§ The capital of the Communications Company shall be fixed at twenty million pounds and shall not be increased except with the consent of the Treasury.—[Mr. Gillett.]
§ Brought up, and read the First time.
§ Mr. GILLETT
I beg to move, "That the Clause be read a Second time."
This problem of the actual capital of the Communications Company is one of the most important matters coming before this Committee. It is not necessary for me to remind hon. Members that the amount of interest at 6 per cent. is a fixed amount based on the capital, and that, after that amount has been paid, the consumer is to come in. It is, therefore, vital that we should satisfy ourselves that £30,000,000 is a correct figure, because, if the capital should be only £20,000,000, that would mean that to the extent of £600,000 the consumer would be deprived of benefit. I have put down the figure of £20,000,000 simply because I want the Government to prove to me that £30,000,000 is a correct figure. We have no information on this side, and the Committee has not been given any information, that would make it possible for us even to arrive at an estimate, but certain information has been given in regard to the merger. The merger, which in one sense does not come before us, is only important, to my mind, in this respect, that, if the figures for the Communications Company are based upon the merger figures, and if the 1788 merger figures are excessive, then the Communications Company's figures may be excessive.
As we have no figures whatever by which to judge in regard to the Communications Company, while we have figures for the merger, I have turned my mind to the merger figures, in order to see whether we can get from these figures some reasonable estimate, and whether, from that, we may assume that the figures for the Communications Company are reasonable. I understand that what is proposed is that, first of all, there should be an amalgamation of all the different companies concerned, and I have turned to see what the capital is of these different companies which I presume are being dealt with in the merger.
I find that the Eastern Telegraph Company has a nominal capital of £9,000,000, and it has certain subsidiary companies, namely, the African Direct, the Eastern and South African, the Europe and Azores and the West African Telegraph Company. Their total nominal capital comes to £10,200,000 odd, and then, I suppose, the Indo-European is included, with its £450,000. Then there are the Eastern and the Western Extension Companies, which have a capital of about £9,000,000, and there is the Marconi Company; and, finally, there is the Government interest, which might be represented by the figure that is going to be paid in cash—I understand, roughly about £2,500,000. If we add those together—[Interruption.] I may have over-estimated it by about £1,000,000, but that does not matter very much. I do not know if there are any other companies, and I should be very much obliged if the Postmaster-General would tell me if he knows of any other companies which are going into the merger and which I have 1789 not included. If he does, of course my figures would be to some extent vitiated. So far, it seems to me that the nominal capital of the companies included in the merger is somewhere about £22,000,000, leaving out of account any amount paid to the Government.
§ Mr. GILLETT
This is the paid-up capital, namely, £22,000,000. The figure put forward, however, is £53,000,000, and what I should like to know is how the figure of £22,000,000 which I have mentioned becomes £53,000,000. What I have done is to try to value these different shares at their market values—to find what this £22,000,000 of shares would cost if anyone went into the market to buy them to-day.
§ Mr. GILLETT
It is the capital of the companies which I believe have gone into the merger. I estimate it at £22,000,000, and now I want to know what that capital is worth at its market value. This is only its face value. As regards the Eastern Company, I estimate that its capital at the market value would be worth about £16,000,000. I have included the ordinary shares and also the debentures and so forth. Then I come to the Marconi Company, in the case of which also my estimate of the market value would be about £16,000,000. Perhaps I am over-valuing it, and that is what I want to do, because I want the figure I arrive at to give full credit to the companies at the highest prices.
§ Mr. WARDLAW-MILNE
Would the hon. Member kindly say what he means by "market value"? Is it the market value of the shares, or is he speaking of the assets?
§ Mr. GILLETT
I am trying to arrive at what it would cost anyone who went into the market to-day to buy up the whole of these shares at practically the top figures quoted on the Stock Exchange. As I have said, I estimate that, in the case of the Marconi Company, the figure would be about £16,000,000, while in the case of the Associated Companies it would seem to me to be about £1,500,000, and, in the case of the Indo-European, £800,000. I have not been 1790 able to obtain any figures for the Eastern and Western Extension Companies, but I have valued their £9,000,000 of capital at £216,000,000. Even if I take all these figures, I only get up to about £51,000,000, on top figures quoted on the Stock Exchange to-day, and I shall be very glad if the Postmaster-General can prove to see that that figure is incorrect. I shall be interested to know. At these inflated values it is only possible to reach £51,000,000, and, if I add the £2,000,000 that is going to be paid to the Government, it still hardly brings the figure up to the £53,000,000 for the merger—
If the hon. Member is going to base an argument on these figures for the capital of these companies, I ought to point out that neither this Committee nor the House has anything to do with the question whether the merger company is over-capitalised or not.
§ Mr. GILLETT
I am giving these figures with regard to the merger because that is the only way in which we can arrive at the figures for the Communications Company. I should now like to draw attention to the article in the "Times" of the 2nd August on this special aspect of the matter. In that article the "Times" estimates what the profits of the merger would be. I do not think I need weary the Committee by going into all the details, but it is estimated that the income of the merger company might reach approximately £3,200,000, and that the dividends on the 5½ per cent. Preference and "A" ordinary shares would absorb £2,800,000 odd. That would leave about £300,000 to cover expenses, to provide reserves, and to pay dividends on those shares. With regard to the "B" shares, hon. Members who have the Paper before them will remember that the larger amount went to the Marconi Company, and, as far as I can see from the "Times" figures, there is no dividend on these. That confirms my suggestion that the original figures have been over-estimated, and that the capital is too big.
If the "Times" figures for income are correct, and there is no money for dividend to start with on the ordinary shares, the supposition is that the capital of the merger is too big. If that supposition is correct, and if the merger has been used as the standard upon which the capital of the Communications Com- 1791 pany is based, then I say that in all probability the same argument applies to that also. It seems to me that what is going to happen is that the Marconi Company is going to sell that part of its assets which deals with cables and so forth to the Communications Company, and I understand that, in exchange, it is going to receive shares in the Communications Company. The directors of the Communications Company and the directors of the merger are to be the same, and, therefore, as far as control is concerned, the companies will be the same. The one will manage the cables, and the other will manage all these concerns which are in the hands of these different companies which have not actually been taken over by the Communications Company.
