§ LORD MONTEAGLEmoved the Second Reading of the Audit of Railway Accounts Bill. In doing so he disclaimed entirely being actuated by any kind of hostility to those undertakings. No one who saw the vastness of these works, and the degree of science and skill required for their construction, and how materially they had benefited the country, could be otherwise than favourably disposed towards them. It was said that the Government had no right to interfere in the management of railways, because they were mere private property; but he wholly denied the proposition. They were created by a suspension of the ordinary laws of property. No kind of property was more regarded in England than land; and yet in favour of railway companies the owners of land were compelled to sell it. Undertakings favoured in this manner had no right to plead exemption from legislative interference; and 455 the Legislature had the fullest right to watch and regulate the movements of railway directors. It was said, too, that they should let well alone; if things were well, he might be content to do so, but he came to a different conclusion. The Legislature, too, had already interfered with them in many instances. The magnitude of the interests involved called for investigation and scrutiny; it behaved the Legislature to see that the vast powers railway companies possessed of raising and dealing with capital were properly applied. The amount of money placed in the hands of railway companies was increasing year by year in a fearful ratio. Previous to 1826, the capital invested in railways did not exceed 1,500,000l.; from 1826 to 1835, the amount authorised by Parliament was 19,000,000l.; in 1836–1837, 36,000,000l.; 1844–1845, 74,000,000l.; 1846,132,000,000l.; 1847, 38,000,000l.—Total, 324,000,000l.. Did not the magnitude of that sum render the interposition of the Legislature a duty? And if they found this enormous sum gradually increasing at a fearful ratio, the necessity of that interposition became still greater. The sum required under Railway Acts during the last year, which exhibited a great falling-off, compared with the years preceding it, was 38,000,000l. The whole annual expenditure of the nation for its Army, Navy, and Government, was 17,000,000l. But it was not merely the amount of capital involved in these enterprises that made interference necessary; the mode in which it was dealt with also required attention. The property of a railway company consisted partly in its own capital, partly in what it borrowed; and it was most important that those who lent this money should have the power of knowing on what security they parted with it. If they analysed many of the events of the last two years, he believed this power of borrowing, joined with inducements to do so at high rates of interest, would be found to have been great elements in the recent disorganisation of commercial and financial affairs. The Bank of England itself, he understood, had become a purchaser of railroad securities to the amount of 2,500,000l. The present mode of auditing the accounts of railroad companies was insufficient; no sensible person could rely on it, and he therefore thought that the peculiar condition of these speculations required that there should be an independent auditor appointed, who should examine into and report 456 upon the accounts when called upon by a certain number of shareholders, and in his examination separate the two sources of income—traffic and capital. What he proposed by the Bill was this—when a certain number of shareholders applied for an independent audit of the accounts of a company, the Government Railway Board should be empowered to appoint an auditor for this purpose. He did not propose that the person so appointed should have any power of imposing any penalty or punishment; all he asked was that he should have good access to all documents, and full power of making the investigation—that he might state his opinion frankly, and transmit it to the Railway Department that it might be a public document open to reference by that and the other House of Parliament. Railway companies had two separate modes of obtaining money to make a dividend; one, out of actual profits, the other out of their capital. This occurred when a line was only partly completed, or when being complete from terminus to terminus, it got a Bill to extend itself by branches. The whole position of a company might be altered by increasing its capital and issuing new shares; and those who lent it money had a security very different from the real one: this was made possible by a mystification of the accounts, and the mixing up two sources of property which ought always to be kept separate. Suppose the capital of a railroad was 100,000l., and it paid a dividend of 5 per cent, or 5,000l.; supposing its profits fell off, so that it could only give 3,000l., as a dividend, yet with power to call its capital to its aid, or of paying out of the main capital some of the expenses of the working of the line, the greater dividend of 5,000l. could still be sustained. When they considered the enormous temptations those who administered these funds were exposed to, the House would see that some remedy ought to be provided. Upon these grounds he rested the measure he had brought before the House. He knew it might be objected that it did not go far enough, and if he had followed his own view, he should have made it more stringent; but he had thought it better to try the Bill in its present shape, reserving to himself the power, if necessary, of bringing the subject again under the consideration of Parliament. The Bill would give to a certain number of shareholders (he had not fixed the precise number) a power, not of vexatiously prying into the concerns of the company, but of pro- 457 tecting their interests by applying for the appointment of an auditor to be selected by the Railway Board; and in order to prevent any undue surprise it was required that the proprietors so applying should have been proprietors for a year at least. It had been suggested that when a Bill for any railroad, or Amalgamation Bill, or Branch Bill, came before their Lordships, they should require that before the second reading of the Bill there should be an audit of the accounts by an independent auditor. He was very far from saying it might not be necessary to resort to that course; but such a measure, however good in itself, would not meet the object of his Bill, because many of the railroad companies which might be proper objects of his Bill might not come before their Lordships at all. With respect to the provisions of the Bill (which had very few clauses), he proposed that a balance-sheet of the company should be submitted to the Railway Commissioners, who would be empowered to appoint an auditor to report upon it, the report to be in duplicate, one part to be presented to the Railway Commissioners. As to the expense of the audit, he thought the party who called for the audit should pay the expense of it, if, in the judgment of the Railway Commissioners, the call should appear to have been unnecessary. The effect of this measure, and of the separation of the capital from the revenue accounts, would be to prevent the misapplication of the capital, and to secure the public against being deceived by a fallacious appearance of continued prosperity. The noble Lord concluded by moving that the Bill be read a second time, observing that he should postpone the Committee until it should suit the convenience of all parties.
The EARL of GRANVILLEsaid, a measure was wanted that should prevent the large privileges given to railway companies from being abused, and money being expended in a manner in which it ought not to be. He did not think the Bill went so far as that; but as far as it did go it was beneficial, and should have his support. Shareholders had a just right to know how their property was disposed of; and although the Legislature had made provision for that object, there was an impression in the public mind that the intentions of the Legislature had not been fulfilled. The auditors of railway companies were chosen from persons most active in the management of the concern, and the public impression was that there was something not quite sound in railway accounts.
LORD KINNAIRDdid not oppose the Bill, but he did not approve of unnecessary interference with railway interests. It was true that great powers were given to railway companies, and it was very desirable that they should be placed upon a better system; but constant attempts to interfere with the management of these great interests was a serious evil. The Bill, he thought, would be to a certain extent ineffective; for it would take such a time before any person could go carefully through the accounts (which must be examined most minutely) that some months at least must elapse before a report could be made.
LORD ASHBURTONagreed with the noble Lord who had just spoken, that any vexatious interference with these great interests, in respect to their profits, would be the grossest injustice; but he did not consider that to be the aim and intention of the Bill, which merely obliged railway companies to do that which every public body was ready to do and in the habit of doing. This audit would not give the power of revealing any honest secret connected with the interests of the company; but if a company was going on a false principle of profit, paying a dividend of 10 per cent when the real profit was only 6 per cent, that was a fact very proper to be disclosed. The persons most interested in the audit were the shareholders themselves, who comprehended widows, and orphans, and others, whose whole property was invested in these great undertakings, and who ought to have an opportunity of knowing what was the real state of the company, and that they were not risking their money in a concern which rested upon an unsound foundation. He confessed he should himself prefer a regular periodical audit of railway accounts; for, looking at the complication of these accounts, capital being blended with the revenue derived from traffic, it was a difficult thing for shareholders to unravel and understand them.
§ LORD MONTEAGLEexplained some of the details, and Bill read 2a.
§ House adjourned.