§ Mr. PYBUS
I beg to move, in page 48, line 26, at the end, to add the words:() Where by virtue of the transfer to the board of the undertakings of the London Electric Railway Company, the Metropolitan District Railway Company, or the Central London Railway Company any cash or other liquid assets are transferred to the board being cash or assets representing any part of the additional moneys raised before the appointed day by any of the said companies by the issue of debenture stocks under the powers conferred by the London Electric, Metropolitan District, Central London, and City and South London Railway Companies Act, 1930, the board may, notwithstanding anything in this Act, apply that cash or those assets to the payment of interest on the transport stuck issued in substitution for those debenture stocks of those companies and charge the same to capital account in the like manner as those companies might have applied those moneys to the payment of interest on those debenture stocks, and have charged the same to capital account.6.57 p.m.
I should like to explain that this is purely a formal Amendment. It arises in this way. The Act of 1930 authorises certain tube extensions in the Underground group, and they have the power to charge interest to capital on the stock raised during construction. This Amendment is to preserve that power to the new board.
§ Amendment agreed to.
§ Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
§ 6.59 p.m.
§ Mr. JAMES DUNCAN
Paragraph (a) of Sub-section (3), which sets out the amount of capital that the new board is allowed to raise, says that it is to be a sum equivalent to the additional money they require to raise, less the amount of capital they have already raised, and, in addition, a sum of £10,000,000. I am anxious to know whether the additional capital will be sufficient for the development of tubes, and for tramways, omnibuses and other means of transport in that area. I want to make sure that the capital available will be sufficient.
§ Mr. PYBUS
Of course, if London transport advances at a speed which no one can anticipate, then it will be all to 1498 the good. Facilities will be greater than one would normally have expected. I have never heard it questioned that the borrowing powers at present possessed by the board, if the Bill becomes law, will not be adequate for the purpose.
§ Mr. DUNCAN
Will he tell me if the actual sum in cash which is the answer to this paragraph (a) is a fixed sum?
§ Mr. DUNCAN
Clause 37, page 48, line 6:A sum equivalent to the additional moneys …required to be raised. What is that in cash?
§ 7.2 p.m.
§ Mr. C. WILLIAMS
I think the point is fairly clear except in the print of the Bill which says:A sum equivalent to the additional moneys.When you have made this calculation what is the sum which we will call "A"? Then you have Sub-section (b) and the sum "B." That Sub-section says:The sum of ten million pounds.My hon. Friend understands this, and he says that £1,000,000 will develop a tube railway for a mile. That means that under paragraph (5) you will develop a tube railway by 10 miles. You have other sums in paragraph (a) under this Clause. We want to know whether there is means for great development. What is the sum of capital available under paragraph (a)? While I am about it, may I ask, if these sums are exhausted, they will have to borrow more, and will they have to come to the House for more?
§ Mr. PYBUS
If the borrowing which is granted to the board under this Bill is exhausted, they will have to come to Parliament for further sums. With regard to the further point raised as to the amount of cash necessary under paragraph (a), it will depend upon the amount of cash awarded by the Arbitration Tribunal and whatever the sum is the borrowing powers are adequate for it.
§ CLAUSE 38.—(Issue of transport stock.)
§ Amendments made: In page 49, line 12, leave out the words "the principal moneys represented by the."
§ In line 24, after the word "undertakings," insert the words "and of the Metropolitan undertaking."
§ In line 29, after the word "Schedule," insert the words "and of Part I of the Fourth Schedule."
§ In line 35, after the word "undertakings," insert the words "and the Metropolitan undertaking."
In page 50, line 15, leave out from the word "only" to the word "in," in line 19, and insert instead thereof the words:
in accordance with the provisions of the Second Schedule to this Act.
In line 21, leave out the words "those companies" and insert instead thereof the words:
the London Electric Railway Company, the Central London Railway Company, and the City and South London Railway Company."—[Mr. Pybus.]
§ Sir ALFRED BEIT
I beg to move, in page 51, line 15, to leave out the word "five" and to insert instead thereof the words "three and one-half."
I move this Amendment principally to emphasise the rigid financial structure of the Bill, and I hope also to rectify that, if possible. The importance of this Clause is second only to the importance of Clause 1, and I very much hope that the Attorney-General, or the Minister, will give us a very full answer, according to its deserts. The intention of this Amendment is to affect certain alterations with regard to the "C" stock of the London Transport Board. I would like to make it clear that "C" stock is the junior of the three stocks. It should be, in common parlance, the equity of the business. The function of the equity is to act as a cushion in the ups and downs of the trade cycle. Actually the "C" stock, which is being given very nearly exclusively in exchange for existing ordinary stocks and shares under this Bill, virtually becomes a gilt-edged stock.
I ask the Committee to look at its powers and privileges. In the first place, the "C" stock gets interest at 5 per cent. for the first two years and, after that, 5½ per cent., plus an extra eighth to a half of 1 per cent., according to the 1500 amount earned. This in itself is a very rigid arrangement indeed. This junior stock is only 21 per cent. of the total. It must earn 5½ per cent., and may earn 6 per cent., a margin far too narrow in my opinion. A further power attached to it is that, if the standard rate is not paid during two consecutive years, there is power to put in a receiver. In fact, on the application of holders of less than 2½ per cent. of the entire amount of "C" stock the whole ponderous machinery of receivership can be brought into action. Ordinary shareholders never have the right to put in a receiver like that. It never certainly was the case with the equity owners of the companies now being merged, or taken over. But I would like to know what it would benefit the holders of "C" stock if they did put in a receiver. It seems unlikely they would be able to manage the business better than the Transport Board; indeed, they might seriously prejudice the prospects of "A" and "B" stockholders, and any stock which, under this Act, becomes a trustee security should be treated with the respect due to such stock.
