RAILWAY RETURNS AND RAILWAY AUDIT.

HL Deb 05 February 1850 vol 108 cc338-43

LORD MONTEAGLE

rose to move for some Railway Accounts, as well as to put a question to the Vice-President of the Board of Trade on a subject of no slight importance to the people of England, upon which it was fitting that their Lordships should well consider the course which they were about to pursue. In two successive Sessions their Lordships had adopted the principle that it was necessary to establish an improved railway audit, not only for the benefit of the public, but for the security of the shareholders. In the interval during which that principle had been under consideration, an enormous amount of railway property, consisting of 200,000,000l. already invested, and of 143,000,000l. more, which the shareholders might be called upon to pay up, had been subjected to great vicissitudes. No other description of property had, he believed, been subject to such great depreciation—the insecurity of this property and the want of confidence in their accounts had led their Lordships to make inquiries into the subject; and by the disclosures which had been made before the Select Committee and before Committees of investigation, they had gained some knowledge of the course which had been, in too many cases, pursued. It was proved that at one period directors of railway companies had not hesitated, in breach of the law, to raise their dividends by a misapplication of their capital. When that became impossible, owing to the exhaustion of the capital itself, other measures were adopted to avert for a time what could not permanently be prevented—the frightful and ruinous depreciation which ensued. If their Lordships would apply their observations to the cases which were most notorious, and would ask themselves whether the inconvenience to individuals, and the fraud on the public, which had occurred in those cases, could have occurred under a correct system of audit, he believed that such a question must be answered in the negative; candid inquirers would agree that such a vicious system would have acted both as a corrective and a preventive; and yet it had not pleased Parliament to afford a remedy for such dangerous frauds and such terrible losses. The misfortune of continuing so bad a system of railway finance was, that those who had honestly discharged their duty as railway directors, were involved in much of the obloquy and suspicion which had fallen upon those who had discharged their functions fraudulently. In the case of the Caledonian Railway a vast capital had been intrusted by Parliament for one specific purpose to certain individual directors charged with the functions created by their Incorporation Act; and yet they had illegally applied from 300,000l. to 400,000l. to other and quite different purposes. In that case, no imputation rested upon the honesty of any of the parties engaged in the direction. The fact was that they did as too many other directors were in the habit of doing—they took the course they thought was beneficial to the company, but in so doing they acted illegally, and violated every principle contained in their Act. He had introduced in the two last Sessions Bills upon this subject which had met their Lordships' concurrence. They were framed on different principles. His first Bill was only to come into operation on the application of a certain number of shareholders. When this Bill went down to the other House, it was objected to on the ground that the remedy was not a more general measure. It was said, "Make your audit generally applicable, and there will be no objection to pass it." Believing that there was some force in the objection taken, he introduced a general Bill last year, and then the same interest that had objected to his first Bill as special, objected to his second as general. That second Bill also passed their Lordships' House last year, but at a late period of the Session, the reason being there had been a protracted inquiry before one of their Committees, where every railway proprietor had an opportunity of being heard. Witness after witness proved the usefulness of, and indeed the absolute necessity for, a railway audit. Such being the case, his Bill passed almost with unanimity; it was sent down to the other House, where the late period of the Session, and the opposition with which it was menaced, compelled the Government, in whose hands it was placed, to consent to its withdrawal. The Government admitted the necessity of legislation on the subject, and they are reported to have declared that in case the directors of the railway companies did not prepare a measure themselves during the recess, and propose it early in the ensuing Session, Ministers would no longer shrink from the performance of a duty which, though invidious, was most necessary. He, therefore, wished to know whether such was still the intention of Her Majesty's Government? If they did not intend to fulfil their intention, the public might depend upon it that this important subject would not be allowed to rest as at present, without the proposal of some remedy. There was another point to which it was his duty to advert: during the recess it had been very sedulously circulated that a successful attempt had been made in the House of Lords to introduce, surreptitiously and unfairly, into two private Railway Bills clauses for the auditing of railway accounts, thereby seeking to entrap the House of Commons into an approbation of that principle. Now nothing could be more untrue than this suggestion. The intention to propose such clauses was open and undisguised. The clauses were made known to the parties, acquiesced in, and were both carried after some discussion. He denied that there could have been any intention to entrap the other House of Parliament; and the best proof of that assertion was that the clauses in question were taken out of a Bill which had been introduced and passed by the House of Commons, and which was afterwards sanctioned and passed by the House of Lords. Either by mistake, or with intent to delude the shareholders, great pains had been taken to misrepresent the Bill of last Session as a Bill intended to establish a Government audit. The object of the Bill was the institution of an independent rather than a Government audit, as he showed by reference to the Bill itself. Two auditors would have been named by the companies, one only by the Government; and the auditors would neither have possessed a power of surcharge or of disallowance. They were bound to report to the shareholders and directors themselves, who would thus have obtained an adequate security for the truth of the accounts annually made up. To say that it was intended to establish the superintendence and control of the Government, was contrary to facts and the evidence of truth. After moving for some other returns, he gave notice that on a future day he would call the attention of their Lordships to the fact that there were already sixty-one railways in the Private Bill Office, to which they would be invited to give their attention and assent; and upon the propriety of passing which, much, he begged to say, should depend on the character of the respective companies, and to the progress of the Railway Audit Bill. If it should appear that the passing of an Audit Bill were to be indefinitely postponed, he should propose that by a sessional order their Lordships should provide that ton days before any Railway Bill was read in that House a second time, there should be laid on the table the whole financial accounts of the company, together with an account of the amount of its traffic and of the scheme required by law to be made out before the declaration of a dividend; the specific enactment being that no dividend should be declared declaring the amount of the capital stock of the company. Such a regulation would not require from the railway companies any new account—it would only require the production of that account which they were already required by law to produce to their shareholders. If railway companies came to Parliament to obtain powers to raise additional capital, it was not only the right but it was also the bounden duty of their Lordships to inquire how they had expended the capital which they had already been permitted to raise, and how they had exercised the powers which they already enjoyed. He therefore concluded by moving— That the Railway Returns ordered to be laid before the House on the 3rd of May in the last Session, and which have not as yet been produced, be made forthwith.

