RAILWAYS (CONTROL AGREEMENT) (Hansard, 21 December 1944)

§ Sir Hugh O'Neill (Antrim)
On this occasion, the Adjournment for the Christmas Recess, I desire to raise the question of the terms under which the railways are being operated by the Government as controlled undertakings. I am raising this question on behalf of a group of Members of this House who are interested in the railways and those who own railway securities, the proprietors or stockholders. Perhaps I should say that the group which I represent does not include any Members of this House who are directors of railways. They, I understand, have their separate Committee, and I am in no way speaking on their behalf. There are, I believe, well over a million persons who hold railway securities of different kinds, and railway securities form the largest aggregate of capital of any British industry. The majority of the holders of these securities are comparatively small people who hold comparatively small amounts.
The existing Control Agreement has operated from 1st January, 1941. This superseded a former Agreement which was in force for the first 16 months of the war. I should like, for a moment or two, to remind the House of the history of railway control during the war. The railways were taken over on 1st September, 1939, and the financial arrangements were published as a White Paper in February, 1940. The main terms of the first financial arrangement were (1) the revenue receipts and expenditure were to be pooled, (2) the average of the net revenues for the years 1935, 1936 and 1937 were to be guaranteed by the Government and paid over to the railways—this guaranteed sum was estimated to be somewhere about £40,000,000—and (3) any further balance of net revenue in the pool, up to £3,500,000, was to be paid to the railways. Then comes paragraph 4 of the first Agreement, which I should like to read to the House in order to remind them of what it says. It says: If the net revenue in the pool exceeds … £43,500,000 then, until the sum paid to them"— that is, the railways— reaches £56,000,000, being the estimated sum required to bring the net revenues of the 2002 controlled undertakings up to their standard revenues, one half of the excess over £43,500,000 will be paid to the Exchequer and the other half will be paid to the controlled undertakings … so that in any case the total net revenue accruing to a controlled undertaking shall not exceed its standard revenue. Any balance of net revenue left in the pool was to be paid to the Exchequer. There were one or two further points in this first Agreement to which I would like to refer. There was provision for maintenance and renewals. It was provided that the cost of war damage, up to £10,000,000 in any full year, was to be charged to revenue expenditure. It was provided that freight charges were to be adjusted to meet working costs, and, then, paragraph 11 said: The Minister of Transport or the railway companies … may, after the end of the year 1940, propose revision of these arrangements for any cause of a major character and, if agreed, the arrangements shall be revised accordingly. This first Agreement was the result of long negotiations dating back, I believe, to a very considerable time before the war, and in anticipation of the possible outbreak of war. It bore the stamp, in my view, of free negotiation and it amounted, in effect, to a partnership between the railways and the State.
In the course of the year 1941, the Government decided to take advantage of paragraph 11 of that Agreement, and they gave notice that they desired its revision for a cause of a major character. As a matter of fact, they gave two causes for revision. The first reason they gave was their decision to introduce legislation placing all public utilities on the same basis as regards war damage, and their second reason was their announced policy of minimising the impact of increased costs of transport upon prices of essential goods and services. In other words, they decided to employ a policy of subsidising the cost of living—in this case transport—as we know has been carried out in many other directions.
These negotiations resulted in a second Agreement being concluded which was presented to Parliament in a White Paper in September, 1941, and discussed in this House on 22nd October, 1941. This second Agreement swept away all the paragraphs of the old one savouring of a partnership, and, in their place, it provided for a guaranteed rental to be paid to the railways of £43,000,000—in round figures—the whole of any excess in the 2003 pool over that amount going to the Government. There were paragraphs dealing with the provision of sums to cover maintenance and renewals and abnormal wear and tear, but that is really all there is to the second Agreement—a rental, and the whole of the balance going to the Government.
The Government must have thought, when they made this Agreement, that it was a pretty good bargain at the time, but it has worked out tar more profitably for them than they could ever have imagined. In the three years 1941, 1942 and 1943, the Government received just under £130,000,000 in excess of the guaranteed rental. The proprietors of the railways feel that they have had a pretty unfair bargain. The principle of partnership has been abolished, the Government now appropriate the whole of what I may call the equity, and there are at present £78,000,000 worth of London and North Eastern Railway Ordinary Stock which is receiving no dividend at all, and something over £60,000,000 of London and North Eastern Railway Second Preference Stock which is receiving just 2⅝ per cent. in place of the full 4 per cent. to which, in my view, it should be entitled. The London and North Eastern Railway are very particularly affected and badly hit by this existing Agreement because, during the years before the war, as we well remember, so many of the areas in this country which they served were subject to very special depression. They were the depressed areas, the special areas, and so on.