I would like to know whether the Minister realises that if this great concern of £110,000,000 earns an average of 4½ per tent. on its total capital—which everybody will admit would be a pretty good achievement in times of depression —if it does that two years running a receiver could, nevertheless, be appointed. A further drawback is that the board must pay such dividends as it can in any one year. The payment may be less than the standard rate. If it cannot pay the standard rate, it may pay some smaller amount. The board's only redress is under Clause 3, Sub-section (4) under which, as the Committee will remember, it has the power to raise rates. Of course, anybody knows that that does not necessarily produce the desired result. You may raise rates, but you may not make up the standard income. If I may refer to the statement prepared by Sir William McLintock, I would like to say a word upon one of the small balances which some Members criticised the other day. That is not anything to find fault with, because the travelling public would have a greater case for reduction of fares. Turning to other aspects of the statement, I must say that it is based on a period 1501 of years which were rather good, and which showed good operative results. It does not make any allowance for a sinking fund. I do not think it makes any allowance for depreciation.
§ The ATTORNEY-GENERAL
It does include that. I ascertained some days ago that, although the statement speaks only of maintenance and renewal of the undertaking, that in fact does what my hon. Friend wishes to do.
§ Sir A. BEIT
I am much obliged to the Attorney-General. I repeat, of course, that the estimates of the statement are for fairly good operating results. Further, they allow for no sinking fund. I repeat that if a concern were to earn 4½ per cent. it could not pay the dividends required under this Bill. Secondly, in view of the depression in which we are at the present moment, it seems to me there will he no alternative for the board but to raise fares at once, directly this Bill comes into operation. In short, "C" stock is too good a security, and it is beyond the means of the board. If I may give an example, there is the case of the Metropolitan consolidated ordinary stock. We come to that in a minute. I know that a heavy price has been paid to get that concern to come into this. In exchange for their present stock which has paid 2½ per cent., and is valued at 62, they are to get £67, nominal, of "C" transport stock which is proposing to pay 5 per cent. They are increasing their value by exactly double.
I think the remedy is to make provision, as I have done in my Amendment, allowing a higher maximum dividend in good times, in consideration of a lower minimum dividend. I propose, therefore, that the standard rate for the first two years should be reduced from 5 to 3½ per cent., and the subsequent rate from 5½ per cent. to 4 per cent. Further, there should be a provision, which is outlined in my fourth Amendment and subsequent Amendments, allowing for participation up to 3 per cent. out of the balance, referred to in Clause 45, after paying other interest. That would make the maximum 7 per cent. I have also put down an Amendment to page 51, line 20, to leave out the words "after the first two years," to provide that this participation, in the event of the next two years being good, should be immediate. Of course, it would naturally 1502 not be obligatory. I very much hope that the Minister will seriously consider these suggestions, because I do not otherwise see how, unless Sir William McLintock's estimates are realised, it will be possible for the board to meet its obligations. The "C" stock in any event will then be in the position, after two bad years, that it will be possible for shareholders to put, in a receiver, and that would have a most damaging effect on the prior "A" and "B" stocks.
§ 7.16 p.m.
§ Mr. BRACKEN
I have on the Paper an Amendment which is not quite as comprehensive as that moved by my hon. Friend the Member for South East St. Pancras (Sir A. Beit). I am in entire agreement with everything that he has said. It seems to me fantastic far the Government to assume that this Combine can earn 5½ per cent. on the "C" stocks in perpetuity. The Minister who is conducting this Bill so agreeably was an eminent business man, and he knows perfectly well that during the last hundred years 10 to 20 years have been years of grave depression. The Government now submits in principle that this company must go on paying 5½ per cent., and that, if it does not for two consecutive years, 2½ per cent. of the "C" stockholders can rush in and get a receiver and manager appointed. There was never a more preposterous proposal put forward. Who is going to make the next few years prosperous? Who is to make sure that the next 10 or 20 years will be sufficiently prosperous to enable that dividend to be paid I Can a Government legislate for prosperity? It seems to me that the Government are taking on a very big question when they come to this House and want us to assume that for the next 10 or 20 years the country will be sufficiently prosperous for this company to pay per cent, on this "C" stock.
Let me utter a word of warning. A few years ago in this House we committed ourselves to another Government devised Combine, Imperial and International Communications. The experience we have had of that company does not lead any of us to believe that, just because a Government Department devises a plan which will ensure that an industry can pay 51 per cent. for many years, the industry is going to do so. All the 1503 stockholders in Imperial Communications are groaning now, and shortly there will be a reconstruction of capital. Yet the Government to-day say, "Take it from us, we can ensure that for heaven knows how many years London will be sufficiently prosperous to enable this Combine to pay this 5½ per cent." This Bill may be a Socialist think it is —but whether it is a Socialist Bill or a Capitalist Bill, neither a Socialist administration nor a Capitalist administration can conduct a company if they are tied down to the rigid payment of 5½ per cent. in good times or bad, while 2½ per cent. of busybodies among the stockholders can put into jeopardy the whole of the capital in the concern.
I hope that the Government will do something to meet the objections that have been put forward. In the absence of a satisfactory explanation I trust that the Amendment will be pressed to a Division. We are setting up, in effect, another preposterous Imperial Wireless Combine, and we shall inflict a grave loss on the investors of the country; we shall participate again in one of the melancholy capital reconstructions because of too optimistic plans of Ministers. I know that this is a Government of all the talents, but they cannot make this country prosperous for 20 or 30 years, as they seem. to think they can.
§ 7.20 p.m.
§ Sir PERCY HARRIS
I agree with the Amendment and with the lower rate of interest demanded, but I do not agree with the statement that it is probable this rate of interest will not be earned. I think the Combine is going to be in a remarkably strong position to earn what it likes. It can go to the Railway Rates Tribunal, and if it can show that two ends do not meet it can ask for an increase of fares. If bad times continue and passenger receipts fall, and the combine is not able to earn the dividend provided for in the Bill, it will be under an obligation to owners of the stock to go to the Railway Rates Tribunal and demand a general increase of fares. If we are to grant this big monopoly under this particular organisation; we have to see that the finances are sound, and not only in the interest of the stockholders. This Bill does not provide financial assistance; the Treasury is quite out of it, and so are 1504 the rates. The people who are going to provide the dividends are the travelling public. But the area is so large that there is not a citizen inside London or outside, within 25 miles of Charing Cross, who will not be dependent on this particular transport, and who will not have a contingent liability to pay the extra fares in order to find the 5½ per cent.
