a premium, the shareholder gets credit for that. Suppose the Indian Government purchases a line, which is very successful as a business concern, you will be in the position in which, if you had not purchased, and the company had gone on working the line, you, as a Government, would not have been called upon to pay a single farthing in respect of the guarantee of 5 per cent.; and in such a case there could be no reason for asking the House to make an advance for that purpose. But take the other side of the question. Suppose the line is in a bad commercial condition. Do you not see that you lose by making the purchase, because at present you are bound only to pay the 5 per cent., which you have guaranteed, whereas under this Bill you are not only going to make a capital payment which represents a liability equal to 5 per cent., but you are also taking upon yourself the responsibility of working a commercial concern which is hopelessly unsuccessful. On either horn of this dilemma, then, it appears that this proposal of the Government is an unwise one. So far as the shareholders of the line are concerned, it is a matter of supreme indifference to them whether or not the Government buy up the undertaking, for they, at any rate, are secure of 5 per cent. on their investment. It appears to me, on the grounds I have stated, that the Government are making a very great mistake, and I invite the House to consider the arguments I have put before it. Those arguments have not been met by any statement we have heard from the Under Secretary for India. I agree with the observations which have been made with regard to Guaranteed Lines, and that to continue our old policy as to them under the present circumstances would be a very great mistake. It may have had some justification for the past, but there is no doubt that the real secret of success in railway management is the incentive to personal gain and to dividend earning. Only the other day, at the meeting of the Legislative Council, the Public Works Minister, in a discussion on the Budget, spoke of the admirable example set by certain Indian Railway Companies which did not ask for guarantees from the State. I believe if the Government had refused to buy this line, and had left the company to work it under the strict supervision which the State is authorised to exercise, they would have caused this line, which has been increasing its traffic (both goods and passengers) for the last five or six years, to have earned the dividend of 5 per cent. for itself; and' if the company had failed to keep the line in repair, if it had failed in any way to do its duty, the Government would have had it in their power, under the Act of 1874, to do what repairs were necessary and to deduct the cost of those repairs from the guaranteed interest. I very much doubt whether the Government have exercised such a power in any case. If they had, I am inclined to think that this question of buying up lines would never have arisen. I invite the Committee to observe this fact, that we have not had a single word from the right hon. Gentleman as to the amount or condition of the rolling stock, as to the condition of the line, or as to the repairs which are likely to be required immediately after the Government takes over the concern. The right hon. Gentleman, too, has not mentioned that there is to remain an undischarged liability of £420,000 on account of the Debenture Bonds.

*SIR J. GORST

That is so. The Debenture Stock is irredeemable.

MR. A. O'CONNOR

There are Debenture Bonds and there is Debenture Stock. As I understand it, the sum of money provided for in the Bill will include the purchase money and a capital sum of £1,700,000 for Debentures, which are to be paid off when they mature. But over and above all, there is a sum of £420,000 which is to remain as a charge on the undertaking. Indeed, it is very difficult to make out what is the exact liability this Bill represents. We do not know the amount of liabilities ahead, or the condition of the line, or the amount and condition of the rolling stock. Yet these are points on which the Committee might reasonably have expected information.

*(4.48.) SIR J. GORST

I think the hon. Member is mistaken in his ideas as to the supposed disastrous results of this proposal. He supposed that the railway might turn out to be an extremely bad concern, and would not pay working expenses. Well, the Government in such a case would not be obliged to go on with it. But, in regard to this particular line, there is no prospect that it will get worse than it is. What is the state of things now? The Government is liable to pay £197,000. Under the Bill it will be liable to pay £100,000, or a saving of £36,800, so that, even if the line only just pays its working expenses, £36,800 will be saved to the Indian taxpayer. But, supposing the line turns out to be an extremely good enterprise, and itself pays not only the guaranteed interest, but has a large surplus of over £200,000 beyond that at present, the Government, under such a state of things, would be relieved of the payment of the guarantee, but would not share in the surplus.

MR. A. O'CONNOR

Yet the Government is entitled to a half share.

*SIR J. GORST

Yes; I am wrong in that. Bat if this Bill is carried, the Government will not only be relieved of the payment of the interest, but the £200,000 will go into the pockets of the taxpayers, so that on either horn of the dilemma the Government would have been a gainer by the transaction. The hon. Member has complained that I have given no information to him about the condition of the railway. My reason for not giving it to him is that such information is not relevant to the question before the Committee. If it had been a discretion as to purchasing the railway, such information would have been extremely relevant and would have had to be taken into consideration; bat this is a case in which the price was fixed many years since, and we are bound to buy at that price or not to buy at all. It is because it will be a profitable thing for the Indian Revenue to purchase the line at this price that this transaction is submitted to the Committee for approval, and I hope that this Bill will now be allowed to pass.

(4.53.) MR. A. O'CONNOR

I think the real answer of the Government to the criticisms which have been advanced is to be found in the closing words of the right hon. Gentleman. The Secretary of State has apparently gone to the company and said, "I will buy the line." He has entered into an agreement, which is now of some months standing, for the purchase of the line, and whether that agreement is reasonable or not—I think it is fatuously foolish and extravagant, although the right hon. Gentleman thinks it wise and judicious—the House has no option bat to pass the Bill, and is merely going through a pure formality in doing so. It is all a foregone conclusion. True, it is scarcely a dignified position for this Committee to be placed in; and I must complain of the power which enables the Secretary of State to enter into a large negotiation involving the expenditure of millions of money without first obtaining the sanction of the House.

(4.55.) SIR GEORGE CAMPBELL

I ask leave to withdraw the Amendment, because I am satisfied, that on the whole, the proposal of the Government will be an advantage to India. But I hope we shall take warning from the result of this transaction and not enter into such imprudent engagements in the future.

Amendment, by leave, withdrawn.

Clauses agreed to.

Bill reported to the House without Amendment.

Bill read the third time, and passed.