§ Order for Second Reading read.
Motion made and Question Proposed—
That the Bill be now read a second time.
§ MR. E. H. PICKERSGILL (Bethnal Green)
Sir, I rise to move that this Bill be read a second time upon this day six months. The object of this Bill is to consolidate and convert the capital of the 1193 Gas Light and Coke Company, and if this were the only proposal, I should regard it very much in the light of a matter affecting the shareholders alone, and not affecting the public position. But what I object to in this Bill is the watering of the stock, and if the House will kindly grant me just a few minutes I will state, as briefly as possible, what are my objections to the Bill. In the first place, the House will see that this is not a small Bill, but that the interests affected are very enormous. When I say that the stock which it is proposed to convert by this Bill amounts in the aggregate to close upon £12,000,000 sterling in nominal value, the House will see that, as I have said, it is not a small matter with which it is called upon to deal. It will, however, be convenient if, in explaining the effect of this Bill, I confine my attention to the ordinary stock of the company, which amounts to upwards of £6,000,000. It is not necessary that I should go further back in the history of the company than to the Act of 1876. By that Act, a Parliamentary bargain was made between the company on the one hand, and the consumers on the other. The relation which was to exist between the dividends which were to be paid and the prices which were to be charged for the gas was regulated by what is known as the sliding scale; that is to say, there was to be a 10 per cent. dividend on the ordinary stock, because I believe the dividend then payable was taken as the standard of dividend, and the then price of gas—3s. 9d. per 1,000 feet—was taken as the standard price of gas, and it was stipulated that for every penny charged in any year in diminution or in excess of the standard price, the standard rate of dividend should be reduced or increased for that year by one quarter per cent. Further, by that Act the interests of the public were protected by what is called the "auction clause"; that is to say, it was stipulated that any stock thereafter issued should be submitted to auction at the best price that the market could afford, so that the permanent advantage should not go to the shareholders, but that it should be appropriated to the purposes of the undertaking, and in this way accrue indirectly for the benefit of the consumers. Now, Sir, I say that the principle of the auction clause was to 1194 support and strengthen the sliding scale, and that the general effect of this clause was to provide that the shareholders should not from 1876 always receive any additional advantage without some corresponding advantage accruing to the consumer. Under the settlement of 1876, both the shareholders and the consumers have benefited. The price of gas offered by the company is now 2s. 10d. per 1,000 feet, and the dividend on the ordinary stock is 12¾ per cent. But the company is not satisfied. The company say—and I desire to put their case as fairly as possible—that £100 worth of stock nominal, with a dividend of 12¾ per cent., which runs up the Stock Exchange price to something between £200 and £300, is not so saleable as £100 worth of stock, with a 4 per cent. dividend, and commanding a premium of, perhaps, £15 or £20. And so the company bring forward this Bill, in which they ask the House to allow them to convert their ordinary stock, with a standard rate of dividend of 10 per cent., into a stock two and a half times in nominal amount greater, but having a standard rate of dividend of only 4 per cent. Now this conversion, as I will presently show, will bestow great advantage upon the company, but the effect upon the community will be very mischievous. In the first place, the effect of the Bill will be to conceal from the eye of the public the real state of facts in relation to the company. The company is now paying 12¾ per cent. upon its ordinary stock, but if this Bill passes it will then only pay about 5 per cent. Now, I submit that it is contrary to public policy that the company, having statutory powers and dealing under those statutory powers in a monopoly, should seem to be paying only 5 per cent., when, indeed, and in faith, it is paying a dividend of 12¾ per cent. This is my first objection. My second objection is that it is proposed by this Bill to rip up the Parliamentary bargain made in 1876 between this company and the consumers in London, and to do that in the interests of one of two parties only—namely, the company. It makes a present to the shareholders in this company in the shape of an enormous addition to the Stock Exchange value of the undertaking, whereas there is nothing in the nature of any particular advantage accruing to the consumer. I 1195 understand that it will be said that there is some advantage to the consumer in this way, that he will receive a compensation through the operation of the auction clause upon that portion of the authorised capital of the undertaking