It is true that we have had the advantage of Sir William McLintock's views. He stood in the witness-box under a severe fire of skilled cross-examination, and he stood it very well. But circumstances have changed. We are suffering from the economic blizzard so well described by the Prime Minister. The blizzard is bound to reach every department of life, transport just as much as industry. I think the Minister is taking a great responsibility on his shoulders if he allows this rate of interest to go unamended. It is true that very skilfully he has arranged no longer to be responsible to the House for the administration of the Bill. He disappears and we shall not be able to cross-examine him. At any rate he largely disappears and goes into the shadows. At this stage of the Bill the hon. Member for South East St. Pancras (Sir A. Beit) has fulfilled a great obligation in moving his Amendment, and in the absence of a satisfactory explanation from the Government I shall follow him into the Division Lobby.
§ Mr. ALBERY
My hon. Friend the Member for South-East St. Pancras (Sir A. Belt) has raised a matter of considerable interest. The hon. Member who has just spoken seems to take the view that the stock of this company is an absolute security, and that in any case the dividends will be paid, because if necessary the Combine will be able to raise fares. I do not know whether that view is correct. Obviously there must be two views about the matter; otherwise there would not be any justification for the reservation in the Bill about appointing a receiver. If the dividends are not earned the Clause provides for the appointment of a receiver by the holders of "C" stock. I agree entirely with the Mover of the Amendment that that cannot be done without jeopardising the rights of holders of "A" and "B" prior stock. Perhaps I am not right in using the word "jeopardising," but certainly it would damage the marketable value of 1505 their security. I hope that the learned Attorney-General will give us some detailed information as to what kind of action he expects the receiver to take. It is very important that we should understand what the receiver will be able to do. Is this right to put in a receiver merely a matter of form which is never expected under any conceivable circumstances to take place, or is there any chance that it may happen? If it is at all likely to happen I certainly think that this Clause needs reconsideration.
§ 7.25 p.m.
§ The ATTORNEY-GENERAL
There will certainly be no two opinions as to the importance of the question that has been raised, and I am sure the Committee would desire to express its appreciation to my hon. Friend the Member for South-East St. Pancras (Sir A. Beit) who has raised it. He put his point with great clarity. But I think that the Committee will do well to consider whether or not the scheme in the Bill, so far as these rates of interest are concerned, is not a better one than that in my hon. Friend's proposals. In order to bring the matter before the Committee clearly it will be convenient to point out that the scheme provides for 5 per cent. interest for the first two years, 5½ per cent. after the first two years, then rising to 6 per cent. My hon. Friend proposes to substitute 3½ for 5 per cent., 4 per cent. for 5 per cent., and then he proposes to be optimistic and to increase the 6 per cent. to 7 per cent. I understand his criticism to be this—that we cannot expect this undertaking to earn, at any rate with a tolerable degree of certainty, as much as 5 per cent., still less 5½ per cent. after the first two years, and that if misfortune should prevent that rate of interest being paid a receiver can be put in upon the application of a few dissatisfied shareholders. As to the receiver it will be observed, in the first place, that it is not wholly a question of the decision of the shareholders. They will have to go to the Court and satisfy the Court that the appointment of a receiver and manager is an order which the Court ought to make. Therefore it is not an automatic going in of the receiver.
§ Mr. ALBERY
Does it not in fact mean that the main point affecting the decision of the court will be that the company has defaulted on the agreed amount of interest?
§ The ATTORNEY - GENERAL
Certainly, that would be a- very important, if not the main question for the court to consider. But the process is not quite automatic. Those who are familiar with the appointment of receivers in the Chancery Division will confirm my statement that if a small and negligible body of shareholders ask for the appointment of a receiver and manager, and if the rest of the shareholders are opposed to that course, the decision is still in the discretion of the court. The court is not bound to appoint a receiver if there are circumstances which do not make such appointment advisable in the interests of the shareholders as a whole. Here the main point in directing the decision of the court is the question whether a default has happened.
§ Mr. BRACKEN
Does the Attorney-General realise that under this Bill a minority of 2½ per cent. of the shareholders can go to the court; and would not the court take into consideration the fact that a specific figure was put into the Act?
§ The ATTORNEY-GENERAL
I think so, but the fact that a certain proportion of the shareholders went to the court would not require the court to make an -order. An order would not be made merely because that proportion of shareholders had made an application. However, I do not wish by any means to over-stress my point. I recognise that, on the whole, it is safer to suppose that if default happens a receiver will be ordered to enter. But it is right to bear in mind that the protection of the undertaking is entrusted to the court and that the court is not in the position of having merely to act on the motion and at the volition of a body of shareholders. The court to some extent has discretion to do what is best in the interests of the undertaking, bearing in mind what the Act says as to the right of the court to order the entry of a receiver.
In answer to this series of Amendments, I would remind my hon. Friends who put them forward and support them that if these proposals were to be adopted it would be necessary to re-open the whole of the provisional arrangements which have been made with the parties concerned. Those arrangements which I have termed provisional are, of 1507 course, subject to the approval of Parliament, but it must, I think, be agreed by the Committee that, if those arrangements have been made and if they are in the Bill with the consent and approval of the important bodies concerned, then there must be some merits in those proposals as contained in the Bill. These big undertakings and their directors have not agreed to this 5½ per cent. after the first two years and a maximum of 6 per cent. without believing that those are figures that can possibly be earned. Their interests are very much at stake. They are the people most vitally concerned. They are shareholders and they have given their approval to these proposals. It is not a question of parties making an agreement, subject to the approval of this Committee, when the parties making the agreement are not interested in the results of the agreement. The people most interested in seeing that the agreement put into the Bill is one which will work, are the undertakings which have been taken over and whose shareholders will receive the stock in question. I think that is a point which ought to confirm the Committee in the view—if the Committee is minded to take it—that the scheme of the Bill is sound and watertight.