All this would be immaterial if it were not for the question of dividend and the right of the public to benefit. As you, Mr. Hope, have very truly said, the merger is nothing to us, and, if it chooses to put up an enormous capital at the beginning, and if the Marconi shareholders like to go in under those conditions, that is their affair. But it is very serious for this Committee if, in building up our Communications Company, we are putting the capital at millions more than it ought to be. I cannot help thinking, as far as I have studied the figures, that the capital of the Communications Company is far too large, and that it ought to be much smaller; and, if it were smaller, benefit would come to the consumer much more quickly and easily.
§ Lieut.-Commander KENWORTHY
I also have been attempting to work out the capitalisation of the Communications Company. My hon. Friend the Member for Finsbury (Mr. Gillett) has a far greater knowledge of banking, capitalisation and so on than I have, and, therefore, it is not surprising that I have come to a different conclusion. I desire to confine myself closely to the Communications Company, because, as my hon. Friend says, if the merger company likes to water its capital to the extent of £10,000,000 or £15,000,000, that is the look-out of the shareholders; so long as we, in taking it over, do not have to buy out the shareholders at the face value 1792 of watered shares, it does not very much matter. With regard, however, to the communications company, it is very important, from the point of view of the public, that we should be certain that there is no unnecessary watering of capital. On page 18 of the Conference Report it is suggested that the Communications Company should have a standard net revenue approximating to 6 per cent, on the capital. Where is that money coming from? It can only come from cable and beam wireless charges, and, therefore, if the capital of the Communications Company has too large a face value, up must go the cable rates and the communication rates generally. The case is like that of the railway companies. The railway companies are guaranteed a certain return on their capital, and, on application to the Rates Tribunal, are allowed to put up their rates if they can show that they are being hardly done by at the existing rates. If, therefore, there is water in the capital of the Communications Company, the public, and especially the cable-using public, are being robbed.
These are my conclusions. I have taken the whole issued capital of the Eastern Extension as £4,752,000, and that of the Eastern Telegraph Company us £9,000,000. I am not sure about the £1,000,000 which represents the capital of the subsidiary companies referred to by my hon. Friend, but I think it is held by the Eastern Telegraph Company, and is, therefore, not new capital. I think they have equivalent shares corresponding to that value in their hooks, and I take their total capital as £9,000,000. It should be noted that the 4 per cent. mortgage debentures of the Eastern Extension Company are quoted, in the current issue of the Stock Exchange Year Book, at 76½. The 3½ per cent. preference of the Eastern Telegraph Company is 60½ and the 4 per cent. debentures are 76½. That is what the public thinks of the actual value. The issued capital of Marconi International Marine is £1,500,000, and of the Marconi Wireless Telegraph Company £4,000,000—a total of £5,500,000. I am not going into the inflated values given in the Stock Exchange boom since the information leaked out prematurely of what the Government meant to do. I am going by the actual share capital. That is £9,252,000 for the 1793 two companies. I do not know whether the Indo-European are counted in, so I have left that out.
Now let us see the other assets of the Communications Company, and the price at which they bought them from the Government: The Atlantic cable, £450,000; the West Indian cables, £300,000; and the Pacific, £517,000. That is the good bargain which the Postmaster-General made. That gives you a cash payment of £1,267,000. My hon. Friend overestimated the assets that would go into this pool. He did not notice that the loan can remain at 3 per cent. They are guaranteed 6 per cent. on capital which is handed over to them by the Government on loan at 3 per cent. That is a pretty little bonus for someone. The total, however, that they can put in legitimately as assets is the amount of the loan and the amount they paid the Government, a total of £2,500,000. I have capitalised the rent of the beam, the initial rent of which is £250,000, at £5,000,000, a total capital, with what they get from the Government, of £7,500,000.
I dare say there are other things that we do not know about, but this is the information I have gathered from taking part in these Debates and listening with great care to what the Assistant Postmaster-General and the Financial Secretary to the Treasury have told us and such information as we have dragged from other Ministers. That means that, taking the issued capital of the whole of the five interests, added to the amount paid to the Government, with the rent of the beam capitalised, it comes to £26,752,000. I may be wrong—I shall be glad to know I am—but I make it, on a capital of £30,000,000, £3,250,000 of water, to start off with, less £500,000 for the Indo-European. We will suppose the Indo-European does not come in. That makes it £2,750,000 of water. That is in addition to the £30,000 bonus. I await an explanation of that. It is a very serious matter. If there is over-capitalisation, if the whole of the capital of the company is not represented by solid assets, if there is something for goodwill and something for the advantage of amalgamation before those advantages accrue, if there is anything to round off the figure and make it look rather more substantial than it is, this is a most 1794 serious matter, because the ordinary cable-using public will have to pay for this water in increased rates. I should have thought the Amendment was very reasonable.
Let me draw attention to another aspect of it. We are discussing the capitalisation of the Communications Company. I ask hon. Members with business experience to compare the value put upon the assets of the Eastern Telegraph Company, which we are told has been losing money and would have to go into liquidation unless the Government came to its rescue, with what the Government receives for its real assets, its cables, its equipment, its establishments, its instruments, its trained staff, its experience, its cable ships and everything else. On the one hand, as far as I can make out, the better part of £15,000,000. What do the Government get? £1,250,000 in cash.
§ Lieut. - Commander KENWORTHY
Without reverting to that I should propose, if I am in order, to question what I suggest is the over-capitalisation of the company and the inflated value given to the assets of the Eastern Telegraph Company.
The hon. Member for Finsbury (Mr. Gillett) drew a proper distinction between the two things. The one is only relevant as showing whether the Communications Company's capital should be more or less than £30,000,000.
§ Lieut.-Commander KENWORTHY
I was trying to show that too much value is being given to the assets in the Communications Company over the real assets brought in by the private company in comparison with what the unhappy Postmaster-General—I use his own description—was able to obtain from the companies for the assets owned by this House. My calculations, owing to lack of information, may be faulty. In that case I want the true facts, but I think we should make absolutely certain before we part from the Bill that the cable-using public will only have to guarantee 6 per cent. interest on capital representing real assets and not gambling values or water 1795 or goodwill or any other fictitious value, which Stock Exchange manipulators or astute financiers have been able to place upon it.
