HC Deb 01 August 1944 vol 402 cc1343-54

Motion made, and Question proposed, "That this House do now adjourn."—[Mr. Drewe.]

Sir John Mellor (Tamworth)

I want to raise a few small, but, I think, important, points with regard to the financial provisions of the Railway Control Agreement, which was signed in September, 1941, and is still in force. I should, I think, disclose that I have a small and indirect private interest in railway stocks. I have received a very large number of representations from my constituents upon this matter, but I think it only fair to say that I have received no representations whatsoever from the railway companies. I raise the matter entirely upon my own responsibility. I am trying, and I have been trying for some time, to probe into matters which the Minister has said have been the subject of confidential discussions with the railway companies, and I think, judging by the reticence of the chairmen of the main line railway companies at their annual meetings, it is fairly clear that the Government have effectively sealed their lips. Therefore, I have deliberately refrained from consulting the railway companies, or indeed, hon. Members of this House who happen to be railway directors, and I am sure that, in view of that explanation, they will acquit me of any discourtesy towards them. I have thought it was better to proceed entirely on the basis of what has already been published.

On 1st July an official statement appeared in the newspapers which covered the railway companies' request for better terms for their stockholders and the Minister's refusal of any revision of the agreement. That statement quoted the railway companies' Memorandum of 20th April, and, in that Memorandum, the chairmen insisted that it had been understood, at the time the agreement was entered into, that, should new circumstances of a major character arise, the financial provisions of the agreement might be re-opened. I propose to read the relevant passage. This is what the chairmen of the railway companies said: The Minister will be aware that, in the original draft railway agreement, provision was made by which the Minister or the railway companies could -propose a revision of the arrangement for any cause of a major character, and, if agreed to by all parties, the arrangement should be revised. Accordingly, while a provision of this nature should have no legal significance, and was, for this reason, not embodied in the revised agreement, it was made clear during the course of the negotiations that the Government did not wish to depart from this understanding, as, if new circumstances arose, they might again require the agreement to be amended. Then, the chairmen proceeded, in this Memorandum, to draw attention to the vastly increased traffic and more intensive use of their capital assets consequent upon the participation of the United States of America in the European war. The Min- ister replied to that Memorandum by letter dated 26th June. He said this: As my correspondence with Sir Ronald Matthews shows, the companies' acceptance of the fixed annual payment of the agreed amount was for the period of control. The Minister says his "correspondence with Sir Ronald Matthews shows." I want to know very much what that correspondence does show, and I have been asking in vain for the last six months for its publication. I want to ask whether it was the Minister's intention to repudiate the understanding which the railway companies have alleged. If it was his intention, he did not do it in a very communicative form, and I want to ask the Parliamentary Secretary what is the truth about the alleged understanding.

Does he suggest that this was an invention of the railway companies? The Government had already obtained a revision for one Clause, and it is reasonable and indeed, probable, that the railway companies should expect to have been able to obtain a revision for another Clause. In refusing to discuss revision, although the legal position of the Government might be unassailable, in equity it is rather deplorable.

There is a further aspect to this matter to which I would like to invite attention. On 8th December, 1943, I asked the Parliamentary Secretary this Question: Whether the financial provisions of the Railway Control Agreement were intended by the Government to represent a fair settlement on commercial principles or whether political considerations were involved. He replied: In the opinion of His Majesty's Government the provisions of the Railway Control Agreement constitute a fair consideration for the control and use of the railway company undertakings during the national emergency."—[OFFICIAL REPORT, 8th December, 1943; Vol. 395, C. 957.] I want to know what he really means by "fair consideration." Does he mean fair consideration on business principles and, if not, on what principles does he rely? In the Memorandum of 20th April, the railway companies proceed to say: The Minister will remember that, although the railway companies in the national interest accepted the revised Agreement as a war-time measure and without regard to the ordinary commercial considerations which would have to be taken into account in determining the amount of compensation to be paid for the use of the undertakings, either individually or collectively, under normal conditions, they at the same time made it clear that the minimum guaranteed annual payment was the lowest that could be accepted without grave injustice to their proprietors. I want to ask the Parliamentary Secretary whether the Minister agrees that the railway companies accepted the revised Agreement without regard to ordinary commercial considerations. Does he agree with the proposition, because it does not seem that the railway companies' version is consistent with a business arrangement in any sense of the word? Does my hon. Friend contend that the new terms were in any sense a fair exchange for the old terms or were voluntarily accepted? It really would seem that the new terms were forced by political pressure down the throats of the railway companies and swallowed by them for fear that worse might be thrust upon them. The new terms were less favourable to the railway companies in almost any conceivable circumstances which could be imagined either then or since. The Agreement of February, 1940—the previous Agreement—provided for a Government guarantee of £40,000,000. That included the London Passenger Transport Board. But the Agreement of December, 1941—the one of which I am now complaining—provided an additional guarantee of £3,500,000 instead of the existing first charge of the same amount on the Pool. In 1941 the first charge of £3,500,000 was covered six times over by the earnings. Now for that very slight gain the railway companies sacrificed all claim to share in surplus profits and these surplus profits, in 1941, amounted to £21,000,000, and in 1943 to £60,000,000, which was in excess of the standard revenues to which they were entitled under the Railway Act of 1921.