Some of my hon. Friends have expressed doubts as to whether, what they call the optimistic forecast of the Bill, will be realised. All I can say about that point is what I said a few days ago. I think the hon. Baronet the Member for South-West Bethnal Green (Sir P. Harris) anticipated me in pointing out that Sir William McLintock has made a most exhaustive examination of the financial position. Nothing is easier than to foretell disaster. I am not in a position to foretell either disaster or success. I have not the qualifications, and I am bound to take the advice of other people. The question is whether I, as representing the Government, prefer the rather gloomy prognostications of my hon. Friends—who have not I venture to say gone into this matter with great care or in great detail—or the results of the very careful examination of the position made by Sir William McLintock. I am not suggesting that Sir William McLintock is infallible, but I think I would prefer the views of a man who has 1508 examined the subject in detail, through days and week of careful discussion, who has made a close examination of the figures, who has been cross-examined and exposed to all that ingenuity can suggest in the way of criticism. I prefer an authority of that sort to the authority of my hon. Friends who have spoken on this matter this afternoon.
Why should we not take the authority of my hon. Friends who support these Amendments? They have not had the opportunities which Sir William McLintock had of going into these matters and that in itself is perhaps the very reason why we should not prefer their view. The hon. Member for North Paddington (Mr. Bracken) tried to frighten me by citing the experience of the Imperial cables and wireless amalgamation. There is nothing so deceptive, my hon. Friend must realise, as an analogy. I do not know the circumstances of the cables and wireless amalgamation but it seems a very long step to take to say that because the cables and wireless amalgamation was framed on an optimistic basis, therefore the scheme in this Bill must be too optimistic. That seems an extraordinary example of the non sequitur.
§ Mr. BRACKEN
May I remind the Attorney-General that a Minister in this House in answer to criticisms on the Imperial Communications scheme said, just as he has said this evening that the Government had a most eminent chartered accountant in the City of London behind their proposal—a man of great responsibility. The Attorney-General says we must accept the authority of Sir William McLintock. In the City of London there are a number of accountants and other authorities, just as eminent as Sir William McLintock, and they all say, as the hon. Member for South-East St. Pancras (Sir A. Beit) has said, that this Bill is so rigid that it will involve us in a calamity similar to that of the Imperial Communications Company.
§ The ATTORNEY-GENERAL
I think my hon. Friend is over-stating his case when he says that there are a number of eminent accountants in the city besides Sir William McLintock and that they all say that Sir William McLintock is wrong.
§ Mr. BRACKEN
I referred to a number of accountants and I said that they were in agreement on this matter.
§ The ATTORNEY-GENERAL
If my hon. Friend will allow me to put it in this way, what he suggests is that a certain number have prophesied disaster for this undertaking and all who have done so are in agreement that disaster will follow. He says that all the accountants who do not agree with Sir William McLintock prophesy disaster, and he prefers their view to that of Sir William McLintock.
§ The ATTORNEY-GENERAL
But I must riot be deterred from holding to my opinion. As regards the statements that were made about the Imperial cables and wireless amalgamation those prognostications may have been perfectly justified in that case, but what happened in that case is no argument for the view that the results of Sir William McLintock's examination in this case are wrong. It is quite right that my hon. Friends should be put upon the alert by the previous disaster but the next step which they take, that of saying that this scheme must be wrong because the other scheme was wrong, is not one which appeals to me. I could understand them if they said that there must be further examination of the finance of this undertaking but let them bear in mind that this Bill has been before a Select Committee and that it did not go through without opposition. There were pages of the names of counsel and the representatives of bodies opposing this Bill and there was nothing easier, during those proceedings, than to have produced one or more of these accountants so well known to my hon. Friend the Member for North Paddington, and to have proffered their evidence in order that they might point out wherein Sir William McLintock was wrong.
§ Mr. BRACKEN
Are not the figures of Sir William McLintock based upon the years 1927, 1928 and 1929 and are they not, therefore, prosperity figures? That is one of the greatest charges that we make against the Bill.
§ The ATTORNEY-GENERAL
That, of course, is an absolutely fair criticism so far as it goes, but we think that the years which we have taken are, on the 1510 whole, the most satisfactory for the purpose of estimating the prospects of this undertaking. I think my hon. Friend is wrong as to the years which have been taken and that they are, in fact, 1928, 1929 and 1930 and I think those are preferable to the later years for this purpose. We deliberately took those years—or Sir William McLintock did—for the purpose of avoiding 1931 which was not a representative year. I must leave the point with the Committee in this way. They must choose between two views, either the view of experts, as presented by Sir William McLintock or the view suggested by my hon. Friends. I am not aware of anybody who has gone into these accounts and who has been prepared to say that the views of Sir William McLintock are too optimistic. The only people who are prepared to say so are people like my hon. Friends who, doubtless, have great experience in business and are well qualified to form an opinion, but who have not had the opportunities or the facilities for making an exhaustive examination which were possible before the Select Committee. I must leave the Committee of the House to form their opinion as to which of these is the most trustworthy authority. The Mover of the Amendment seemed to think, however, that Sir William McLintock in one respect was not optimistic enough. The Mover of the Amendment wants to provide 7 per cent. instead of 6 per cent. as the maximum interest.
§ The ATTORNEY-GENERAL
I do not know how that helps my hon. Friend very much. You do not earn 7 per cent. by allowing 3½per cent. instead of 5 per cent. in the earlier years, inasmuch as the board has to distribute its earnings in paying the rates of interest required. But my hon. Friend apparently thinks that this stock is capable of earning 7 per cent. while we have put 6 per cent. as the maximum, and after the payment of 6 per cent. cent. there are sums placed to reserve. My hon. Friend cannot have it both ways. If he thinks that 7 per cent. is the possible earning of this stock after two years it surely does not lie in his mouth to say that we have been too optimistic in our estimate. I am sure he will not use the argument that he has put in the figure of 7 per cent. 1511 because it, does not matter what figure you put, in and that you might as well put in 10 per cent. He has suggested 7 per cent, because he thinks that it is a figure capable of being realised and quite likely to be realised. He speaks with great experience I am sure and he is familiar with finance and the fact that he has put down 7 per cent, as the possible earning confirms Sir William McLintock's estimate.