To bring the story of railway control up to date, I must tell the House that at the annual meetings of the various railway companies at the beginning of this year, 1944, resolutions were passed by the shareholders complaining of the injustice, in their view, of the present control arrangements, and they asked their directors to convey these resolutions to the Government and to try, if possible, to secure a revision of the Agreement. As a result of that, the Railway Companies Association wrote to the Minister of Transport asking for revision of the Agreement for two causes of a major character not contemplated when the negotiations took place. These two causes were, first, our declaration of war on Japan and, second, the entry of the United States 2004 into war with Germany. These factors, particularly the second, meant an immense expansion of the work of the railways in this country and an enormous amount of traffic, both passenger and goods, which could never have been contemplated at the time the existing Agreement was concluded, which was, of course, before either Japan or the United States had come into the war.
The Minister of Transport would not agree to any revision of the present Agreement, and that is how the matter stands at the present time. In my view, the reasons put forward by the Railway Companies Association why this Agreement should be revised were very potent and pregnant reasons, whereas neither of the contingencies which the Government feared in terminating the first Agreement has materialised. The bomb damage which has actually happened would have been easily taken care of by the terms of the first Agreement, and there has been no rise in transport costs since 1941, and the Government have not had to subsidise transport in any way since that year. Not only have they not had to subsidise transport, but they have received a subsidy, if I may so call it, from the railway companies, as I mentioned a short time ago, of £130,000,000.
So much for the present situation with regard to railway control. I would like to refer to one or two points which were made by my hon. Friend the Parliamentary Secretary to the Ministry of Transport, when he was replying to a Debate on this matter on the Adjournment on 1st August last. The matter was raised by my hon. Friend the Member for Tamworth (Sir J. Mellor). Unfortunately, there was only half an hour for that Debate, and my hon. Friend was not able to conclude his speech. He did, however, make the following point in justifying the present Agreement. He said that nobody should make profits out of the war, least of all the railways. I entirely agree with that, but Parliament has laid down, in its wisdom, regular statutory machinery for preventing people making excessive profits out of the war. We have established an Excess Profits Tax, and under the regulations governing Excess Profits Tax it is provided that where businesses have had very low profits—unduly low profits—in the years immediately preceding the war, 2005 they can put forward a substituted standard, which is based on the interest on their capital, which shall be the standard above which they must pay over excess profits, and below which they can keep those profits. Why is it that, among all the businesses of this great commercial country, the only kind of enterprise, so far as I know, which has been singled out for this specially harsh treatment is the railways? They have not been allowed to come under the ordinary statutory provisions Which relate to those who have made high profits, or excess profits, out of the war.
The Parliamentary Secretary said, in the course of the speech to which I have referred, that a great public service like this was different from an ordinary munitions business. In some respects, of course, it is different, but, so far as I know, other statutory undertakings, such as gas companies and electricity companies, and controlled businesses such as shipping companies, all come under the ordinary law with regard to excess profits and have not been adversely differentiated against in this way, as have the railways. There is, of course, a difference; the profits of public utility companies or statutory undertakings are very drastically controlled already, but while the Government control their profits and therefore make it practically impossible—and quite rightly—for them to earn high excess profits, the Government have always encouraged them to be in a position to pay reasonable interest on the capital employed in those industries. In my contention, that has not been the case with regard to the railways.
There are two other points on this question of Excess Profits Tax that I should like to make, to show where the railways are further prejudiced. Under excess profits law, there is to be a refund after the war of 20 per cent. of the amount paid by businesses in excess profits. That will not, I presume, apply to the railways, because they have not been allowed to come under excess profits law. There are also provisions for repayment of duty if there have been deficiencies, but in so far as it might operate, it, too, will not be available for the railways. Another point that my hon. Friend made was with regard to the question of the standard revenue, to which I have already referred, because it was dealt with in the first 2006 Agreement which was concluded at the beginning of the war. He rather scoffed at this question of standard revenue and treated it very lightly. He said it was based on the best year the railways ever had in recent times, the year 1913. He said that it was 31 years old. He gave the House an impression that the standard revenue was not a matter of any great importance and should not be emphasised at all strongly.