which remains as yet unissued. But, Mr. Speaker, I think it is sufficent to knock the bottom out of that argument to merely state what the amount of the unissued capital really is. The total existing stocks are very nearly twelve million pounds, and the only portion which remains unissued amounts to £175,000. That, of course, is a mere bagatelle, and it is obvious that, while the company receives an enormous advantage, the advantage to the consumer through the operation of the auction clause on the unissued capital—namely, £175,000—is absolutely inappreciable. In the third place, I object to the Bill because the public will be prejudiced by its effect if at any future time the public should propose to acquire the property of the company. It is admitted that the effect of this Bill will be to increase the Stock Exchange value of the undertaking. The degree of enhancement of value is, of course, a matter of dispute. Indeed, it is denied that the precise amount of the enhancement of value can possibly be fairly stated; but no one can seriously deny that the enhancement of value must be very considerable, and will probably be enormous. We are not without precedent to guide us in this matter. In the case of the South Metropolitan Gas Company, where the stock was treated in a similar manner in 1896, under circumstances to which I will in a moment refer, the Chairman of the company estimated the probable increase of Stock Exchange value at £90,000, the Controller of the London County Council put the figure at £250,000; but they were both wrong, for, in fact, the enhancement of value has proved to be the enormous sum of £900,000. Now, I believe it will be argued on the other side that the enhancement of the Stock Exchange value of the undertaking will not affect the price to be paid in the event of purchase by the public. I anticipate that that will be said on the other side. It will be said, I presume, that the arbitrator will estimate the price not upon the Stock Exchange value, but upon the basis of divisible property. But I will leave that 1196 argument to be judged by the candour and common sense of the House, and for this reason that I think it will be difficult to persuade hon. Members that the market is not a possible basis that a company may put before an arbitrator. We must remember that an arbitrator does not give his reasons. We cannot possibly understand or know what motives are operating at the back of the mind of the arbitrator. But I do say there is a risk—I will not put it stronger than that—a very serious risk, which I think no man would willingly incur in the case of his own private concerns, that the Stock Exchange value will have no inconsiderable influence in the primary deductions of the arbitrator. Now a word with regard to precedents. I understand that my hon. Friends who oppose me will rely upon precedents, and I should like to say just a word with reference to them. There are I believe, four or five legitimate precedents in favour of the course which the promoters of the Bill desire to take. But all these precedents, with one exception to which I will refer, were agreed Bills; that is to say, the local authority which was entitled to oppose the Bill considered that in one shape or another it had received a quid pro quo. The one exceptional case is the case of the South Metropolitan Gas Company's Bill, and that Bill, Mr. Speaker, had a very significant history. The Bill was originally introduced in 1895, and it was referred to a Committee, and that Committee threw out the Bill, and made a lengthy report. The Committee considered that the subject of the conversion of stock was of so far-reaching and important a character that it ought to be dealt with by a Committee especially appointed to consider it, the same as was done in the case of the water companies, and the Chairman of that Committee, at any rate, does not sit on this side of the House. The South Metropolitan Gas Bill, having been thrown out by a Committee in 1895, was re-introduced in 1896. It was referred to another Committee, and it passed into law. In the first place, in regard to the Bill, it may perhaps be worth while to mention that there were some provisions in it which seemed to have influenced some members of the County Council in its favour, and may possibly have obtained the support 1197 of some Members of our own Committee. These provisions were those relating to giving to the employees of that company some representation in the management of the company. But I do not rely very much upon that. I have, I think, a much stronger ground when I say that this House is no more to be influenced by the decision of one Committee than it is by the decision of the other Committee, and, as it is quite clear that the Committees differed, this is not a question which can be determined by the taking and considering of evidence. It is distinctly a question of policy, and I say that, if it were referred to two different Committees of this House, those Committees would arrive at exactly opposite conclusions. It is, indeed, precisely one of those matters which the House ought to decide for itself, and it is