This matter is now before the Committee and the Committee's decision depends first upon the view which they take as to the prospects of this undertaking. If they think that there is no passibility of Sir William McLintock's estimate being fulfilled they may say that the figure ought to be 3½ per cent, instead of 5 per cent. for the first two years and so on. If on the other hand they think that Sir William McLintock's advice is satisfactory, I take it they will see no reason for disturbing the agreements which have been made with the consent of the big undertakings chiefly affected by the success or otherwise of the scheme. Let it not be imagined that the Underground undertakings and the Metropolitan Railway and the other interests affected are going to accept a scheme which would mean, inevitably, the putting in of a receiver by the court. That seems too fantastic for anybody to suppose. These big undertakings may be wrong but they have formed the view which I have indicated.
It occurs to me that there is a possibility of avoiding any such danger as my hon. Friends foresee, and I throw out this suggestion. I suggest it to the Committee as a proposal which we would gladly consider with a view to its incorporation in the Bill on the Report stage unless there is some objection to it in Committee, or unless some objection occurs to us on further examination of the question. That suggestion is that the entry of the receiver shall be conditional upon failure to pay, not 5 per cent., which is the interest that the stock is to earn if it can, but failure to pay 3½ per cent. for two years. That will not reduce the interest which is properly payable on the stock, which will remain at 5 per cent., but the failure will be to pay interest at the rate of 3½ per cent. in respect of the first two years. That will give a very 1512 good opportunity to this undertaking to get really going, to earn interest upon the large outlay of capital which has been made in recent years and has not yet fructified or come to full value. Without pledging myself at this moment that it will be possible to put this into the Bill, we will certainly consider it. I think it will meet the broad objections to the scheme of the Bill which my hon. Friend has made, and I hope the Committee, on that undertaking, will allow the Bill to stand in its present form and give us an opportunity of reconsidering the point.
§ Mr. ALBERY
Will the learned Attorney-General say a word about what he thinks the steps would be which the receiver could take on being appointed I Does it really mean that he can put up the fares? If there is no restriction on the extent to which he can put them up, it is an absolute scandal, and there is no reason to put 6 per cent. if the fares can be put up without limit.
§ The ATTORNEY-GENERAL
The receiver in this connection is the receiver in a statutory undertaking, and, therefore, he has no power to sell the undertaking. He is different from a receiver who goes in on behalf of debenture holders in an ordinary trading company, with liquid assets or with money to be collected. The receiver here will have no greater power to put up the fares than the board has under the Act. The receiver does not come in as a sort of Napoleon, who can do what he likes, irrespective of the Act of Parliament or of Parliament. He will have to do exactly what the Board would have to do if they were carrying on the undertaking, but he will do it as manager, not as receiver. His duties as receiver will be to see that the moneys receivable by the undertaking are properly dealt with for the benefit of the stockholders on whose behalf the receiver manages it.
§ Sir A. BEIT
I thank the learned Attorney-General very much for what he has said, but I want to make quite sure about this compromise that he offers. Did he say that the receiver would not be put in unless the "C" stock were not to pay 3½ per cent. —
§ The ATTORNEY-GENERAL
If there is a failure to pay 3½ per cent. in the first two years. That was the suggestion that I made to the Committee. If the Committee thinks it does not go far enough, or requires modification, I have thrown out the suggestion for the consideration of the Committee, and I am quite prepared, if there are criticisms of it or suggestions on it, to have my proposal reconsidered, in the light of those criticisms. I am not throwing it out as to be taken or left, but merely to see whether the Committee can help us at all to devise a better plan than there is in the Bill at the present time, bearing in mind that we must qualify or restrict the alterations which we make in this Bill so as not to prevent the chances of agreement with the undertakings concerned being reduced to a minimum. I always have to bear that qualification in mind in any proposals that I make to the Committee.
§ 7.50 p.m.
Sir A. REIT
I thank the right hon. and learned Gentleman very much, and I do not want to take advantage of his generosity, but I would like this concession to apply to any two consecutive years. It is most important that the first two years should have this privilege, but it is no less important that it should apply to other successive years. I am afraid that the learned Attorney-General rather sidetracked me with regard to his interpretation of my proposed maximum of 7 per cent. I do not by that proposal mean that I think the concern will earn 7 per cent. or that the "C" stock will be able to pay 7 per cent. It may be that through economies and so forth that would be ultimately payable, but it seems natural that if you tell the "C" stockholders that they must be prepared to take a less dividend as a minimum, you should offer them the chance of something more at the other end of the scale. I do not say that they will get it. I would be willing to leave it at 6 per cent., but it seems only justice that I should suggest its being raised to 7 per cent. from 6 per cent. The Attorney-General said we must choose between two views, between the view of pessimism and the view of optimism. I do not quite agree, and my suggestion does not ask him to do anything of the sort.
§ The ATTORNEY-GENERAL
I do not think I put it in that way. I said, 1514 " Choose between two views." I did not say that one was the view of optimism and the other the view of pessimism.
§ Sir A. BEIT
I rather inferred that that was what the Attorney-General meant, because we were talking about Sir William McLintock's figures as being rather optimistic, and I thought that when he said that we must choose between two views, he meant between the view of good times ahead and the view of bad times ahead. My original suggestion makes it unnecessary to come to any such choice, because if Sir William McLintock's figures are justified, or indeed, improved upon, so much the better. According to my Amendment, the statutory standard rate of dividend, and even more, would be paid. If, on the other hand, his figures are not reached, then, of course, under my suggestion there would be no need to apply to the High Court for a receiver to come in. The essence of my complaint was the rigidity of the stock as it stood, and that you had to take a definite view, as taken in that pro forma statement of Sir William McLintock's, and stick to it and exercise your powers as if you were not going to get your money in any other way.