§ The Parliamentary Secretary to the Ministry of War Transport (Mr. Noel-Baker)
If I might interrupt my right hon. Friend, may I say that I am moderately confident, without looking up what I said, that I arrived at the conclusion that my noble Friend could not possibly have taken the standard revenue as the basis on which he made the Agreement?

§ Sir H. O'Neill
I was not really dealing with that point. I have read my hon. Friend's speech very carefully and I thought he did definitely deal with this question of the standard revenue rather lightly. I would remind the House that the standard revenue which the railways are allowed under the Act of 1921 is still the law of the land. Not only so, but the first Agreement, concluded in 1940, after the outbreak of the war was based upon that standard revenue. I have read out Article 4 under which the railways were to be partners with the State until they reached their standard revenue. That standard revenue has actually been attained since by the railways, and the revenues are now enormously in excess of it.
There is one other point as regards standard revenue which the House ought to remember. It is true that it is based on the year 1913, but we ought not to forget that, in 1913, the £ sterling was worth just about double what it is worth to-day. If the permitted standard revenue of the railways has anything to do with the kind of remuneration which the stockholders ought to receive, one would think that, if anything, the standard revenue ought to be higher. I do not make any great point of it but I am merely pointing out that the sterling was worth very much more in 1913.

§ Mr. Noel-Baker
What was the level of wages?

§ Sir H. O'Neill
It was certainly very much lower.
2007 The other point which he made was that the rental of £43,000,000 in round figures is far better than the maximum pre-war revenues of the railway companies. That obviously is a fact which cannot be disputed. Figures show it, but I would remind the Govvernment that the great slump which the railways were experiencing for many years before the outbreak of this war was mainly due to the tremendous competition of road transport. That increase of road transport competition had been evident for at least 15, and even 20, years before the outbreak of this war. Though many promises were made by various Governments during the pre-war years, nothing was ever done about it. Governments admitted that the railway companies had a very strong case. Their plight and their low revenues before the outbreak of this war were therefore due to a very considerable extent to Government inaction and Government procrastination on this question of a fair system of rates and fares as between road transport and railways.
Therefore, when my hon. Friend says that the rental now being paid to the railways by the Government is larger than the average of the immediately pre-war years, my answer is that the low revenues of the immediately pre-war years must largely be placed at the door of the Governments of the day—not the present Government—who did not take up this matter with the strength and purpose which it deserved. I hope that I have said enough to show that the proprietors of the railways have good cause for just complaint and that, in justice and in equity, they have a strong case for asking for a revision of the present Agreement.
Before I conclude I should like lo ask my hon. Friend one or two questions. Article 11 of the existing, the second, Agreement says—a previous Article had dealt with maintenance and renewals— No other charge shall be allowed in respect of the said items of maintenance except so far as the Minister, in respect of wear and tear which is shown by the undertaking to be abnormal as compared with the base period, may agree to its inclusion. In a letter which the Minister of Transport wrote to the Railway Companies' Association on 16th June, he stated that the Government were prepared to consider this question of abnormal wear and tear with the railway companies, and I believe 2008 they have been in negotiation since then upon this matter. If my hon. Friend has any information to give the House in regard to how those negotiations are proceeding, I am sure that Members would be glad to have it.
The other point about which I should specially like to ask my hon. Friend is the period during which control is to operate. Article 33 of the present Agreement says: Control will be continued for a minimum period of one year after the cessation of hostilities. Before control comes to an end"— that is, in regard to statutory rights and obligations— time will be given for the operation of any statutory machinery governing the level of charges.

§ Mr. Moelwyn Hughes (Carmarthen)
May I ask which Article the right hon. Gentleman is reading?

§ Sir H. O'Neill
I am reading paragraph 33 of the existing Agreement of 1941. Apparently, control is to last until "the cessation of hostilities." Exactly what that means we cannot say. I imagine it will have to be defined by Parliament, whether it means hostilities with Germany or the end of the war as a whole. Anyhow, this provision of time will be given for settling rates and charges and it is a very essential point indeed. When the time comes to settle rates and charges I most strongly suggest that both road and rail should be included and that the opportunity should be taken which, as I have said, was missed before the war, to bring about some general settlement as between road transport and rail transport. Without that, I do not see how the future can be anything but dark and difficult.
Whatever the future structure of transport in this country is to be after the war—and it can hardly be the same as it was before—it is of paramount importance that our transport undertakings should be handed over to whoever is to manage and operate them, in a condition in which they will be able to stand on their own feet as prosperous concerns, which will conduct efficient service and provide a reasonable return on their capital, neither receiving subsidies nor paying large revenues to the State at the cost of the ordinary citizen. If the war has proved anything, it has proved that the railways are an absolutely essential service, strategically and in every other way. They have done splendid 2009 work in the face of almost overwhelming difficulties. The management has been efficient, and railway workers, both men and women, have been magnificent. All have faced dangers and hardships with courage and endurance. In view of that fact, I can say with confidence that railway transport deserves the brightest future which the country can give it.