Even so, those standard revenues were not as great as the substituted standard for E.P.T., which the railway companies would undoubtedly have enjoyed had they had the comparative luxury of being assessable to E.P.T. I think that all the junior stockholders of the railway companies have had a raw deal. The 78,000,000 Preferred Ordinary and Deferred stocks of the London and North-Eastern Railway have been deprived of all possibility of dividends for the duration of the war, and for at least one year after. They have exchanged the possibility, or even probability, of something for the certainty of nothing. That does not sound like a bargain freely made, and that is a further reason why I have been pressing for the publication of this correspondence. My hon. Friend the Parliamentary Secretary has objected to the publication on the ground, firstly, that it was confidential. Well, if it was confidential in the business sense of the word that can be disposed of by mutual agreement. Who insists on keeping this correspondence secret? Is it the Ministry, or is it the railway companies?

Sir Patrick Hannon (Birmingham, Moseley)

Presumably there was nothing in the correspondence that would prejudice the security of this country?

Sir J. Mellor

I was about to say that the Parliamentary Secretary, in reply to a Question from me, said it would be contrary to the public interest to publish the correspondence. What Departments object to its publication, because it is very hard to see how a purely financial arrangement come to in 1941 could possibly help the enemy in 1944? That seems altogether too far-fetched. If there is still a security objection can I have a definite promise now that this correspondence will be published as soon as the war is over? Control has been inevitable for the railways, I admit, but that is no reason why they should be treated with exceptional meanness. Here we have a case of poverty in the midst of plenty, because some of these railway stockholders are getting nothing at all, and cannot get anything under this Agreement, while the Government proceed to make gigantic profits out of their property. I know my hon. Friend the Parliamentary Secretary desires to give me a full answer, so with those observations I will conclude.

The Parliamentary Secretary to the Ministry of War Transport (Mr. Noel-Baker)

I will do my best to answer the points that have been raised by the hon. Baronet who sits for Tamworth (Sir J. Mellor). I am afraid that in spite of his kindness I have not the time to do so as adequately as I would like. Nevertheless, as this has been a matter of considerable controversy outside, I want also to make one or two other points with which he did not deal. The first is the assertion that the railway companies accepted the 1941 Agreement under what is called "Government duress." That is a serious allegation, but it has been roundly asserted in a pamphlet written by a certain Mr. Scott Adie, who has also been extremely active in writing to the Press. Mr. Scott Adie's pamphlet is entitled "The Scandal of the British Railways." It contains many statements which are grossly—I will not say scandalously—inaccurate and misleading. Let me deal with this allegation, that the Railway Agreement of 1941 was made under Government duress. I say without hesitation, there is no foundation for it whatever. Nothing of the kind has ever been maintained by those who negotiated the Agreement for the railways. Perhaps it will suffice if I quote what was said in this House when the Agreement was first debated in 1941 by my predecessor, my right hon. and gallant Friend who is now the Minister of Food. He said that the railway companies had agreed that—— A revision of the former arrangement is necessary"— because of two Government decisions which had been made, and to allay the kind of doubts which have now arisen. My right hon. and gallant Friend went on to say: I should like to emphasise that the agreement to revise the former arrangement was a voluntary matter and not imposed upon the railways. My Noble Friend the Minister, who was primarily responsible for making the Agreement, will be very happy to give any other assurances that are required, but I hope that the words I have quoted from the speech of the Minister of Food will be generally accepted as quite convincing.

That brings me to the first point that has been made to-day by the bon. Baronet: If the Agreement could be revised in 1941 when the Government thought that revision was required, why cannot it be revised again when some of the stockholders think that revision is required again? Nobody, he says, believed in 1941 that the Agreement was going to turn out so favourably to the Government as in fact it has been; as the Government have made so big a profit, why cannot they give the stockholders a better deal? And the hon. Baronet quotes the Memorandum of the railway chairmen, in which they say that the Government made it clear that, "if new circumstances arose, they might again require the agreement to be amended." If that is so, he asks why does the right to ask for revision work in one direction only? The answer is quite simple; I hope it will satisfy my hon. Friend. The "new circumstances" which might have required, or may require, a new arrangement had nothing whatever to do with the points which are dealt with in the present Agreement.