Finally, I feel very much—and my hon. Friend the Member for Gravesend (Mr. Albery) supported me in this—that the position of the "A" and "B" stockholders cannot be lightly passed over. There is no doubt that a receiver and manager appointed by the "C" stockholders would have a very prejudicial effect upon them, and I have to think of all the trustees that we know of, who will buy millions of this stock as very suitable for their particular purpose. I think we must try to protect them against what I may call the ravages of the "C stockholders. Therefore, I feel that my Amendments were reasonable, but I am grateful to the learned Attorney-General for what he has said. If he can give us any assurance that on second thoughts there is no risk of his concession being removed, but that it will feature on the Report stage of the Bill, and that the 3½ per cent, will include any two consecutive years, I feel that the prospects before the London Passenger Transport Board will be a good deal better than they are under the Bill in its present form.
§ 7.55 p.m.
§ Lord EUSTACE PERCY
While sharing the view of the Mover of the Amendment that we are very grateful to the learned Attorney-General for his conciliatory attitude, I am not sure that he quite realises the gravity of the issue that is being presented to this Committee. It is no good saying we must choose between the view of Sir William McLintook and the view of possibly less expert people. That is putting the onus of proof on the wrong side. I grant that we are none of us experts, but it does not need an expert to say that to guarantee a rate of interest on the ordinary shares of a company is a highly hazardous thing to do, and that to have ordinary shares which are in effect trustee stocks is to put a great strain upon even an enterprise with the most brilliant future possible. If you guarantee, at the present time, a rate of interest of 3½ per cent., you are at any rate presenting the public with a security which stands pretty high in the public regard. It does not need an expert to tell us that to do that is dangerous, nor does it need an expert to remember what has been the universal experience of every single attempt that this or any other Government has ever made to guarantee a standard rate of interest or a standard revenue. Is there a single hon. Member of this House who does not bitterly regret that we guaranteed the railways in 1921 a standard revenue based on past earnings? Yet we are doing precisely the same thing here, and that is the real danger of this Bill. You are in effect, by your receivership provisions, giving a statutory guarantee of a rate of interest.
We all know that the receiver is never going to come in. How can you have a receiver called in to upset all this paraphernalia of the Appointing Trustees, and the supermen, throw them all out, and take over the control of the concern himself? Of course, that is never going to happen, because this monopoly will always have the power of preventing it happening. Short of utter and absolute disaster, it can always raise fares, and when the learned Attorney-General says, "You do not expect the responsible directors of these companies to be asking something for their shareholders which they do not think they can get," of course they think they can get it, be 1516 cause they are coming into a monopoly, and their earning power will be absolutely unlimited—a complete monopoly, a far greater monopoly than the main railways ever were under the Railways Act of 1921. Therefore, the serious decision presented to this Committee is: Is this House going to give a statutory guarantee of a rate of interest to prospective investors, with all the force and all the reputation of this House and of His Majesty's Government behind it? Are we going to start this new enterprise with practically a solemn guarantee of that kind, which would be regarded outside as a solemn guarantee, which we are not perfectly certain of being able to implement? To give such a guarantee, if it was done by a private concern, would be open to very serious criticism, and that we should put ourselves in that position is a very serious decision to take.
Will the learned Attorney-General allow me to say that it seemed to me that the only forcible part of his argument was this: "We have come to an agreement, and we cannot afford to lose it." It is the old story. "We had to make a deal; we had to pay for getting an agreement, and this House must not upset that agreement." I fully appreciate the force of that, but is that the position in which this House is always to be placed when it is making a statutory amalgamation of this kind? We are exerting the sovereign power of this House and the Government to compel people to come into an amalgamation and to do certain things. If the Government are asking the House to take drastic sovereign action of that kind, how can they come to the House in the middle of the operation and say: "These particular people are too powerful and too good friends of ours, and have been too nice to us for you to be able to exercise your sovereign rights against them. We must do this by agreement or not at all." When we indulge in statutory amalgamations of coal mines and so on—we are going in for these statutory amalgamations in various directions on a considerable scale at the present day—are we always to be told: "You must not disturb this agreement; there are certain gentlemen in this country with whom we must agree "
I only say this to point out to the Committee the great difficulty which we are in, I realise, of course, that the 1517 Government are in a great difficulty as the result of the past negotiations which have been spread over the last two or three years. The Attorney-General's concession may be the best he can do without disturbing these delicate agreements unless we are going to bring the Bill down crashing. Some hon. Members desire that, but I do not take that view. I am bound to say that the concession appears to be very inadequate, and even my hon. Friend's Amendment seems to be inadequate, because we are in fact guaranteeing a rate of interest at 3½ per cent. on the Ordinary shares, and I do not believe that we ought to do that. There is no justification for it. The only way out—and perhaps I may put it to the Attorney-General as a possible counter suggestion—appears to be to leave out the provision as to receivership altogether as my hon. Friend the Member for North Paddington (Mr. Bracken) proposes to do in his Amendment. I do not know whether the provisions for a receivership are part of the deal with the companies concerned, but I can hardly think that those companies can insist on these statutory provisions for a receivership, amounting as they do practically to an authority to the new monopoly to put up fares to any extent that is necessary in order to pay 3½ per cent. on the Ordinary shares. I ask the Attorney-General and the Government to think over that counter suggestion seriously between now and the Report stage.
§ 8.4 p.m.
§ Sir B. PETO
Hon. Members seem to regard the putting up of fares as the only means by which the board will be able to get an increased revenue. That is not so. As I understand it, the reason why the rate of 5 per cent. was settled for two years, with another half per cent. afterwards up to a maximum of 6 per cent., was that the opportunity of the board to effect economies would be immense but that they could not operate at once. They will have to start on the basis of the income that was earned before the monopoly was created; hence, the two years. In addition, the new development which is to be carried out will not at once begin to fructify, and therefore there will not be any increased earnings. I do not think that from that point of view it is in the least reasonable to suppose that Sir William McLintock's 1518 figures are wrong and that there is not a probability amounting practically to a certainty that that interest will be earned, although in London passenger transport there may have been a falling off last year as compared with the preceding years to the time when the Joint Committee sat. That aspect ought to be taken into account.