upon the merits of the Bill that the issue is now raised without any reference to what has gone before. Lastly, Mr. Speaker, what is the feeling of the local authorities, whose duty it is to protect the public in this matter? That, I think, is a very important thing for the House to consider. The London County Council, the Holborn Board of Works, the Islington Vestry—which is, I believe, the largest in London—and other local bodies, have passed resolutions hostile to this Bill. The action of the London County Council is particularly significant. It was not treated there in any way as a Party question. Leading members of the Moderate Party denounced this Bill in language even more vigorous than that which was used by my Progressive friends; and as a matter of fact, the London County Council was nearly absolutely unanimous—indeed, quite unanimous for all practical purposes, for the voting was: For the Resolution against the Bill 101, in favour of the Bill 4; and I am told that of the four in its favour two were tellers, so that you have the London County Council substantially unanimous against this Bill. I think, Sir, that this is not exactly the time when this company is entitled to come to this House, and ask for indulgences. The company has just given notice to raise the price of gas per thousand feet from 2s. 10s. to 3s. It is freely said by the local bodies to whom I have referred that this state of things is due to bad management and 1198 over-capitalisation. It may possibly be said on the other side that raising the price of gas will not, under the sliding scale, benefit the shareholders in the company. I would like to say one word about that. No doubt, the effect of a rise of 2d. in the price of gas per thousand feet will necessitate the reduction of the dividends by one-half per cent., but there can be no doubt that the object of the company in making the rise in price is to prevent a still heavier fall, which would happen unless they were able to put their hands in the pockets of the consumers, and take out this additional twopence. Sir, I have endeavoured to put this case fairly before the House. I have not intentionally omitted anything which would apply either in favour of the Bill on the one hand or against it on the other. I think I have stated as concisely as I can the serious objections which the representative authorities of London have to this Bill, and ask the House to reject this Bill. There is no urgency for it. It is only at the very best a financial juggle. Let the House throw out the Bill this year and leave the Company free to satisfy the representative authorities of London, so that new arrangements, if necessary, can be made. But that new arrangement should be one which would be equitable to both sides of the bargain, which was made in 1876.
§ *MR. F. G. BANBURY (Camberwell, Peckham)
Mr. Speaker, the hon. Member who has just sat down has advanced us a reason for asking this House to reject the Bill, the statement that the consumer will gain no benefit, and that any public body who may desire to purchase this Company will lose should this Bill become law. Now, the hon. Member says that the value of the Stock Exchange price will be increased, and that, no doubt, is true. But I venture to say that that will be equally a benefit to the consumer as it will be to the Company; and, in any case, I think that the increase in value cannot be held to affect the question of purchase by a local authority. I do not believe that any water-works or gas company has ever been purchased upon the basis of the Stock Exchange 1199 value. I believe that every such undertaking has always been bought upon revenue and not upon the capital. It would be a very unfortunate thing if the capital value was introduced into a purchase of this kind, because there would be nothing to prevent a number of persons combining to enhance the price upon the Stock Exchange, whereas it is a very difficult thing to attempt to tamper with the dividend, which can always be easily ascertained, while the actual price on the Stock Exchange is a thing that can be arranged by people buying and selling. Then the hon. Member says he would not object to the Bill provided it were only for the purpose of consolidating the Preference Debenture Stock. He objects only because the Ordinary Stock is going to be divided. I may point out that if he only objects to one clause, he might let the Bill go to a Committee, and allow the matter to be threshed out there. I object myself to one of the clauses—the 13th Clause—but I do not purpose to ask the House to reject the Bill on that ground. Now, as regards the watering of stock, the stock is increased, but at the same time the dividends are equally diminished, and, therefore, it is not a question of watering stock; it is simply a question of amount, because the dividend is reduced at the same time. The shareholders will gain nothing whatever by this Bill, beyond, perhaps, an increased value on the Stock Exchange; but the consumer will gain in this way, that, if it is necessary to raise more capital, it will be able to be raised on better terms if this Bill is passed.