§ Mr. Silkin (Peckham)
My right hon. Friend who has just spoken, and his associates, are certainly persistent. This same question was raised on the Adjournment Motion last August. I hope it is not going to become a habit of my right hon. Friend and his friends to raise this question on every possible occasion. He stated, at somewhat greater length, the argument which the hon. Member for Tamworth (Sir J. Mellor) put forward last August for the revision of the Agreement. I do not think that the answer will be very different. I have taken a very great interest in the various railway agreements ever since the war, and I should like to say a few words about the original Agreement with which my right hon. Friend dealt at the outset of his remarks and which he regards apparently with longing and affection.
The House will remember that there was very considerable criticism of the original Agreement. It was felt by many that it was grossly unfair to the general public. Among other things, it enabled the railway companies to increase fares if their expenditure increased, even though, at the same time, their revenue also increased. It permitted the railway companies to earn a grossly inflated revenue, even though the bulk of their traffic was Government traffic, brought about by the exigencies of the war. No one spoke in stronger terms about this agreement than the present Home Secretary, and in March, 1941, there was a Debate on the Agreement, one of many, in which I had the privilege of taking part. Looking back on what I said then, I believe I was justified in saying that the Agreement was one which ought to be revised without delay. In reply to my speech, the then Minister of Transport, Lord Brabazon, said the more he looked at this Agreement the less he liked it. Therefore, the House was not surprised when, shortly afterwards, a new Agreement was entered into. This 2010 new Agreement, the one which is the subject of the present discussion, was freely negotiated. No pressure whatever was put upon the railway companies, although a suggestion has been made to that effect, but it was quite rightly repudiated by the Parliamentary Secretary to the Ministry of War Transport last August.
May I draw the attention of the House to paragraph (2) of the outline of the revised financial arrangement in which it is stated: The Government and the four amalgamated railways and the London Passenger Transport Board have agreed that the existing financial arrangements should be modified and, as a result of negotiations, the arrangements have been revised. There has never been a suggestion from any responsible quarter since then that this Agreement was not freely negotiated, and that it was not, at the time it was made, a fair and reasonable Agreement. My right hon. Friend said that new circimstances had arisen which, although there was no provision in the revised Agreement for further revision, justified a revision on moral grounds. The points he made were that since the Agreement was made America had entered into the war and we had made war against Japan. But I would like to draw attention to the observations of the hon. Member for Bolton (Sir C. Entwistle) at the last annual general meeting at the Great Western Railway Company. The hon. Member is the Deputy Chairman of the company, and the question of the revision of the Agreement was raised at that annual general meeting. This is what he said: My own personal view"— and I would suggest that the personal view of the hon. Member is of more importance than the personal view of other hon. Members, even though they may be members of an organisation— is that any approach to the Government now for revision would be premature, and contrary to the spirit in which we accepted that agreement. At the time when the Deputy Chairman of the Great Western Railway made those remarks, we were already at war with Japan, and the United States had already entered the war. Those facts were no doubt well within the knowledge of the Deputy Chairman of the Great Western Railway. Obviously, therefore, he did not consider those facts justified the 2011 revision of the Agreement. In fact he said he thought that any approach to the Government now for revision would be premature. The House will, I am sure, accept the views of the Deputy Chairman of the Great Western Railway rather than, with great respect, the views of the right hon. Gentleman the Member for Antrim (Sir H. O'Neill).

§ Sir H. O'Neill
May I point out that the directors did approach the Government for a revision very shortly afterwards?

§ Mr. Silkin
Yes, I am very well aware of that. I should disclose that I have a personal interest. I have shares in the Great Western Railway. I agree that some shareholders thought that approaches should be made, and like a good democrat the hon. Member for Bolton accepted the view of the shareholders and made an approach. I am saying what his own personal views are, and I think they are of some importance.
Is the Agreement unfair? I suggest it is not only unfair, but, as I remarked at the time when it was made, it is very generous to the railway companies. My right hon. Friend brushed on one side the fact that it gives to the railway companies considerably higher revenue than their average earnings for the previous ten years. Having gone into the figures I would suggest it gave them a considerably higher revenue than their average revenue for the previous 20 years. On possibly no more than one or two occasions since the last war have the railway companies earned as much as £43,000,000, which is their present revenue. I agree that difficulties have arisen because of conflict with the roads, but I would respectfully suggest to my right hon. Friend that that is a factor one cannot get away from, and no action of the Government, short of a subsidy, could have given the railway companies a greater revenue. After all, they were entitled to go to the Railway Rates Tribunal before the war and ask for higher rates, since they were not earning the standard revenue provided under the 1921 Act. Why did they not go? I submit to the House they did not go to the Tribunal because they were aware of the law of diminishing returns, that if the fares and rates were increased it would not necessarily mean an increase in their 2012 net revenue, but might mean the reverse, because fares and rates were already sufficiently high. The railway companies were well aware of that, and did not make any application to the Railway Rates Tribunal, though the 1921 Act would have permitted them to do so as they were not earning the standard revenue.
I submit to the House that the Agreement was not only fair, but even generous. My right hon. Friend referred to the London and North Eastern stock, some of which was not receiving a dividend, but which, in fact, has not received a dividend for many years. There is no reason why, because the Government require the use of the railways through war circumstances, because the nation requires the use of the railways, stocks which had for many years not received a dividend, should suddenly receive one. I cannot see the equity of that. But in fact my right hon. Friend also quoted the preference stock which was to-day receiving a mere 2⅝ per cent. But one can buy the stock on the Stock Exchange at the present moment at a price which will give one 8 per cent., not 2⅝ per cent. dividend. But that stock before the war was only receiving a fraction of 1 per cent., and I would submit that they have done very well indeed to be now getting 2⅝ per cent. against a fraction of 1 per cent. If one takes what the Stock Exchange thinks about the Railway Agreement, it is a fact that many of the stocks have doubled in their quotations since the Agreement was made. That shows what the public really thinks about the Railway Agreement.
I submit that my right hon. Friend has made no case for an upward revision of the Agreement in favour of the railway companies. If anything, though I do not press the point, there might be a case for a revision downwards. It is true that the Government have done very well out of this Agreement, but after all the Government are the biggest customers of the railways at this time, and the charges made for railway traffic are purely arbitrary. I suggest that by varying very slightly the charges which the railways make at the present time for Government traffic, these big profits could be converted, into a loss. After all, these profits are being made very largely at the expense of the traveling 2013 public, because the travelling public are not getting the comfort and convenience for the fares they pay, and which they are entitled to expect; and if the profits are high it is not the railway companies which should receive more. There might be a case for a rebate for the travelling public. I hope the Parliamentary Secretary will be firm, and give no hope to my right hon. Friend of any upward revision in the Railway Agreement. On the contrary I hope he will look into the matter and see if something more can be done for the travelling public.