EARL GRANVILLE

had no objection to produce the returns for which the noble Baron had moved, and showed that it was not owing to any fault of the Railway Commissioners that they had not been produced already. As to the question which the noble Baron had asked respecting the intention of Government to introduce a Railway Audit Bill this Session, he must be permitted to make a short statement before he gave any answer. As soon as the Government received information that the Railway Bill of last Session had passed the House of Lords, a deputation of railway directors waited on the First Lord of the Treasury, and announced that it was their intention to meet that Bill in the House of Commons with the most decided opposition. The deputation admitted, at the same time, that the system wanted improvement, and pledged themselves to consider, during the recess, the best mode of improvement. He believed that they had now abandoned their attempt as hopeless, and had determined to introduce a Bill for the same purpose during the present Session. The Government had been carefully considering the whole question during the recess, and would be glad to receive information upon it from any quarter. The Government had also provided itself with information as to all the details of the subject; at the same time it was of opinion that it would be more satisfactory to have a Bill introduced by the railway proprietors themselves. If such a Bill were not introduced by the railway proprietors, or if, when introduced, it should not prove satisfactory, he would then be prepared to state what course the Government proposed to pursue.

EARL FITZWILLIAM

was of opinion that neither the Government nor either House of Parliament seemed disposed to go far enough in the legislation which they intended to pursue on this subject. One of the most important considerations for Parliament to undertake, was the relation in which these railway companies and the House of Commons stood towards each other. He was afraid that there now existed in that House a power which that House was incapable to control. His noble Friend had alluded to the vast sums of money which were embarked in railway property, and said that it was the interest of the shareholders, who were so largely concerned in that class of investments, to exercise a strict control over the administration of their property. That was quite true; but certainly it was equally true that, considering the relation in which these companies stand to the country, the Government ought to have a greater control over them than they had hitherto possessed, not only over their financial arrangements, but also in respect to the way in which the public had been and were likely to be served. It was important to observe that numerous as were the railways of the country, they were in the hands of only a very few companies. His noble Friend had spoken also of the general depreciation of railway property, and, according to his mode of dealing with the subject, one would imagine that he conceived that that general depreciation was in a great measure, if not entirely, to be attributed to the malversation of the managers of particular companies. Now, it might be true that such had been the fact to a certain extent, but he apprehended 'that there were other reasons which operated along with it. The great cause of the depreciation he thought was due to the fact that the country had been saturated with railways; and the directors having, in consequence, been driven to economy, they had made the public service suffer by diminishing the number of trains. Railway property was depreciated, but not from malversation only, for there were some to which the term could not be applied. He begged to say, with reference to the directors of the North Western Railway, that he believed they were as much entitled to the reputation of honour and integrity as any body of men could be. It seemed to him that Government was afraid to exercise that control over railways generally which a due regard to the public interest demanded; but they might depend upon it, if they wished to see the country properly served with railways, they must exercise a much greater control than they had ever yet done. He had not the slightest objection to an Audit Bill; but he repeated that he was quite sure that if the Government wished to put the railways upon a proper footing, they must introduce a most efficient and stringent measure with regard to those in whose hands the means of communication in the country were at present placed.

The DUKE of RICHMOND

, in reply to one observation made by the noble Lord opposite, as to the fact of the parties declining to rate a certain railway on the ground of its yielding no profit, said, if that principle were to be acted upon, it would be applicable to the farms of this country, for hardly one of them at present yielded to a profit.

LORD BEAUMONT

wished to ask, whether it was the intention of the Government to introduce the Bill of last Session, which was to enable railway companies who had not been able to carry out their works for which they had obtained Bills, to wind up their affairs? This was a subject that created great interest at that moment amongst many persons, particularly amongst those who had their money locked up, and it would be desirable if the Government would satisfy the public mind on that head. The difficulty that stood in the way of the Bill of last Session passing, was the absence of a clause giving the right of pre-emption to the former owners of land, from whom the railway companies had purchased it. It would be also desirable if a clause were introduced giving a facility to such parties to purchase the land on either side of the intended railway at a fair and reasonable price.

EARL GRANVILLE

was understood to say that it was his intention to introduce such a Bill early in the ensuing week.

On Question, agreed to.

House adjourned to Thursday next.