What my Noble Friend had in mind was the possibility of some new decision of major policy quite outside the Agreement, and affecting not merely the control period but the more distant future. That was why the revision Clause of the original Agreement, which gave either party the right to ask for revision, was deliberately and by agreement dropped. It was dropped because both parties felt that it was no longer appropriate in the new arrangement that was being made. I say with great confidence that none of the parties then held that either side would have a right to ask for a revision of the fixed sum, the "rental" of £43,000,000 on which the bargain was ultimately struck. As my Noble Friend said in his answer to the chairmen's Memorandum: The companies' acceptance of that fixed annual payment … was for the period of control. So was the Government's acceptance, and if things had turned out differently we should have been no more free to ask for the revision of that sum downwards than the companies are free to ask for a revision upwards of the compromise sum that was then agreed. I hope my hon. Friend will not think me unfair if I quote a statement made by the Chairman of the Great Western Railway 15 years ago. Dealing with this very matter he said that the new Agreement contained no provision under which the railways would be entitled to ask for revision. In any case, he said, although a good case might be made on commercial grounds for more generous treatment, there would be no justification for asking for the revision of an agreement—— … accepted as a war-time measure in the national interest with the full knowledge that the annual payment in no way represented the existing or potential capacity of the undertakings. That was from "The Times" of 11th March, 1943.

Mr. Tinker (Leigh)

Then the hon. Gentleman made a mistake in saying it was 15 years ago?

Mr. Noel-Baker

I am sorry; I meant 15 months ago. I have another statement made by the Deputy-Chairman of the Great Western Railway, my hon. and gallant Friend the Member for Bolton (Major Sir Edward Cadogan) on 9th March this year, in which he said: My own personal view is that any approach to the Government now for revision would be premature and contrary to the spirit in which we accepted the agreement …

Sir J. Mellor

They did approach the Government notwithstanding that statement.

Mr. Noel-Baker

They put forward the request of some of their stockholders but the chairman whom I am quoting said that in his view it would be premature and contrary to the spirit in which the Agreement was originally accepted, and he was in very full possession of the facts.

I turn to the hon. Baronet's second point, namely, if I have understood him rightly, whether this fixed annual payment is even tolerably just. He made his point, if I may say so, with great moderation, and he quoted the statement in the Railway chairmen's Memorandum in which they explained why they had accepted the Agreement "as a war-time measure," and in which they went on to say that they had made it clear in 1941 that the sum they accepted was the least that could be accepted without grave injustice to their proprietors. He contrasted this with an answer which I gave him to a Question last December: In the opinion of His Majesty's Government the provisions of the Railway Control Agreement constitute a fair consideration for the control and use of the railway company undertakings during the national emergency. If I understood the hon. Baronet, he finds a conflict between my answer and the chairmen's statement. I tell him frankly that I find none. The Government are the guardians of the public purse; they had to make the best bargain, from the taxpayers' point of view, which the railway chairmen would voluntarily accept; they did so; they held then and they hold still that the resulting sum was "a fair consideration" for the control and use of the railway undertakings during the national emergency. What is this "fair consideration?" How does it compare with the pre-war profits of the railways? Is it an appropriate remuneration during the period of a great war like this?

For the purpose of the present controversy the four main line railway companies must be separated from the London Passenger Transport Board. The four main line companies receive from controlled sources a fixed annual payment of £38,200,000. They receive from uncontrolled sources—their investments in road haulage undertakings, their interest in the railways of Northern Ireland, and so on—a further sum of £1,800,000—that sum has increased by £700,000 since 1930. Their net revenue under the Agreement is, therefore, £38,200,000 plus £1,800,000, a total of £40,000,000. I ventured to say the other day in answer to a supplementary question in the House, that this meant that the railways get a remuneration considerably above anything they earned in peace-time. One of our Press critics ventured to say that this was "bunk." His remark was really addressed, not at me, but at the late Sir Kingsley Wood, for, when Sir Kingsley Wood was Chancellor of the Exchequer, the Treasury wrote a letter in which they said—I am quoting: that the annual payment exceeds by a substantial amount the average net revenue of the controlled undertakings in the period immediately before the war. The critic, of course, had chosen for comparison the two best years out of the last ten—the two years in which railway net revenue was highest, 1929 and 1937. If I followed his method, and chose the two lowest years, I could show that the present payments are nearly 37 per cent. above what the railways earned in those two years. But the only reasonable plan is to take the average net revenue of the last ten years before the war, from 1929 to 1938; that average net revenue is £34,000,000. In other words, our Agreement gives the four main line companies £5,200,000 more than their average for the last ten years of peace—an increase of nearly 15 per cent. That increase must be viewed against the general background of Government policy throughout the war. With the agreement of all parties and in every branch of productive activity, the Government have consistently applied the principle that there should be a strict limitation of profits from the war. They have always excluded ordinary commercial considerations.