§ Sir Alfred Beit (St. Pancras, South East)
I must say that I find myself in a very large measure of agreement with what the hon. Member for Peckham (Mr. Silkin) has just said. I ask myself what purpose my right hon. Friend thought he might be serving in raising this matter again to-day. I feel absolutely certain that he is really aware of the fact that he is beating against a door which is not only closed, but barred and bolted. I believe that quite a number of approaches have been made to the Ministry of War Transport for a revision of this Agreement, and from what I have been able to ascertain I should have thought that the answers given to those approaches would have left my right hon. Friend in no doubt that he was not likely to get any of the advantages he claims.
I wish to look into the assumptions he made, and see what was in his mind, and what he thought he might be able to get. The first assumption was his argument that if the railways had been treated as other companies had been for Excess Profits Tax, they would have had a more advantageous position than in point of fact has been the case. I think that is a very broad assumption, and one with which it is difficult to agree. In the first place my right hon. Friend said that had they been treated in the normal manner their standard revenue would probably have been taken as the revenue for the standard period. I do not think there is any evidence to show that would have been the case. It seems much more likely that the revenue for the three preceding years would have been taken, and that is the revenue on which the present Agreement is based. He said there was a special claim in view of the particular effects of road competition, but though that is an undeniable factor it is very 2014 largely hypothetical, and would be impossible to measure in terms of pounds, shillings and pence. I do not think he is correct in his assumption that a higher or substituted standard would in fact have been accepted for the railways had the normal procedure regarding E.P.T. been adopted in their particular case.

§ Sir John Mellor (Tamworth)
Does my hon. Friend appreciate that the substituted standard is based on an assessment of capital, not revenue.

§ Sir A. Beit
Yes, but the railways' standard revenue is very much the same as the return on capital to which my hon. Friend referred in his interruption. I am quite certain there would not have been sufficiently strong grounds to be able to convince the Inland Revenue that a different standard than the earnings prior to the war should have been taken had the railways been on the ordinary E.P.T. basis. Another point which escaped my right hon. Friend's observation, which I think must be kept in mind, is that the railways, under the existing Agreement, are in point of fact enjoying terms that are advantageous to them regarding their renewals. If the railway companies had been treated for E.P.T. in the same way as other companies, they would have been allowed only to put aside money for renewals based on the cost of the articles—rolling stock, rails, and the like—at the time they were purchased. At present the railways are enabled to base their renewals fund upon the cost of replacement, which is in most cases 50 per cent. above pre-war cost. I think that that advantage would largely set off the ultimate refund after the war of 20 per cent.—less Income Tax of course—which they might otherwise have enjoyed. I have attempted to dispose of the argument that they would have been more fairly treated, or would have gained financially, if looked upon as ordinary companies.
The second point that my right hon. Friend referred to—and it was referred to by the hon. Member for Peckham—is the special case of these L.N.E.R. stocks. It is right to point out that they amount to £78,000,000 out of a total railway investment of £1,100,000,000—a very small proportion of the whole. Even if the railways were allowed by the Government to enjoy a higher amount than £43,000,000 it could not in any way be right that that balance should go to the L.N.E.R. If 2015 the companies were allowed to retain a larger amount that additional balance would have to be divided equitably between the four companies, according to an agreed scheme. I think that a very great increase on the £4,000,000 would have to be guaranteed to cover this deficiency of £78,000,000 on L.N.E.R. stock. It seems to me that unless the L.N.E.R. were themselves in a position to earn very much more, they could not establish a claim to a larger share than the present agreed quota between the four railway companies.
There is one point on which I support what my right hon. Friend said, and I hope that the Minister will be able to say something about this matter—I hope that he will forgive me if I am not able to be in my place to hear his reply. I am referring to the question of costs. We were told that the second Railway Agreement, which stabilised the position and did not allow any sliding scale to the companies in the share of profits, was made because the Government said at the time that it was their intention to control prices and, as far as possible, to avoid any rise in prices. They have done a great deal in that direction, and very large subsidies are paid to maintain price levels. But it has not operated all in one direction. The railway companies have had to pay something like 100 per cent. increase in the cost of coal since the outbreak of the war, and almost as great an increase since the second Agreement was made. I would ask my hon. Friend if he could say something to justify the statement, which was made at the time of the second Agreement, that the object of fixing the share of the profits to the railway companies was to prevent any rise in costs. Otherwise I entirely agree with the hon. Member for Peckham. There could be no question, I think, in the mind of the House, or in that of the country, that, after what has happened in the last two years, there is no likelihood of a revision being granted at the present stage; and I think that the quotations of railway stock on the Stock Exchange make it amply clear that the position is regarded, by the public as being absolutely satisfactory at the present time.