§ Mr. TOWNEND
I should like to draw attention to one aspect of this question arising from what I believe to be the over-capitalisation of the Communications Company. The whole of the capital for the merger is £53,000,000. The figure submitted in the White Paper to be allocated to the Communications Company is £30,000,000. If, as we suggest in the Amendment, £20,000,000 were to be a more correct figure is not the reaction of the £30,000,000 that is being allocated to the Communications Company going to be detrimental to the interest of what I may call the consumer, because, according to the White Paper, is it not true that after the six per cent. which is anticipated as the result of handing over the beam wireless to the merger is earned, 50 per cent. of the remaining portion of the profit obtained shall be applied in reduction of rates for the services performed? Is it not possible that all the advantage which has been derived from the development of the beam wireless is going to be used for the purpose of bolstering up that other side of the merger which is not included within the Communications Company? We have not had much satisfaction for our requests for the sub—mission of accounts to the House and I want to know from the Postmaster-General what protection there is, in the new form of the scheme, for guaranteeing the benefit arising from the development of beam wireless to the consumer, apart altogether from the other side to which I have referred.
§ Sir W. MITCHELL-THOMSON
This new Clause is not merely hopeless from the point of view of finance but would be positively dangerous if it were accepted. It is based on a complete misconception of the position and a complete confusion of ideas. The hon. Members based it upon this hypothesis, that the merger has been used as a standard. The merger has not been used as a standard. There has been a great deal of confusion of ideas on the part of hon. Members opposite. It is true that the capital of the Communications Company is all held by the merger company, but the capital of the merger is a subject for which His 1796 Majesty's Government in Great Britain and His Majesty's Governments in the Empire bear no responsibility whatever. More than that, the capital of the merger in itself represents and professes to represent, as these things always do, no more than an allocation of interests between the wireless companies and the cable companies. When the hon. and gallant Gentleman the Member for Central Hull (Lieut.-Commander Kenworthy) speaks of the wholly disproportionate payments which are being made to the cable companies for their assets as compared with the amount received by the Government, he is endeavouring to compare two things that are not comparable.
§ 7.0 p.m.
§ Sir W. MITCHELL-THOMSON
Then why do it? For hours I have sat here and heard Members making this statement. They say: "Why is it that the cable companies are getting more than we are?" The answer is that we are getting cash, and they are getting stock. Let me try at all events to put this point of view. There are two quite distinct ways in which these assets are being dealt with. We are getting hard cash, golden sovereigns, for what we are handing over. For what the cable companies are handing over they are getting stock.
§ Sir W. MITCHELL-THOMSON
No, I will deal with the question of guarantee in a moment. It does not follow, as hon. Members opposite seem to think, that because you call a share one pound, it is worth one pound. On the contrary, I have often known one pound shares to be worth 6d., and sometimes, though not so often, I have known sixpenny shares to be worth one pound. That is the common experience of all Members of the Committee. I want to impress upon the Committee that we are getting out of this business with the payment of hard cash, whereas what is happening in regard to the merger is the allocation of interests between the cable interests on the one hand and the Marconi people on the other. What is really relevant is the question, which has been practically ignored during the whole of this discussion on this Clause so far, of the standard 1797 net revenue and not the question of the capital. That is really important. As to that, I am in a position to tell hon. Members opposite that that has nothing to do with the capitalisation of the merger. The way in which the standard net revenue was worked out was—so I am informed by those responsible for doing it—by two highly-trained financiers, Sir Otto Niemeyer, with his long experience of finance at the Treasury, and Sir William McLintock, with his high standing in the actuarial profession, going most carefully into the question of what was the actual revenue being derived at this moment from the capital assets. They wrote off everything that ought to be written off; they made most liberal discounts; they made allowances for the competition of wireless in the case of the cable companies. Using their judgment with all the facts at their disposal—and they told me there was not a figure they asked for which they did not obtain—they arrived at the estimate of what might reasonably he a standard net revenue of £1,865,000. That was cross-checked by their figures as to capital. Their figures as to capital were arrived at by a somewhat complicated method of deducting the fixed amount of non-communicating assets from the total figures brought into account and taking the balance of those figures.
The answer to the relevant question asked by the hon. Member as to whether there is any goodwill in the Communications Company is that there is no goodwill, and it follows from what I have said that there is no water. It works out, as is stated in the report, that the return on the capital is 6 per cent. Hon. Members opposite will, however, persist in saying that this is a guaranteed return. It is nothing of the kind. Who guarantees it? Nobody, except the hon. Members opposite. What the Government get is certainly fixed. The Government get their capital payments, their payment of £250,000 in golden sovereigns for the use of these services. They get those whatever happens, but the Communications Company does not get a penny unless it earns it. Nobody guarantees the revenue. It is necessary that I should say that, as all three of the hon. Members who spoke on this new Clause used this phrase about a guaranteed return of 6 per cent.
§ Mr. GILLETT
I am sure I never used it, because it never entered my head that this 6 per cent. was guaranteed. What I thought was that the dividend came to 6 per cent. on the capital.
§ Sir W. MITCHELL-THOMSON
What the hon. Member said was that the company would get a fixed amount based on capital.
§ Sir W. MITCHELL-THOMSON
This is the error into which hon. Gentlemen have fallen. The Company have to earn the standard net revenue of £1,865,000. If they earn more than that, then the provision of 12 per cent. and the distribution of 50 per cent. come into operation. Let me point out what would be the effect of this new Clause, or of any Clause on similar lines, if it were carried. The effect of carrying this new Clause in the terms in which it is proposed by the hon. Members opposite would be that the nominal return upon the Capital would be raised from 6 per cent. to something like 9¼ per cent. What would follow from that would be that the nominal return would be 9¼ per cent.