Sir J. Mellor

What about the substituted standards that they allow to industry?

Mr. Noel-Baker

That is a very hypothetical matter I cannot argue now. It is extremely doubtful whether on any standards they would come out better. But I submit with great confidence that the position of a great public service like this is quite different from that of an ordinary firm manufacturing munitions. It was because of this policy of which I am speaking that the Government fixed the sum of £38,200,000 and still think it just. Perhaps I may quote again from the speech of my right hon. and gallant Friend the Minister of Food. In arguing that in this Agreement, "we have done fairly by the shareholders" he also declared that the railways, in asking for the terms they got, were not "in any way acting as war profiteers." And he went on: It was because they did not want to be in this position that they accepted this Agreement. What was true in 1941 is true to-day. We must judge the fixed annual sum by the basic principle which the Government and the nation have accepted, and to which they still adhere.

It is sometimes argued that the Agreement bears with particular injustice on the holders of the junior railway stocks, which, for some reason which I do not understand, are alleged to be the property not of "big business interests," but of "little men." This view has evoked some sympathy. In fact, it is without foundation of any kind. Now, as before the war, the senior stocks—the pre-ordinary stocks—absorb £31,400,000 of the net revenue of £40,000,000. This left, in 1937—the best year since 1929—£6,500,000 for the junior stocks. Now the amount is £8,600,000, an increase of nearly 33 per cent.—this is taking the "equity consideration" above. That increase is reflected in the yield. It is, of course, true that two classes of L.N.E.R. stock, which together reach a nominal total of £78,600,000, receive no dividend under the Agreement. But they had received none for sixteen years before the Agreement was made. Let the House consider the other junior stocks: the L.N.E.R. 4 per cent. Second Preference for the four years 1935–38 averaged a dividend of 9/16 per cent. Under the Agreement they have averaged 2⅔ per cent. I could give other figures to the same effect.

There are some people who hold that justice would not be done unless these junior stocks were now receiving the full dividend which would be payable, if the railway standard revenue were earned—and that would be, on some of them, a revenue of 8 per cent. They talk as if the Railways Act of 1921 had given the companies a legal right to a net revenue of £51,400,000 a year. Mr. Scott Adie says that under the Act the companies were entitled to retain "that sum," and he calls it "the correct and legal return" on the railways' capital.

This misleading language makes it necessary for me to recite some of the facts about the standard revenue. The Act of 1921 did not give the shareholders a legal right to that, or to any other sum. It set that sum as a target by reference to which rates and charges should be fixed by the Tribunal. That is a very different thing. Nor is that all. There are other facts which must be remembered. The target, the standard revenue, was fixed on the basis of the railways' net revenues in the year 1913. That year was the record year, the most prosperous year, in the whole of railway history. It was a year in which the labour costs of the railways were far lower than they have since become. It is now 31 years ago. Never once, since the Railway Act of 1921 was passed, has this standard revenue been earned. The Railway Tribunal and the railway companies recognised that it could not be earned; they decided that an increase of rates and charges would bring in no more revenue.

Since the Act of 1921 was passed the whole economic basis of the railways has been profoundly changed by the growth in the competition of road transport, both for passengers and goods. Surely these facts are enough to show that my Noble Friend could not possibly take the standard revenue as a basis; that, indeed, the standard basis was quite irrelevant to the problem which he had to face; that if he had taken it as a basis, he would have admitted a claim for greatly enhanced profits as a result of the war.

There is one other point raised by the hon. Baronet with which I ought to deal. He has asked why my Noble Friend has not published, and is not now willing to publish, the documents which were exchanged, and the records of the discussions which took place, when this Agreement was drawn up. In answers to Parliamentary Questions, I have spoken of the security considerations that were involved. Those were valid answers, but I should not like to press the point at the present stage of the war. I would ask the hon. Baronet to consider the matter from another point of view——

It being half an hour after the conclusion of Business exempted from the provisions of the Standing Order (Sittings of the House), Mr. DEPUTY-SPEAKER adjourned the House, without Question put, pursuant to the Standing Order, as modified for this Session by the Order of the House of 25th November.