§ Mr. Moelwyn Hughes (Carmarthen)
As the hon. Member for South-East St. 2016 Pancras (Sir A. Beit) said, the capital value of the railway companies as a whole amounts to something over £1,000,000,000. That £1,000,000,000 contains some "water," and part of it represents a number of assets which have ceased to possess any value at all, as hon. Members will remember, from a recent correspondence in the columns of "The Times," initiated by the hon. Member for Newport (Sir R. Clarry). It is not surprising, therefore, that at no time has the public valuation of this shareholding, as assessed for stock prices, been as high as its nominal value.

§ Sir J. Mellor
Is my hon. and learned Friend contending that the railways can now be replaced for less than the nominal value of the capital?

§ Mr. Hughes
I am not suggesting anything of the kind: that is not my point. My point relates to the actual capitalised value of the railways to-day.

§ Sir J. Mellor
My hon. and learned Friend said that there was a lot of "water" in the capital.

§ Mr. Hughes
Some.

§ Sir J. Mellor
Will he explain what he means by that statement?

§ Mr. Hughes
I thought my hon. Friend was a greater expert in these financial matters than I am, and that the term "water" in capital was perfectly well understood. I do not think it is necessary for me to enlighten him on a financial matter of that kind.

§ Sir J. Mellor
But in the case of the railways?

§ Mr. Hughes
I come back to the point I was making, that at no time have Stock Exchange values ever been as high as the nominal figures of the holdings. It is not surprising, therefore, that some of this capital has been drawing no interest, and some very little interest, for many years. It is a strange argument that stock which has very seldom been able to earn interest in peace-time should be able to take advantage of war to earn money. My hon. Friend the Member for Peckham (Mr. Silkin) described this Agreement as generous. Nobody has explained the exact extent of its generosity. The Agreement provides for a guaranteed £43,000,000. That is to be paid to the 2017 railway companies as a certainty, not affected in any way by increases in costs or increases in wages, not affected by any cost of replacement; and there is more in the replacement provision than the hon. Member for South-East St. Pancras said, because the maintenance fund is replenished at the cost of replacement, assessed at the time when the money is put into the fund. It may be that if you were to build a railway engine to-day it would cost twice as much as it did before the war; but that sum is put into the maintenance fund. It is not spent now; it is invested, and retained. It may be that, after the war, when the time comes to rebuild engines, they can be rebuilt at a good deal less than the pre-war price. Therefore, the maintenance fund contains a great deal of clear profit to the railway companies.
Let us compare the £43,000,000 with the position in 1938, to see whether there is any real ground for complaint. In 1938, the last complete year before the war, the shareholders of the railway companies of this country had available for distribution £33,500,000, and it was a very uncertain figure at that. Nobody could have predicted with certainty that they could have maintained that the next year if the war had not come. They are getting to-day a certain £43,000,000, as certain as the interest of any Government security. That is sufficient, I should think, to convince the House that the term "generous," used by my hon. Friend the Member for Peckham, is amply justified.
What then is the complaint? What could have been extracted by way of revenue, if the railway companies had only been given their heads? I have no doubt they would have extracted considerably more revenue to themselves. But is that the proper approach? Supposing the attitude of getting what you can in war had been generally followed, what wages the servants of the railway companies could have extracted under present circumstances. They, like the railway stock itself, cannot be replaced in war-time. If the railway workers were to hold up the community for the full limit they could extract, this country could not have faced all these troubles and tribulations during the war. I do not see why any different principle should be applied to those who hold stock. We 2018 cannot approach these problems on a purely commercial basis. If what the railway companies want is commercial treatment, the Government could easily give it without disagreement. The Government are by far the biggest customers of the railways, and those who are more familiar with the ways of commerce than I am know that when one concern is the overwhelming customer of another the serving firm is soon under the domination of the big customer, which can exact such terms as it likes. But this House has not, the Ministry has not, and the Government have not, approached this matter on that purely crude commercial basis.
Why, then, is this approach being made? That question has been asked by more than one speaker. I think I know the answer. The right hon. Gentleman the Member for Antrim (Sir H. O'Neill) and his friends know well that the railway companies of this country are never going back to private control. There is ample evidence of that in the propaganda which the railway companies are disseminating. Our postbags contain a number of brochures, pamphlets, and documents actively trying to prevent nationalisation. I am being very careful, Mr. Deputy-Speaker. I am not advocating in this Debate the policy of nationalisation, which we are awaiting. I am only dealing with propaganda in which the railway companies themselves object to nationalisation.

§ Mr. Deputy-Speaker (Mr. Charles Williams)
It is certain that we cannot have anything said in this Debate which demands legislation. It is equally wrong to advocate legislation or to object to legislation. We cannot deal with a matter requiring legislation from either side.