§ Sir W. MITCHELL-THOMSON
I seem incapable of explaining to the hon. and gallant Member that the percentage return on capital involved has nothing whatever to do with rates, diminution of rates or increase of rates, or anything of that kind. The only figure relevant in that connection is £1,865,000. Somebody asked me about the issue of bonus shares at an early date, and my reply to that is that it does not really matter whether the Communications Company issue bonus shares or not so long as the standard net revenue is not increased. It would only diminish the nominal net revenue. The figure that affects the Government and the user of the cable services is the figure of £1,865,000, and, for every pound earned over that, the provision of 12 per cent. and the distribution of 50 per cent. come into operation. The effect of this new Clause, if it were carried, would be to increase the nominal return upon the capital involved from 6 per cent. on a capital 1799 of £30,000,000 to 9¼ per cent. on the limited capital. The result would be that, whenever there was a question of putting in new capital—and this would be bound to arise sooner or later as fresh discoveries about plant and so on are made—the Communications Company would then be in a position to say that Parliament had ordained by Statute that its proper return upon its capital was 9¼ per cent. and not 6 per cent. That is why I say the new Clause in any form is not only absurd but positively dangerous. Our figure is based upon a direct investigation of figures of proportionate revenue made by the most skilled advisers whom it is possible to obtain and cross-checked by the figures of ascertainable capital. Under those circumstances, I suggest that the Committe would be well advised not to interfere with the figure.
§ Mr. W. GRAHAM
The Postmaster-General has been moved to rather more than customary vigour and enthusiasm in his reply to this proposed new Clause. I do not dispute for a moment that there are very great technical and other difficulties in seeking to intervene in the form of this Clause in view of decisions which have already been reached in Committee. But the grave difficulty that we on this side have felt all along, prior to the Second Reading discussion, during the Second Reading discusion, and in Committee stage, is that we have never had access to the exact position of affairs as between the formation and preparation of this merger and the reaction of that merger and all that it involves upon the Communications Company. When it was made perfectly plain that in this House we could not in any way directly or indirectly touch the merger we had of course to concentrate upon what we could do by Amendment as applied to the Communications Company.
No one who reviews the history of this matter, either in the public Press or in the negotiations which have taken place or so far as has been revealed in debate in this House, will dispute for a moment that the preparations which were made by the merger always had an end in the kind of considerations in this Communications Company which are now under debate. Consequently, the hon. Member for Finsbury (Mr. Gillett) was perfectly 1800 accurate in founding his case upon a review of these preparations and pointing out that he was now trying to protect the public by this form of capital limitation. As I have said, the Postmaster-General gets very enthusiastic in opposition to this idea of guarantee. The strict position is that they are the basis of this Communications Company—the communications which are part of the merger together with the Government cables and the lease of the beam wireless. Those may be described as the ingredients of the Communications Company proposition. Until the Postmaster-General spoke, all that we had ever been told in Parliament, in the White Paper, and throughout all these Debates, was that the £30,000,000 of capital now attributable to this Communications Company was appropriate for the purposes for which it was to be used.
It is quite true that the White Paper said to us that the terms of the fusion had been analysed by Sir Otto Niemeyer and by Sir William McLintock. The fact remains that we have not had that report. We are parting with public property, and that document has never been presented. We have not even had a summary of their views given to Members of this Chamber, though that would be the practice followed in any ordinary business transaction in this country. Without the presentation of the expert opinion in all its details, no proper industrial transaction would proceed. The Postmaster-General takes great exception to the term "guarantee," but it is as well that the Committee and the public should be perfectly clear as to what is happening. I will make this concession to the right hon. Gentleman that, if this prospect held out, to the Communications Company is compared with the form of guarantee given to the railway undertakings under the Act of 1921, there is a marked distinction between them, because in the case of the Railways Act a rates tribunal was set up to fix the rates and charges so as to give those undertakings under efficient working a standard revenue, which is that of 1913, together with certain allowances for capital expenditure. It was of the nature or of the form of a guarantee. I do not put it higher than that; the companies still have the field at their feet. If those 1801 railways ran at all, they were bound, taking all the circumstances into account, to approach or to get the guarantees or standard revenue. I do not put it higher than a form of guarantee. The Postmaster-General asks us why we keep calling this a guarantee. I can see it is not a guarantee in the nature of the Railways Act, but certainly you are passing over to this Communications Company a complete field, from which all competition has been excluded, with the complete knowledge that these services must go on. They are not going to stop.
The Postmaster-General and the Government have indicated to us that we are not dealing here with an ordinary business proposition. It is an out-and-out public utility undertaking, in our view, very inadequately safeguarded and making very substantial contributions to the interests involved. With the lease of the beam wireless and with the Government cables thrown in, we are entitled to say that there is an adequate guarantee that if you are alive and well you cannot fail to get this under the plan which has been evolved. Of course, my hon. Friend has sought to try and protect the revenue by arriving at a more appropriate capitalisation of this undertaking, and that is probably all that is open to us at this stage of the Debate. But I really do ask the House of Commons, and I venture almost to ask the country: Does anyone imagine for a moment that these people, familiar with the merger, or the prospective merger and conditions, were not perfectly well aware of what I would call the developed or later part of the enterprise in which they would be engaged? This £1,865,000 is the standard revenue, and we get only 12 per cent. of the profit above that amount. They then get 50 per cent., the other 50 per cent. being what remains for the taxpayers or the consumers of the service when these very liberal conditions in public utility have been satisfied. Why does the Postmaster-General quarrel about the terms? If you like, I will omit the word "guarantee" altogether and rest the whole case on the facts of this situation, and I say that these facts are an outrage on the British people.
My hon. Friend who moved this new Clause tried, I think, to find out what was concealed 1802 below the mysteriously called Communications Company, or rather the Communications Company that is to be. We have had no elucidation of that fact, and I submit that the Committee have got no further than they were when my hon. Friend moved his new Clause a few minutes ago. Cannot the Postmaster-General answer us in very simple terms, this question. If we turn to page 16, Recommendation (ii), it says:There will also be formed a Communications Company to which the Cable and Marconi Companies will sell … all their Communication assets, and so on.Cannot we be told in very simple language, or in a White Paper if it is too difficult, exactly what are these assets? Does the merger which has £53,000,000 worth of capital, include the Communications Company with £30,000,000 capital, or is the £30,000,000 an addition? What I want to know is how much of this £30,000,000 belongs to cables and how much to beam wireless? I believe that for the first time in the whole of the Committee stage I am in order in asking a question about beam wireless. I want to know on the basis of these financial experts who advise the Postmaster-General how much of the £30,000,000 is the capitalised value of the 25 years' lease of the beam wireless? That is a very important point. [An HON. MEMBER: "Nothing."] An lion. Gentleman says "Nothing." He can know very little about this. The revenue to-day, with the beam wireless service in its infancy and hardly developed, amounts to £500,000. I want to know what the Postmaster-General has put down in that capital of £30,000,000 as being the value in respect of beam wireless. That leads me to another question. I want to know what is going to happen when the beam stations, which are only on loan have to be improved and enlarged. Who is going to pay for this? Are they going to be paid for by the Post Office and made subject to a further lease to the Communications Company, or are additions and improvements to be undertaken by the company? Cannot the Postmaster-General answer this very simple question? What are the assets to which the White Paper referred. It is a very simple question. How much are cable assets and how much are beam wireless?