§ *MR. BANBURY
But there is nothing to prevent the Company from coming to Parliament for powers to raise more capital. I would say that every large railway company has come to Parliament and consolidated their Preference and Debenture Stock, because they found the Company was much the better for doing so, and that they were able to borrow money on better terms. The same thing applies here, and I maintain that what tends to the 1200 benefit of the shareholder tends also to the benefit of the consumer. The hon. Member has alluded to the objection of the County Council, but I think that that objection arose from the fact that the Bill really was not quite understood. I confess that it does seem to me to be rather a large Bill, but, as a matter of fact, there is little in it at all. It will not in any way hurt the consumer, and it will not in any way benefit the shareholder, except by slightly enhancing the price of the Stock in the market; but it must benefit the consumer, because it will enable the Company to raise money on better terms. I hope that the House will, at any rate, let the Bill go before a Committee.
§ MR. H. KIMBER (Wandsworth)
The arguments, Sir, we have heard on the other side are well-known, old friends, having been brought to the notice of this House, and also used in Committees upstairs, not merely four or five times, but not less than 10 times, in the presence of representatives of 10 large towns, including the Metropolis. This matter is really res judicatur, and I think that the time of the House ought not to be taken up with the reiteration of arguments upon matters which have already been decided. The argument as to the South Metropolitan Gas Company's Bill a year ago is the very argument raised before the Committee by one of the most distinguished counsel at the Parliamentary Bar—Mr. Worsley Taylor—that if the Committee passed a Bill with this principle in it, it would be a precedent to follow. And, notwithstanding that, the Committee passed it, and this House endorsed it, and I submit, therefore, that the thing has not been passed, as the hon. Member said, without consideration, but that it is a thing which, has been adjudicated upon after argument. Now I will draw attention to another inaccuracy, not, of course, intentional, which was put before the House. The hon. Member said that every £100 worth of Stock which carries a dividend of 10 per cent., but which is really 12¾ per cent., is proposed to be watered—be calls it so; I call it sub-divided into two certificates, each carrying four per cent., and I always learned that two-and-a-half times four amounted to 10, and therefore the Company 1201 and the public are not paying one penny more. But the hon. Member put it to the House that this £250, which is to be what he called a "financial juggle," and a "watering of stock," is not more than, as he would have us believe, but a great deal less than the present price in the market at which this stock can be sold. The present price of a £100 stock is about £320—I am told it is £280, but, at all events, it is considerably more than £250. This cannot be said to be a juggle nor that the Stock Exchange has deliberately put the price of Stock at such a rate that they can get a great deal more than this so-called juggled amount of £250. Now, the argument of my hon. Friend opposite was that people would be mystified, and that the real price of Stock would be concealed, when they came to the local authority or the local authority went to them and wanted to buy them, and that so much more would have to be paid because the price of stock had been raised in the market. But suppose that were so, I do not see that that is an argument against the Bill. It ought to be competent for every joint stock company, well managed as this undoubtedly is, so to manage their entirely domestic affairs as they please so long as the interests of the public are not affected; and I submit that the interests of the public are not affected in this case. Besides the argument which has been put before the House, and which I will not repeat, there is this to be said. We wall take a case. Supposing that the division of the stock were coupled with the unification which is a very important part of this Bill—and the more the people see of unification the better they will understand it—there is a larger market, and where there is a larger number of buyers and seller—it must surely be better for everyone concerned. But supposing the price of stock, instead of being £280, was by this arrangement made £300, and after that the public authorities wanted to buy it. It would naturally be valued according to what the Stock Exchange showed. But the market price of a thing is operated upon by a variety of circumstances, and a hundred different things affect, and tell upon it. But no reasonable local authority in discussing the amount they should pay for a thing of this kind would go into the extrinsic, but the intrinsic, value of it. 1202 What would they look at? Why, the return they would get per annum on the amount of public money they would invest. I maintain that if they did their duty they would disregard any question of extrinsic market price. The hon. Member cited the case of the South Metropolitan Gas Company, but that is another inaccuracy. He said that in the case of this company the enhancement in value was put down by them at about £90,000, and by the officer of the London County Council at £250,000. I maintain that it has arisen from a great many other causes, for money has gone down in value. Another point which the hon. Member raised was this: that they were putting up the price of gas. If ever any gas company could be said to be doing a good thing for themselves and a bad thing for the public by raising the price of gas, they have only to consider what the sliding scale is. If they put up the price of gas, down goes the dividend. The question of putting up the price of gas is determined by many other considerations relating to the finances of the company, and the cost of the production of gas. I make these observations impartially, as I have no interest whatever in the matter myself, and I hope the Bill will pass.