§ Mr. Hughes
With respect, I agree, but we are discussing the financial Agreement, and the railway companies under the terms of that Agreement are entitled to have their costs as a first charge upon the revenue they collect. Part of that money is expended by the railway companies in resisting the nationalisation which they know is coming. I therefore suggest that it is within the terms of your Ruling, Sir, if I deal, not with the merits of that, but merely with the fact that they are spending money to try to prevent it. It would be money spent in vain——

§ Mr. Deputy-Speaker
I was not objecting to the hon. and learned Gentleman mentioning that they were spending money for propaganda purposes. I was warning him, or endeavouring to warn him, that he must not carry it further and discuss whether that propaganda is good or bad. He cannot do that to-day, because it would involve legislation.

§ Mr. Hughes
Would it involve legislation if the Ministry of War Transport were to say to the railway companies, within the terms of the Agreement that we are now considering, "You cannot be allowed to include anti-nationalisation propaganda, or possible anti-nationalisation propaganda, as a charge, but you must pay that out of your £43,000,000"? If we could do that——

§ Mr. Deputy-Speaker
I tried to make it plain that I am not objecting to the hon. and learned Gentleman saying that they are using this money for propaganda. I do not mind that, but I was warning the hon. and learned Gentleman that he must not go on to discuss the merits of the propaganda part of it.

§ Mr. Hughes
I bow to your Ruling, Sir. I take it that it is within the terms of that Ruling for me to mention that the nature of that propaganda is directed against the nationalisation of the railways. I think they show, in this regard, some undue concern. Nobody has suggested the continuance of the type of control that we have to-day for peace-time purposes. Certainly, no one would fancy that the efficient administration of the railway companies in peace time would flow from a system under which they now have to obey directions from the Ministry of War Transport. I think it is as well, in the running of this Agreement for the control of the railways, that the House should know that the railway companies have no discretion in the running of their rolling stock, and that the management of the companies, the people who know how to run trains, have no discretion without reference to the Ministry of War Transport, and that that very nearly resulted in a serious state of affairs this year.
The House will recollect that, with the onset of the flying bomb, there was, naturally, a considerable and encouraged exodus from London. It appears, from subsequent events, that there was ample rolling stock available within the control 2020 of the railway companies, and, from inquiries I have made subsequently, that it could be used without interference to any movement of essential war materials or troops. Pressure was brought to bear upon the railway companies to provide these additional facilities, and I assume that the railway companies expressed their willingness to do so, but were unable to do so, because they were refused the permission of somebody in the Ministry of War Transport. Things got so bad that, in the end, the Noble Lord, the Minister of War Transport himself, had to go to see what was actually happening, and it was some time after that, before the trains were eventually provided.
Nobody has advocated a system for the perpetuation of an organisation of that kind, and, therefore, again I say that a good deal of the money expended on this propaganda is misdirected. Why do we have this return, again and again, of additional claims of the stockholders? It is a realisation, I think, that the net earning capacity of the railway companies for future purposes will be taken as the £43,000,000 provided for in the existing Agreement, and this recurrence of that attempt to-day is really an effort to put up the price of the railways against the time when they may be acquired by someone other than their existing legal owners. That, I think, justifies, in the minds of those who advocate it, the policy of coming again and again to get the net return under the Agreement increased.
I join wholeheartedly with my hon. Friend the Member for Peckham in saying that the railway stockholders are getting not only just but generous treatment, and I urge upon the Parliamentary Secretary not to give way by as much as a whisper when it is suggested that that return should be increased.

§ Sir John Mellor (Tamworth)
I think the right hon. Gentleman the Member for Antrim (Sir H. O'Neill) was perfectly right in raising this matter to-day, however often it has been raised before, and I hope he will go on raising it in future. When we see a persistent injustice, as we believe this to be, I think we must persist in our protest. I should very much like to follow on what several hon. Members have said, but, if I did so, I should either cover the field already covered by my 2021 right hon. Friend or the ground I myself covered on 1st August. Therefore, I will limit myself to two points.
On 1st August, the Parliamentary Secretary to the Ministry of War Transport said: 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 little sympathy. In fact, it is without foundation of any kind."—[OFFICIAL REPORT, 18th August, 1944; Vol. 402, c. 1352.] That is what the Parliamentary Secretary said. In my submission, it is most clearly well founded to say that the junior railway stocks are very largely held by small people, and that has been proved in a very conclusive and clear way by a publication called "Who Owns the Railways" by Mr. Hargreaves Parkinson, which is a reprint of articles which have been published from time to time in the "Financial News."

§ Mr. Noel-Baker
May I ask my hon. Friend if he has noted the diagram on page 11 of that publication, which shows that the proportion of senior stocks held by the small men is quite as high as that of the junior stocks?

§ Sir J. Mellor
I do not dispute that.

§ Mr. Noel-Baker
But that is the whole point.

§ Sir J. Mellor
Well, I am concerned for the moment with the junior stocks, which are the ones that are either getting no dividend or a sub-normal dividend.

§ Mr. Noel-Baker
Yes, but, with respect, I was concerned with the attempt to create prejudice by asserting that the senior stocks were held by big business, who got their full dividend, while the small men, who held the junior stocks, got none. That was not correct.