There is another question which I would like to ask the Postmaster-General. I 1803 have in my hands the Donald Report of the Imperial Wireless Telegraphy Committee, Command Paper 2060. On page 40 of that Report is a long list of subsidary communication interests of the Marconi Company. There is the Marconi Wireless Limited of Australia, with £1,000,000 capital; the Marconi International Marine Communications Company, with £1,500,000 capital, and various other companies in Holland, in Montreal, in Madrid, in Peking, in Amsterdam, in Christiania, in Vienna, in Berne, in Brussels, in Warsaw, in Stockholm, in Cape Town, and in Rome. In all these companies the Marconi Company have a communications interest. Are these included in the Communications Company or not?
§ Sir W. MITCHELL - THOMSON
Every revenue earning asset of every sort, kind and character is included.
§ Mr. WELLOCK
Towards the close of Iris remarks, the Postmaster-General made considerable play out of the fact that, if this new Clause were accepted, it would mean increasing the percentage to be paid to 9¼. I quite agree that that would be so, as the situation now stands, but this new Clause was put down with the idea of eliciting further information. It was our idea—and it would have had to have been completed if this new Clause had been accepted—to reduce the standard dividend from £1,865,000 to a comparable figure of £1,200,000. That was the idea behind the Clause. We want to know how much of that £30,000,000 is to go to the cable companies? That in my opinion is the vital question at issue in this matter. The fact is that all the cables, whether they belonged to the private companies or to the Governments were faced with bankruptcy if they continued to stand on their own. We have to remember from first to last in these discussions that the cable companies themselves came pleading to the Government in order to have their assets brought under a common denominator. They were losing money. Their position is similar to the position of the Government. We have received for a capital cost of over £7,000,000, a matter of £2,500,000 in cash. What is the amount with which these nearly derelict cable companies are being credited in this £30,000.000? This 1804 point has not been dealt with, and I sincerely hope that we shall be given the figures on this occasion. The Postmaster-General said that there are no guarantees in regard to this 6 per cent. I agree about that, hut the point is, that there can be no reduction in charges until that 6 per cent. has been paid. That is the vital question.
We have been told in beautiful language by several Members on the Front Bench that the object of this merger and of this Communications Company is to give the nation cheaper communications. It is obvious that these cheaper communications cannot occur until the 6 per cent. has been paid upon this £30,000,000 of capital. Those of us who have followed these developments realise that the great bulk of the revenue is going to come from beam wireless, and yet we do not know how much capital is actually involved in the beam service. The capital of the Marconi Company is £2,227,000. How much capital is involved in the Government beam services? Is it more than £1,000,000? I doubt if it is more than £1,000,000. Let us say that it is £1,000,000. Thus there will be between £3,000,000 and £4,000,000 of capital involved in that part of the communications which is going to provide the revenue in order to pay 6 per cent. It is for that reason that we say that probably £10,000,000 to the cable companies is ample recompense.
My hon. and gallant Friend the Member for Central Hull (Lieut.-Commander Kenworthy) suggested in his speech that out of that £30,000,000 there would be a matter of £5,000,000 out of which they would have to pay the revenue to the Government for the loan of the beam. But that is not the case. That £30,000,000 is credited absolutely to the private companies, and they simply pay out of their revenues £250,000 to the Government for the loan of the beam service, and they receive after that 6 per cent. on their entire £30,000,000, and not on £25,000,000. In these circumstances, I assert that the country is being flagrantly robbed in this transaction. The users of communications are not going to get the reductions that would have come to them without any doubt whatever quickly and often if these services had remained as they were, or, certainly if the Government had taken 1805 charge of the other services, giving some reasonable sum for them. For these reasons, I very strongly support the new Clause.
§ Lieut.-Commander KENWORTHY
I will not detain the Committee for more than a moment or two, but as the Postmaster-General could not see his way to allow me to ask him a question, I want to put it in another way. He tells us that, of course, it is quite true the Government have only received the equivalent of an old song for these cables, but that they get £1,250,000 in cash—hard golden sovereigns, clinking sovereigns. Of course, the poor Eastern Telegraph Companies and associates only get worthless paper, something which may be worth 6d. to-day or a £1 to-morrow. That was the tenor of the right hon. Gentleman's remarks. This worthless paper which these people are to get—I do not know how many millions; we are not allowed to know that, whether it is £9,000,000 or 210,000,000 it is impossible to state—but a very substantial amount of the £30,000,000 that will be in the Communications Company will earn, at any rate, a, dividend on its fixed revenue of 6 per cent. That, I say, is guaranteed.
It is guaranteed in this way. They have a monopoly of all communications. Anyone who wants to send a cable by submarine cable or by wireless must go to these people. They will have an absolute monopoly and will be able to fix their rates with the illusory check of this Advisory Committee. I say illusory, because we do not know who the Advisory Committee are going to be, what their powers are going to be, or anything else. We do not know anything about them. The Advisory Committee, obviously, will look at the amount of capital that is to earn dividends. Such and such a rate for cables and messages will make 5 per cent.; such and such a rate will make 6 per cent. on the amount of capital. That is why the amount of capital is so tremendously important. Apart from the question about this so-called worthless paper, these stocks will be very valuable, and they will be able to squeeze the working until they get a dividend. Therefore, a capital of £20,000,000 is reasonable, and I hope the Committee will agree that it is reasonable.