§ MR. SYDNEY C. BUXTON (Tower Hamlets, Poplar)
I have listened to the speeches of hon. Members opposite, but I do not think they have made out a sufficient case that this Bill should go to a Committee, because it seems to me that any portion of a Parliamentary bargain on the part of a monopoly like this ought not in any sense to be permitted to be departed from, unless there are very strong reasons for it. The only argument urged by my hon. Friend opposite, and by my hon. Friend who has just spoken, was that the price of the gas stock would be increased. My hon. Friend who has just spoken said that, in his opinion, the price of the stock might be increased in the market if this Bill was carried through. My hon. Friend cast considerable doubt upon the question as to whether the intrinsic value of the stock would be increased in the market if this Bill were passed, and that was the only argument that I heard him urge. I think the House ought to hesitate before they pass this Bill. As 1203 representing the consumers and the ratepayers, we want to know what is the possible advantage to the consumer if this Bill is passed. I do not see in any remote degree whatsoever what the consumers' advantage would be by the passing of this Bill. My hon. Friend opposite said that if this Bill was passed—and it is stated in the memoranda—it would increase the value of the stock, and that, therefore, if the Company wanted to raise further capital they would be able to obtain that capital at a lower rate of interest, and it would be a disadvantage to the consumer. With regard to the increase, I think the figures stated by my hon. Friend behind me are quite conclusive, because we know that, with the increase in the use of electricity throughout London, it is not likely that the gas companies will be able to extend their operations, and it is not at least likely that they will have to come to this House for any extension of powers. They have already spent something like £12,000,000, and their unspent capital is about £175,000. I therefore oppose this Bill on the ground that when you have a company of this sort representing a monopoly in certain parts of London, when that company has obtained these powers which enable them to pay an enormous dividend of 12¾ per cent on the present price of gas, I do not think that this House ought to allow a bargain of that description merely in order to increase the market value of this particular company's stock. As regards the question of purchase, I do not think that there is any time in which the local authority would be likely to purchase, or any likelihood of their doing so, in view of the development of electric lighting. The only precedent we have in London of the taking over of one of these monopolies is the case of a water company; and, upon the question as to whether it was advantageous, it was distinctly based on the market value of the stock. I think the argument of the gentleman opposite that the market price would not affect the purchase is really the stumbling-block, for I think it would be one of the elements in the question of purchase. I do not wish to dispute that, because, as far as my recollection goes, it was founded upon the market price at the moment. I do not think the local authority would like to purchase. There 1204 was one point in connection with the speech of the hon. Member who spoke last, in which he said that we ought to allow this Bill to go through, because other gas companies in other towns have been enabled to carry out practically the same proposal. I think my hon. Friend behind me pointed out a conclusive answer to that, namely, that in all these other cases it has been a question in which there has been an agreement between the gas company and the local authority, and there has in every case been some quid pro quo on the part of the consumers. It is because the consumer obtains no advantage, and because the local authority has not been consulted, that I am opposed to it. If the gas company would come to some agreement of the nature I have alluded to, then I would certainly not oppose this Bill, but so long as they have not even endeavoured to come to any such arrrangement with the consumers and the ratepayers I think the House should reject the Bill on this principle.
§ *MR. H. H. MARKS (Tower Hamlets, St. George's)
I wish to remind the House that this Bill was discussed by the late London County Council, which consisted of about one-half of Moderates and the other half Progressives, and only two members of the Moderate Party were found to be in favour of it. More than 100 members of the Council condemned it, and the Council decided to oppose it. I would also call the attention of the House to the fact that no explanation is given or offered of the action of the company in raising the price of gas, and the House can form its own judgment as to the object of that move, and as to whether due consideration has been paid to the consumers, or whether the raising of the price of gas is intended to prepare the way for the equalisation of dividends on the increased stock. To pass this Bill would be to establish a very mischievous precedent in the case of other companies supplying gas or water. For my own part, the mere fact that no explanation has been given as to the raising of the price of the gas itself will induce me to oppose the Second Reading.