§ Sir J. Mellor
I accept my hon. Friend's explanation, and I am very glad to see that he is not making a false point. I drew attention to this publication, because it is very important, and it does show, for instance, that, in the case of the L.N.E.R. junior stocks, the Preferred Ordinary and the Deferred stocks, actually over one-half of the holdings are less than £200 each in nominal value.

§ Mr. Alexander Walkden (Bristol, South)
May I ask my hon. Friend if he knows that there is £50,000,000 of watered capital in the junior stocks of the L.N.E.R.?

§ Sir J. Mellor
I have already mentioned that when interrupting the hon. and learned Member for Carmarthen (Mr. Hughes) to ask him to explain what he meant by "watered capital," but the hon. and learned Member declined the challenge. I will certainly give way, if my hon. Friend will explain.

§ Mr. A. Walkden
The same as the bonus shares, which have not been paid for.

§ Sir J. Mellor
There have been no bonus shares issued to the railways.

§ Mr. Charleton (Leeds, South)
What about the division of the Midland stocks in 1887?

§ Sir J. Mellor
I am not concerned with that. At the present time, when the aggregate nominal value of railway stocks is £1,100,000,000, it is perfectly true to say that the railways could not now be replaced, with all their assets, for less than £2,000,000,000, and it is idle to say that that capital could be regarded as watered in any respect whatsoever.

§ Mr. Hughes
My hon. Friend mentions that half of one type of stock is held by people who own less than £200 worth. Does he mean half in number or in total value?

§ Sir J. Mellor
More than half the holdings were represented by holdings of less than £200 in nominal value, but the market value is probably one-tenth or less of the nominal value.

§ Mr. Hughes
My hon. Friend has not grasped what I am asking. He told us the number of holdings. How much does half the number of holdings represent in total value of stock?

§ Sir J. Mellor
I have here a rather elaborate table, which I am pleased to hand to my hon. Friend. Perhaps he would like to examine it for himself?

§ Mr. Deputy-Speaker
This handing round of pamphlets does not allow a second speech.

§ Sir J. Mellor
The other point to which I wish to refer is with regard to the substituted standard appropriate to Excess Profits taxation, which, as my right hon. Friend the Member for Antrim suggested, should have been applied in the case of the railway companies. I pressed the Parliamentary Secretary upon this point on 1st August, and interrupted him, when making his speech, to ask him to deal with the point. What he said was this: That is a very hypothetical matter I cannot argue now. It is extremely doubtful whether on any standards they would come out better."—[OFFICIAL REPORT, 1st August, 1944; Vol. 402, c. 1352.] I hope the Parliamentary Secretary will take the opportunity of dealing with the matter when he replies, because I really think it would be absurd to say that the railway companies would not come out better if they were treated on an Excess Profits Tax basis, instead of treating them as they are under the present Agreement. As I said just now, the actual real value of their assets to-day is probably in the neighbourhood of £2,000,000,000 but even taking their book value, which is somewhere about £1,100,000,000, they would come out very much better on substituted standard. That is more certainly the case because their finance in the past has been extremely conservative. Before the war, at all events, when there had to be replacement of an asset, and it had to be done at an enhanced cost, the value of the asset as it stood in the books was not written up. It was maintained at the existing value and the increased cost was provided out of revenue, and so a large amount of revenue was ploughed back into capital.
That is one of the reasons why these junior stock holders have not seen dividends for such a long time. If the financial policy of the railways had been less conservative, then perhaps these junior stockholders would have enjoyed dividends, but if that had been the case the railways would not have been in the fine fettle in which the Government found them at the outbreak of the war and they would not have seen us through this war in the magnificent way they have. We ought, therefore, to recognise that the great national asset which the railways have proved to be in this war has been partly due to the sacrifices accepted by the junior stockholders before the war. I do most earnestly wish to support the plea 2024 put forward by my right hon. Friend the Member for Antrim and I beg of the Parliamentary Secretary to take this opportunity of giving us a very full reply.

§ Colonel Sir George Courthope (Rye)
I do not wish to take up the time of the House by joining in the general discussion. I intervene only for a few moments to refer to two statements which I believe to be somewhat incorrect. The first was made by the hon. Member for Peckham (Mr. Silkin), who stated very definitely that the Railway Control Agreement was freely negotiated. It was not. It was negotiated in the shadow of an assurance—I will not put it stronger than that—that if it was not accepted, something much worse would be imposed. I do not want to exaggerate or over-state the case. The other point I wish to correct is this. My hon. Friend the Member for South-East St. Pancras (Sir A. Beit) laid great stress upon the statement which he made that the arrangements for renewals were exceedingly favourable. I do not think they were. The Clause in the Summary of the Agreement, which I have here, says: The maintenance charges, including renewals, are standardised on the basis of the average pre-war charge, adjusted to variations of assets concerned and to price levels. I do not suggest that they were unfair, but I do not think that a case can be made out for exceptionally favourable treatment of railways in that Clause.