1806 The Secretary of State for Scotland, when he is driven into a corner, falls back upon the Dominions, and he says to us: "How dare you question this bargain? It is an insult to our colleagues in Canada and Australia." Not so the Postmaster-General. He has more sense of humour. He falls back upon Sir Otto Niemeyer and Sir William McLintock. The Postmaster-General is a business man, which I do not claim to be. Let us say that, as a business man, he wishes to buy a factory from me. I tell him that the accounts have been passed and audited by a respectable firm of accountants and that he must take their word for it. Would he want to see the accounts? Would he want to see their signed report? Of course he would. We are not allowed that privilege. We do not see the report. We have the names of Sir Otto Niemeyer and Sir William McLintock given to us, but what they reported is kept secret from the Committee, and we are asked to hand over these valuable public assets to this unformed company, with its unnamed directorate, and with this illusory safeguard.
§ Mr. W. BAKER
I should like to make one final remark with regard to the capital. The capital is important not only because it becomes the standard revenue, but because it has a most important bearing upon the future developments in the wireless world. Earlier to-day I quoted from that well-informed journal the "Daily Mail," to show that certain important technical developments are expected at an early date. I would remind the Committee that the hon. Member for the Abbey Division (Mr. Otho Nicholson), in the first Debate we had on this subject, told us that we were likely to find that the wireless companies would make it possible for the world to transmit its messages by wireless. We have had no guarantee and we have been given no undertaking that there will be adequate control so far as these future developments are concerned. It is most important that we should press the Postmaster-General to the utmost of our ability to reconsider his position or, rather, the Government position towards this particular problem. The fact is that the Postmaster-General does not accept this Report, and he is merely acting as 1807 a loyal member of the Government in doing his job here to-day. I do not know how the Postmaster-General can expect us to accept something which he and his Department have already rejected. The capital basis for this new undertaking is absolutely without justification so far as we know. We have had no information and no figures to support it, and it might just as well be £10,000,000 or £100,000,000 as £30,000,000. It is only reasonable courtesy that we should be told exactly how the figure of £30,000,000 has been arrived at, and exactly the value which the Government placed upon their assets. If I do not pursue the matter further, it is not because I am satisfied with the statement of the Government.
§ Mr. GILLETT
The more I think about the answer which has been given by the Postmaster-General, the less am I disposed to accept it. When you are thinking of a return on capital, you take a certain amount of capital and then you consider the return which the investor will expect to get. According to the Postmaster-General, the process has been reversed in this case, and a sum of money was fixed which, by a happy chance, was discovered to be 6 per cent. on the capital which has gone into the Communications Company, that is, that part of the capital which has gone from the merger into the Communications Company. Supposing it had not been 6 per cent. but only 3 per cent. Would that have made any difference? Supposing it had not been this happy figure of 6 per cent., would there not have been a difference? It seems to me a most extraordinary plea that the Postmaster-General has put forward, because no one would suggest that these people would have left their capital there unless they were going to get about 6 per cent. It is asking a great deal to expect us to believe that these people investigated a sum of money and then were so fortunate as to bring it out at the actual figure that the ordinary investor expects to get. If they had not brought it out at that figure but only at 3 per cent., they would never have agreed to leave their money in. It is impossible to decide this question unless we consider the return that the persons who own the capital expect to get for their money. 1808 That point must have been taken into consideration by those who investigated the question. Then, they must have begun to ask what amount of capital these people considered they were transferring to the Communications Company. We find in the Report the following statement:With this object in view, a standard net revenue, representing approximately 6 per cent. on the capital of that portion of the undertaking which is solely engaged in the conduct of communications.How was that figure fixed? We are told that it so happened that this mystic figure was 6 per cent. on the capital. How was that capital arrived at? We are not told. How did it come to be £30,000,000? We are not told, and I gather that the Postmaster-General himself does not know.
§ Lieut. - Commander KENWORTHY
Are we not to have an answer from the Postmaster-General, particularly on the point as to what part of the capital is represented by wireless and what part by cables?
§ Sir W. MITCHELL-THOMSON
I did not desire to be discourteous but the fact is that there has not been a single point raised which I did not attempt to answer in my previous speech, except the point as to the allocation of the return on capital between the wireless and cable interests. The short answer is, that of the capital of the Communications Company the whole of the £30,000,000 is held by the Merger, and the Merger is nothing more than an allocation of interest. It follows, therefore, that speaking generally and without distinguishing between the different classes of Merger shares, the return on that capital of £30,000,000 is appropriated according to the allocation of shares in the Merger Company, and the of shares in the Merger Company is in the proportion of 17 to 36.
§ Lieut.-Commander KENWORTHY
It would appear that the Eastern Telegraph Company's share is 52.6 of the £30,000,000 in respect of their assets, compared with the £1,250,000 received by the Postmaster-General for three systems of Government cables.
Is not the capitalised value of the present revenue of the Beam system £10,000,000? Taking the revenue 1809 at £500,000 a year, the capitalised value is £10,000,000. Is not that so?
§ Sir W. MITCHELL-THOMSON
The hon. Member is quoting figures, from which he is drawing his own conclusions; but they are quite unauthorised.
§ Sir W. MITCHELL-THOMSON
The total capital Of the Merger Company is, as stated in the White Paper, £53,000,000, that is, £17,000,000 for wireless and £36,000,000 for cables.
§ Question put, "That the Clause be read a Second time."