There is this further point with regard to the suggestion of the hon. Member for North Paddington (Mr. Bracken) for a smaller initial rate of interest with a possible future compensating interest of 7 per cent. in later years. I understood the reason why the interest on the "C" stock was rigidly limited to a maximum of 6 per cent. was not that Sir William McLintock expected that no more than 6 per cent. could be earned, but that it was desirable that all real profit earnings should go to reserve for the development of the industry of passenger transport in the area. Therefore, the Committee should refuse any increase above 6 per cent. on that ground. It is true that the powers of the "C" stockholders to put in a receiver are very drastic, but I do not think they were part of the bargain but that they were put in by the Select Committee. The Attorney-General will no doubt be able to clear the point whether those powers formed any part of the bargain, but my own recollection is that they did not.
§ Earl WINTERTON
We recognise the hon. Baronet's authority in these matters, and will he deal with this point: Is it not true that there is an estimated reduction, as well as can be computed, in the receipts of the company of £750,000 since Sir William McLintock drew up his figures?
§ Sir B. PETO
I cannot answer that question because I do not know. Who estimated the figure and what authority there is for it I do not know. I only rose to point out the fact that the raising of fares is not the only source of revenue. There is a great difference between this body and companies operating in many cases unnecessary services which do no good but simply congest the streets and make it impossible to develop the Underground service in its most essential direction towards the East. I believe that the bulk of the future revenue under this scheme will be used as capital further to develop transport.
§ 8.9 p.m.
§ Mr. H. WILLIAMS
I wish to ask a question of the Attorney-General with regard to the interesting proposal that he made. What reaction will it have on Sub section (4) of Clause 3, under which it isthe duty of the board to conduct their undertaking in such manner, and to fix such fares and charges…as to secure that their revenues shall be sufficient to defray all the charges which are by this Act required to be defrayed out of the revenues of the board.Is 3½ per cent. now the sum which they are required to defray out of the revenues of the board, and, if so, are they entitled deliberately, without any breach of their duties, to conduct their undertaking on the assumption that they have done their duty if they have paid 3½ per cent.? It is an important point, and I hope that the Attorney-General will give it his consideration. He may not be able to reply now. He has been developing his suggestion while we have been discussing this matter, and naturally he cannot give such a prompt decision as he might do if we were dealing with an ordinary Government Measure.
§ 8.10 p.m.
§ Mr. BRACKEN
I join my hon. Friends in thanking the Attorney-General for his concession. It was made in such an agreeable fashion that we did not perceive the minuteness of the concession he was giving us. At the same time, we do not want to press him on this point, because this is not the place to conduct those intricate negotiations which will be necessary before any substantial modification can be made in the provisions to which we object. I wondered whether the Attorney-General would consider accepting the Amendments which appear later in my name—In page 54, line 32, to leave out paragraph (b), and in page 55, line 1, to leave out paragraph (c). The omission of those paragraphs would not tie us down to any specific percentage as does the Amendment of my hon. Friend the Member for South-East St. Pancras (Sir A. Beit). If the Attorney-General will reconstruct those two paragraphs before we come to the Report stage, we can suppress our desire to force this to a Division and obtain from the Government what we want more than anything else, namely, a general betterment of the Bill. There are aspects of this question which we cannot discuss 1520 now, but in his excellent argument my Noble Friend the Member for Hastings (Lord E. Percy) developed a point which none of us had developed up to that stage when he said that in effect we are giving a Government guarantee.
Our line of criticism is that we are not so much giving that guarantee as jeopardising the property of the stockholders other than the "C stockholders. When you look into it, you see that it is a preposterous thing that 21 per cent. of the stockholders can practically end this enormous business. It is ludicrous. Suppose that a receiver is appointed as requested by these people. He comes in and displaces the board about which we have heard so much; all those eminent people, those men of big business, those chartered accountants and those traffic experts go away, and the little man with a black bag called a receiver comes in. It is preposterous, and I can tell from the Attorney-General's face that he is disturbed by the many points of criticism that have been raised. I know that he can impress on the Minister of Transport the desirability of recasting those two paragraphs and making sure that the right of appointing a receiver is not given to a mere 2½ per cent. of the stockholders, and that the rigid rates of interest are modified so that more elasticity will be imported to the Bill. Elasticity is essential in a great commercial combine such as we are setting up. I appeal to the Attorney-General to give us an assurance that he will accept these mild Amendments of mine or produce on the Report stage reforms which will entirely reconstruct the provisions to which such grave objections have been taken.
§ 8.14 p.m.
§ Mr. ALBERY
I hope that the Attorney-General will further consider the position of the "C" stockholders. I do not think that he understands yet the point made by my hon. Friend with regard to the varying rates of interest. Nobody can desire that this concern should be put in the hands of a receiver. There must be ups and down in trade, even with a monopoly, and the whole point of the suggestion is that, if they are compelled to pay a smaller rate of interest before a receiver is appointed, it is only fair, when they arrive at a better period, that a higher rate should be paid to com- 1521 pensate for the period when a lower rate was forthcoming. There is one last point. So far as I know, the bargain which was struck in arriving at the contents of this Bill was made at a time when money conditions and the rates of interest on investments were entirely different from those which exist to-day. There is at least 1 per cent. difference, and I am not at all happy in my mind that, in passing this Bill, we shall not be sanctioning a rate of interest, certainly on the "C" stock, and also on the "A" and "B" stocks which is not in keeping with conditions as they are to-day.
§ 8.16 p.m.
§ The ATTORNEY-GENERAL
I am very much obliged to the Committee for the tenderness with which they have treated my prentice hand in matters of finance. My hon. Friends are all such experts in this matter that I am sure they might have been much harsher with me in their criticisms. But when my hon. Friend the Member for North Paddington (Mr. Bracken) says that he reads in my countenance that I am very much disturbed I must tell him he is not a success as a thought-reader, because I am not at all disturbed by the gloomy prospects which have been held out. The modification which I suggest is one which can incorporate in the Bill, if that is found possible, with complete equanimity from my point of view, because as I accept the forecast of Sir William McLintock that 5 per cent. will be earned, obviously I am not giving anything away when I make the condition of default on the part of the undertaking a failure to earn at least 3½ per cent. If I think it is going to earn 5 per cent., it does not make much difference whether the figure is 3½ per cent. or not, from my point of view. From my hon. Friends' point of view it may be a concession, and perhaps they will allow me to consider that point.