§ SIR JAMES JOICEY (Durham, Chester-le-Street)
I support this Bill because its effect is practically nothing more nor 1205 less than a consolidation of the capital. That principle has been applied in the past by this House dozens of times in connection with railway companies and with regard to the South Metropolitan Gas Company, and I think if the same privilege of dealing with their own affairs in this case were refused it would be most unjust. I have heard an allusion made to the question of the advance in the price of gas. Well, that is simply an advance in connection with the arrangement made by the sliding scale, and when the price goes up there is a reduced dividend. That sliding scale since it has been introduced has been of immense value to the consumers of gas in the City of London. I can quite understand all consumers finding fault with the price of gas going up. So long as we do not purchase, we are, glad to see the price as low as possible. Well, we in the North of England would like to see the price of coal higher in London instead of lower, and we should like to have a much higher price for coal, even at the expense of the consumers of gas. With regard to the advantage given to the consumer by this Bill, I am bound to admit that it is a very trifling one, but it is also a trifling advantage that the company gets. You must understand that every penny of capital that has been raised for many years under the auction laws—that is, if they, wanted to raise £10,000 of capital, it is put in the auction room, and commands the full market price. The result is that, although my right hon. Friend said that the gas companies are paying something like 12¾ per cent. interest, as a matter of fact they are only getting that on practically one-third of each £100 of stock, for every purchaser of stock for many years has had to pay about £250 for each £100. I think it will be much simpler, and it will be an advantage not, only to the company but to the consumer, to have the capital consolidated in this company, as it has been in other companies, and on these grounds I support this Bill.
§ MR. WILLIAM WOODALL (Hanley)
I am glad that this question has been approached on both sides without any feeling. There are, however, many points that can only be justly considered by a Committee of this House. It seems to 1206 me impossible for Members sitting as we do here to realise the operation of the sliding scale or to discuss the dividends of gas companies and the rise and fall in the price of gas; nor is it easy for us to understand—although Gentlemen opposite have explained it very clearly to us. Inasmuch as the whole policy for a quarter of a century is involved in the opposition to this Bill, I hope it will be referred to the Committee.
§ SIR J. BLUNDELL MAPLE (Camberwell, Dulwich)
I wish to point out that the reason why the London County Council opposed this Bill was that there were certain clauses in it with which they did not agree, and to support a Bill you have to support it in all its clauses. This is a Bill which ought to go before the Committee upstairs to be dealt with, for there are clauses in it which will come out very different. With regard to the question of floating this Stock, I am one of those who believe that it is better for the shares of these large Companies to be as small as possible, and not in the large Stock that they now are. This Bill, with certain alterations which can be made upstairs, is a most vital Measure. As I said before, it was rejected by the London County Council, not because of Party considerations, by the Party with which I am connected, but because there were certain clauses which we could not accept.
§ SIR J. BLUNDELL MAPLE
(Camber-not going in imitate what has taken place on the Front Benches opposite. Evidently, the Government see certain difficulties in their way, and they leave the matter to hon. Members opposite. It seems to me that this Bill is a sort of conspiracy between the producers of coal and the sellers of gas to exploit the people of London. I do not think the Company is so popular at this moment that this House should favourably receive this proposal. The hon. Member for St. George's-in-the-East suggested that the Company had given no reason for the rise in the price of gas. But the case is worse than this; they say that it is because cause of the high rates charged by the rating authority that they have raised the price. You are told that it is purely a question of the sliding scale, but the price to the consumer does not go down 1207 so much as the profit to the seller goes up. No addition has been made to the moderate argument of the Member for Peckham, who put the merits of the Bill very low. Promoters of Private Bills should not treat this House as if it were a Committee of the Stock Exchange. It cannot understand the precise merits of this question of consolidated Stock. Bills should only be brought in here when promoters want to get leave to do some work. I think, considering the unpopularity of the Company at present, it would be very injudicious for the House to pass the Second Reading of this Bill.
That the Bill be now read a second time.
§ The House divided.—Ayes 171; Noes 89.
§ Bill read a second time and committed.