§ The Committee divided: Ayes, 93; Noes, 237.1811
|Division No. 44.]||AYES.||[7.43 p.m.|
|Ammon, Charles George||Hardle, George D.||Shlels, Dr. Drummond|
|Baker, J. (Wolverhampton, Bilston)||Henderson, T. (Glasgow)||Shinwell, E.|
|Baker, Walter||Hirst, G. H.||Slesser, Sir Henry H.|
|Barker, G. (Monmouth, Abertillery)||Hirst, W. (Bradford, South)||Smillie, Robert|
|Barr, J.||Hudson, J. H. (Huddersfleld)||Smith, Ben (Bermondsey, Rotherhithel)|
|Batey, Joseph||John, William (Rhondda, West)||Smith, Rennle (Penistone)|
|Beckett, John (Gateshead)||Johnston, Thomas (Dundee)||Snell, Harry|
|Bellamy, A.||Jones, J. J. (West Ham, Silvertown)||Snowden, Rt. Hon. Philip|
|Bondfield, Margaret||Jonee, Morgan (Caerphilly)||Stewart, J. (St. Rollox)|
|Bowerman, Rt. Hon. Charles W.||Kelly, W. T.||Sutton, J. E.|
|Brlant, Frank||Kennedy, T.||Taylor, R. A.|
|Broad, F. A.||Kenworthy, Lt.-Cem. Hon. Joseph M.||Thorne, W. (West Ham, Plaistow)|
|Buxton, Rt. Hon. Noel||Lansbury, George||Thurtle, Ernest|
|Cape, Thomas||Lawrence, Susan||Tinker, John Joseph|
|Charleton, H. C.||Lee, F.||Townend, A. E.|
|Cluse, W. S.||Lowth, T.||Trevelyan, Rt. Hon. Sir Charles|
|Clynes, Rt. Hon. John R.||Lunn, William||Vlant, S. P.|
|Connolly, M.||Malone, C. L'Estrange (N'thampton)||Wallhead, Richard C.|
|Cove, W. G.||March, S.||Walsh. Rt. Hon. Stephen|
|Day, Harry||Montague, Frederick||Watson, W. M. (Dunfermline)|
|Dennlson, R.||Mosley, Sir Oswald||Webb, Rt. Hon. Sidney|
|Duncan, C.||Parkinson, John Allen (Wigan)||Wedgwood, Rt. Hon. Josiah|
|Edwards, C. (Monmouth, Bedwellty)||Pethick-Lawrence, F. W.||Wellock, Wilfred|
|Garro-Jones, Captain G. M.||Ponsonby, Arthur||Westwood, J.|
|Gillett, George M.||Potts, John S.||Wilkinson, Ellen C.|
|Gosling, Harry||Richardson, R. (Houghton-le-Spring)||Wilson, C. H. (Sheffield, Attercllffe)|
|Graham, Rt. Hon. Wm. (Edln., Cent.)||Ritson, J.||Wilson. R. J. (Jarrow)|
|Grenfell, D. R. (Glamorgan)||Salter, Dr. Alfred||Windsor, Walter|
|Griffiths, T. (Monmouth, Pontypool)||Scrymgeour. E.||Young, Robert (Lancaster, Newton)|
|Grundy, T. W.||Scurr, John|
|Hall, F. (York, W.R., Normanton)||Shaw, Rt. Hon. Thomas (Preston)||TELLERS FOR THE AYES.—|
|Hall, G. H. (Merthyr Tydvil)||Shepherd, Arthur Lewis||Mr. Paling and Mr. Whiteley.|
|Albery, Irving James||Bullock, Captain M.||Culverwell, C. T. (Bristol, West)|
|Alexander, E. E. (Leyton)||Carver. Major W. H.||Curzon, Captain Viscount|
|Allen, Sir J. Sandeman||Cassels. J. D.||Dalkeith, Earl of|
|Amery, Rt. Hon. Leopold C. M. S.||Cautley, Sir Henry S.||Davidson, Rt. Hon. J. (Hertford)|
|Apsley, Lord||Cayzer Sir C. (Chester, City)||Davies, Ellis (Denbigh, Denbigh)|
|Ashley, Lt.-Col. Rt. Hon. Wilfrid W.||Cayzer, Maj. Sir Herbt, R.(Prtsmth.S.)||Davies, Dr. Vernon|
|Atholl, Duchess of||Cazalet, Captain Victor A.||Dawson, Sir Philip|
|Atkinson, C.||Cecil. Rt. Hon. Sir Evelyn (Aston)||Dean, Arthur Wellesley|
|Baldwin, Rt. Hon. Stanley||Chadwick, Sir Robert Burton||Eden, Captain Anthony|
|Balfour, George (Hampstead)||Chamberlain, Rt. Hon. N. (Ladywood)||Edmondson, Major A. J.|
|Balniel, Lord||Charterls, Brigadier-General J||Elliot, Major Walter E.|
|Banks, Sir Reginald Mitchell||Christle, J. A.||Ellis, R. G.|
|Barclay-Harvey, C. M.||Churchman, Sir Arthur C.||Erskine, James Malcolm Montelth|
|Barnett, Major Sir Richard||Clarry, Reginald George||Everard, W. Lindsay|
|Bellairs, Commander Carlyon||Clayton, G. C.||Fairfax, Captain J. G.|
|Benn, Sir A. S. (Plymouth, Drake)||Cobb, Sir Cyril||Falle, Sir Bertram G.|
|Bennett, A. J.||Cochrane, Commander Hon. A. D.||Fanshawe, Captain G. D.|
|Berry, Sir George||Cockerill, Brig.-General Sir George||Fenby, T. D.|
|Bethel, A.||Cohen, Major J. Brunei||Fermoy, Lord|
|Betterton, Henry B.||Colman, N. C. D.||Flelden, E. B.|
|Bevan, S. J.||Conway, Sir W. Martin||Ford, Sir P. J.|
|Blrchall, Major J. Dearman||Cooper, A. Duff||Forestler-Walker, Sir L.|
|Bourne, Captain Robert Croft||Cope, Major Sir William||Forrest, W.|
|Bowyer, Captain G. E. W.||Couper, J. B.||Foster, Sir Harry S.|
|Briggs, J. Harold||Courtauld, Major J. S.||Foxcroft, Captain C. T.|
|Brittaln, Sir Harry||Cowan, D. M. (Scottish Universities)||Fraser, Captain Ian|
|Brocklebank, C. E. R.||Craig, Sir Ernest (Chester, Crewe)||Fremantle, Lieut.-Colonel Francis E.|
|Brooke, Brigadier-General C. R. J.||Croft, Brigadier-General Sir H.||Ganzonl, Sir John|