I am sure that my hon. Friend the Member for South-East St. Pancras (Sir A. Beit) will not expect me to give a fiat and binding undertaking, here and now, to incorporate the change in the Bill. What I have promised is that it shall he looked into most sympathetically; and I can say, with complete candour and honesty, that because my hon. Friends, who have so much experience, anticipate 1522 that the concern may not be able to earn this full 5 per cent., the more attention will be given to this question. But do not let it be supposed that I can promise here and now to make the change. All I say is that it may be possible. If it will meet the point of my hon. Friends, I can say that we will consider it most carefully, and if it is impossible to incorporate it in the Bill, the Government will most certainly do so. And I can promise this further, that at any rate my hon. Friends shall have an opportunity, subject to Mr. Speaker's decision, of raising the whole point again if the Government are riot able to incorporate this proposal.
Now I must join issue with my Noble Friend the Member for Hastings (Lord E. Percy) when he talks about a Government guarantee of the rate of interest, whether it be 3½ per cent. or 5 per cent. With all respect to him, I simply do not understand what he means. The Government are not guaranteeing either 3½ per cent. or 5 per cent. He might just as well talk of the Government guarantee being extended to the 4 per cent. stock of the Port of London Authority. Then he suggested that this proposal about a receiver is a novelty. In the Port of London Act there is a Clause by which a receiver and manager is to enter if the 4 per cent, is not earned upon the stock of that authority, but the Government do not give a guarantee that the 4 per cent. will be earned. I think it will be most misleading to people outside this House if at some future time they refer to this Debate and see that the Noble Lord said, in the presence of representatives of the Government, that de Government were guaranteeing this stock.
§ Lord E. PERCY
Of course, I never intended to give any outside person that assurance; but will the right hon. Gentleman deny that they are giving a statutory guarantee?
§ Sir K. VAUGHAN-MORGAN
May I draw attention to Sub-section (4) of Clause 3, which says:It shall be the duty of the board to conduct their undertaking…so as to secure that their revenues shall be sufficient.Surely that is a statutory duty.
§ The ATTORNEY-GENERAL
It certainly is not a statutory guarantee or a Government guarantee. I speak in the presence of much greater financial experts than myself, but from a legal point of view I do want it to be understood that there is no guarantee at all. It is what is called a standard rate of interest upon the "C" stock, and under Sub-section (4) of Clause 3 it is the duty of the board to conduct their undertaking so as to earn the standard rate of interest upon the stock. Five per cent. is to remain the standard rate of interest, but my proposal is to modify the provisions about the receiver so as to require a receiver to enter only if 3½ per cent. is not earned. In answer to the point raised by my hon. Friend the Member for South Croydon (Mr. H. Williams), Subsection (4) of Clause 3 really has no bearing at all on the standard rate of interest. The question we are considering is the conditions under which a receiver may enter.
§ Sir ROBERT HORNE
Is it not also at the present time the standard rate of interest to which regard is given by the railway tribunal in the case of the main line railways, and no railway is making that money at the present time and there is no Government guarantee?
§ Mr. H. WILLIAMS
My question was as to the interpretation of Sub-section (4) of Clause 3. Are the Board to take into account 3½ per cent. or 5 per cent. What is to be their aspiration when the change is made?
§ The ATTORNEY-GENERAL
Their aspiration will be to conduct the undertaking in such a way as to meet the standard rate of interest on the stock. The standard rate of interest will be 5 per cent. I should think that is clear beyond doubt. My last word is with reference to what my Noble Friend said about telling the Committee they must not upset delicate agreements. I have not suggested to the Committee that these agreements cannot be upset if the Committee are so minded, but surely, as sensible men, it is right for us to face the facts, to be realists, as we were told the other day. These agreements have been made, and, if we are to have unification, people must be consulted. Hon. Members are always complaining about compulsory expropriation, and 1524 when we avoid compulsion and use the arts of agreement we are then told we are interfering with the freedom of the Committee. The agreements are subject to approval by the Committee, but we must remember that agreements are very difficult to negotiate, and unless there is some overwhelming reason it is not desirable, and probably it is not wise, to disturb them; but it is always open to the Committee to consider the question from the point of view of the balance of convenience. I have tried to the best of my ability to appreciate the points raised, and I think they have been well worth the discussion, which has been by no means prolonged, and, if my hon. Friend now sees fit to withdraw his Amendment, I will undertake to give the matter that further consideration which I have promised.
§ 8.24 p.m.
§ Sir A. BEIT
I am very glad that this discussion has arisen on my Amendment. It would have been unthinkable that the finances of this gigantic undertaking should have been passed over without comment. In view of the assurance given by the learned Attorney-General I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
Amendments made: In page 52, line 22, at the end, insert the words:
so, however, that the said stock shall not be redeemable before the date of the dissolution of the trust for which provision is made by Section (Provisions as to certain stocks of the Metropolitan Railway Company) of this Act, except upon six months' notice of intention to redeem and at the end of any year.
§ In line 31, leave out the word "or," and insert instead thereof the words: "the Metropolitan undertaking and."
§ In line 38, leave out from the word "Board," to the word "in," in page 53, line 5.
In page 53, line 8, after the word "undertaking," insert the words:
or the Lewis undertaking.
§ In line 20, leave out the words "paragraph (a)," and insert the words "paragraphs (a) and (b)."
§ In line 21, after the word "thirty-seven," insert the words "of this Act." —[Mr. Pybus.]1525
§ Clauses 39 (Dealings with transport stock by local authorities), 40 (Power of board to borrow temporarily), 41 (Reserve fund), 42 (Insurance fund), 43 (Tramway debt liquidation fund), 44 (Continuance of grants under 20 and 21 Geo. 5. c. 7) and 45 (Application of revenues of board) ordered to stand part of the Bill.