|Brown, Brig -Gen.H.C.(Berke, Newb'y)||Crooke, J. Smedley (Derltend)||Gilmour, Lt.-Col. Rt. Hon. Sir John|
|Brown, Erneet (Leith)||Crookshank, Col. C. de W. (Berwick)||Goff, Sir Park|
|Bull, Rt. Hon. Sir William James||Crookshank,Cpt. H.(Lindsey,Gainsbro)||Grant, Sir J. A.|
|Greaves-Lord, Sir Walter||McLean, Major A.||Savery, S. S|
|Grenfell, Edward C. (City of London).||Macmillan, Captain H.||Shaw, Lt.-Col. A. D. Mcl.(Renfrew, W.)|
|Gretton, Colonel Rt. Hon. John||Maitland, A. (Kent, Faversham)||Sheffield, Sir Berkeley|
|Griffith, F. Kingsley||Makins, Brigadier-General E.||Shepperson, E. W.|
|Grotrian, H. Brent||Manningham-Buller, Sir Mervyn||Skelton, A. N.|
|Guinness, Rt. Hon. Walter E.||Marriott, Sir J. A. R.||Smith, Louis W. (Sheffield, Hallam)|
|Hacking, Douglas H.||Merriman, Sir F. Boyd||Smith, R. W. (Aberd'n & Kinc'dine, C.)|
|Hall, Lieut.-Col. Sir F. (Dulwich)||Milne, J. S. Wardlw||Southby, Commander A. R. J.|
|Hall, Admiral Sir R. (Eastbourne)||Mitchell, S. (Lanark. Lanark)||Spender-Clay, Colonel H.|
|Hamilton, Sir George||Mitchell, W. Foot (Saffron Walden)||Stanley. Lieut.-Colonel Rt. Hon. G. P.|
|Hammersley, S. S.||Mitchell, Sir W. Lane (Streatham)||Steel, Major Samuel Strang|
|Hanbury, C.||Monsell, Eyres, Com. Rt. Hon. B. M||Storry-Deans, R.|
|Hannon, Patrick Joseph Henry||Moore, Lieut.-Colonel T. C. R. (Ayr)||Stott, Lieut.-Colonel W. H.|
|Hartington, Marquess of||Moreing, Captain A. H.||Strauss, E. A.|
|Harvey, G. (Lambeth, Kennington)||Morris, R. H.||Streatfeild, Captain S. R.|
|Harvey, Major S. E. (Devon, Totnes)||Nelson, Sir Frank||Stuart, Hon. J. (Moray and Nairn)|
|Haslam, Henry C.||Newton, Sir D. G. C. (Cambridge)||Sueter, Rear-Admiral Murray Fraser|
|Headlam, Lieut.-Colonel C. M.||Nicholson, Col. Rt.Hn.W.G.(Ptrsf'ld.)||Sugden, Sir Wilfrid|
|Hennessy, Major Sir G. R. J.||Nield, Rt. Hon. Sir Herbert||Tasker, R. Inigo.|
|Hilton. Cecil||O'Connor, T. J. (Bedford, Luton)||Templeton, W. P.|
|Hoare, Lt.-Col. Rt. Hon. Sir S. J. G.||O'Neill, Major Rt. Hon. Hugh||Thorn, Lt.-Col. J. G. (Dumbarton)|
|Hohler, Sir Gerald Fitzroy||Ormsby-Gore, Rt. Hon. William||Thomson, F. C. (Aberdeen, South)|
|Holbrook, Sir Arthur Richard||Pennefather, Sir John||Thomson, Rt. Hon. Sir W. Mitchell.|
|Hopkins, J. W. W.||Penny, Frederick George||Titchfield, Major the Marquess of|
|Hudson, Capt. A. U. M.(Hackney, N.)||Percy, Lord Eustace (Hastings)||Tomlinson, R. P.|
|Hume, Sir G. H.||Perkins, Colonel E. K.||Turton, Sir Edmund Russborough|
|Hume-WiIIiams, Sir W. Ellis||Perring, Sir William George||Vaughan-Morgan, Col. K. P.|
|Hunter-Weston, Lt.-Gen. Sir Aylmer||Peto, G. (Somerset, Frome)||Wallace. Captain D. E.|
|Hurd, Percy A.||Pilcher, G.||Ward, Lt.-Col. A.L. (Kingston-on-Hull)|
|Hurst, Gerald B.||Pllditch, Sir Philip||Warner, Brigadier-General W. W.|
|Illffe, Sir Edward M.||Power, Sir John Cecil||Waterhouse, Captain Charles|
|Inskip, Sir Thomas Walker H.||Price, Major C. W. M.||Watson. Rt. Hon. W. (Carlisle)|
|Jones, Sir G. W. H. (Stoke New'gton)||Ramsden, E.||Watts, Sir Thomas|
|Jones, Henry Haydn (Merioneth)||Rawson, Sir Cooper||Wayland, Sir William A.|
|Jones, W. N. (Carmarthen)||Rhys, Hon. C. A. U.||Wells, S. R.|
|Kennedy, A. R. (Preston).||Richardson, Sir P. W. (Sur'y, Ch'ts'y)||Williams, Com. C. (Devon, Torquay)|
|Kindersley, Major Guy M.||Roberts, E. H. G. (Flint)||Williams. Herbert G. (Reading)|
|King, Commodore Henry Douglas||Robinson, Sir T. (Lanes., Stretford)||Wilson, Sir Charles H. (Leeds, Central)|
|Lamb, J. Q.||Rodd, Rt. Hon. Sir James Rennell||Winby, Colonel L. P.|
|Lister, Cunliffe, Rt. Hon. Sir Philip||Ropner, Major L.||Winterton, Rt. Hon. Earl|
|Livingstone, A. M.||Ruggles-Brise, Lieut.-Colonel E. A.||Withers, John James|
|Locker-Lampson, Rt. Hon. Godfrey||Russell, Alexander West (Tynemouth)||Wolmer, Viscount|
|Looker, Herbert William||Rye, F. G.||Wood, E.(Chest'r, Stalyb'dge & Hyde)|
|Lucas-Tooth, Sir Hugh Vere||Salmon, Major I.||Wood, Rt. Hon. Sir Kingsley|
|Luce, Maj.-Gen. Sir Richard Harman||Samuel, A. M. (Surrey, Farnham)||Woodcock, Colonel H. C.|
|Lumley, L. R.||Samuel. Samuel (W'dsworth, Putney)||Wright, Brig.-General W. D.|
|MacAndrew, Major Charles Glen||Sandeman, N. Stewart|
|McDonnell, Colonel Hon. Angus||Sanders, Sir Robert A.||TELLERS FOR THE NOES.—|
|Macintyre, Ian||Sandon, Lord||Captain Margesson and Sir Victor Warrender.|