§ LORD REDESDALE
, in calling Attention to Matters in connection with the Finance of Railways, and particularly in reference to Legislation on the Subject, said, that just before Parliament adjourned for the Easter holidays he called their Lordships' attention to the subject he now begged to resume—namely, the state of the railway system of this country as regards the manner in which its financial operations were carried on. He then stated that when he again brought the subject under their notice he should direct their Lordships' attention to the state of legislation in respect to it, and would propose for their consideration the advantage of amending certain of their Standing Orders, with a view to create a new and improved system on which the finance of these companies should be conducted. Since that time he had received various communications from different parts of the country, highly complimenting him on the course he had taken, and pointing out the advantage of bringing the matter before the public. He believed that at that period the extent to which the evil had spread was not generally known, and if he had delayed for a time to take the matter in hand again, it was because he was satisfied that his case must be strengthened during the interval, and that expectation had been completely realized; but he had hardly expected that his anticipations would have been borne out to the extent they had been by what had since occurred. When he last addressed their Lordships a railway contractor of great eminence and respectability had just failed. They had now learnt the failure of perhaps the very largest of all these contractors; and he was convinced that the system on which the construction of our railways had been carried on for a very long period had completely broken down, and they could not hope that it 858 would be possible to re-construct it on the same principles. It was in 1864 that the difficulties began to arise, the railway contractors then experiencing pressing difficulty in obtaining money for their undertakings; and certain "finance companies" were formed for the avowed purpose of providing the capital which would enable contractors to carry out their schemes. Last year all the schemes which were brought before Parliament by Bills more or less looked to these finance companies for assistance. But what had occurred must have satisfied their Lordships that not only had the finance companies failed to support the railway system, but that the railway system had in a great degree contributed to destroy the finance companies. He was convinced that when the history of the great firm of Overend & Co., which had recently failed, came to be known, it would be found that their difficulties had been in a large measure occasioned by advances made by them to railway companies or to contractors on railway securities. When they considered the nature of those advances, and how these affairs were carried on, their Lordships would see that there was no foundation for expecting any soundness in those transactions. What was the system? It was a paper creation of credit, founded on works that were not completed, and which of themselves offered no security at all. The system not only led to great difficulty in completing the works—it also led to great delay. Even short lines of only twelve or fourteen miles in length were sometimes five or six years in the course of construction. During that time the interest of money had to be found, and that interest accumulated upon the cost of construction. It was only necessary to show that the system allowed of such latitude on the part of contractors and those interested in raising the money, and the only wonder was that the system had not broken down before. There was a case brought under his notice which he would state to their Lordships as it appeared from the statements made at a meeting of the shareholders—he alluded to the Carmarthen and Cardigan Railway Company. The original capital of the company was £300,000 in shares. There was a further sum of £93,400 in borrowed money. At that meeting it was stated that of the original capital only £29,000 was ever subscribed. That 859 £158,780 was raised by preference shares and £60,355 by debentures. In addition to this there was raised £733,833 in Lloyd's bonds: making the total capital £983,968 for the construction of a line for which a capital of only £393,400 had been allowed by Parliament. So that nearly three times as much had been spent upon the construction of the line as the authorized capital. There was another remarkable instance of the operation of the system, in the case of a very large concern. It had been working for a considerable period, and was a very energetic line, which stopped at no expenditure in carrying out its objects. He mentioned it because it was connected partly with the contractors who had recently failed, and when their Lordships heard the proceedings that had occurred in regard to the raising of the capital of the line, they would not be surprised at the failure of the contractors or the financial embarrassment of the company. Last year there was a new scheme for the extension of that line into the City, for which a separate capital was raised for a large amount. In the course of the year those contractors went to the Credit Mobilier Company for £1,100,000. [A noble LORD: What was the name of the Company?] The London, Chatham, and Dover Railway. They raised that sum on the following terms:—For £21 cash there was given £40 of fully paid-up stock—thus sacrificing £19 to obtain £21. It was, in effect, getting £577,500 by a sacrifice of £522,500. And this was noted at the time as a most successful operation on the part of Messrs. Peto and Company, who were quite satisfied at getting the money on such terms. During the present year the value of money had increased, as had also increased, most probably, the embarrassment of contractors. It was therefore announced that £100 stock could be had for £27 10s.—and by this means, on a capital of £2,270,000, a sum of £624,250 was raised at a sacrifice of £1,645,750. When they heard such facts as these, was it possible to suppose that a system so reckless could ever stand, and was it either reasonable or proper to allow it to go on? They were all feeling at this moment the state of the money-market, which he believed had been largely occasioned by such operations. Speculation had been carried on for some years to an enormous extent, and even three or four months ago, before the alarm was given, 860 it was notorious that the rate of interest in this country, notwithstanding its vast capital, was much higher than it was in France. This was a system which interfered with all legitimate undertakings, because it made it so much the more difficult for persons who were carrying on a sound business to obtain the money they required on reasonable terms. Formerly, before any new work was undertaken, the persons who were to form the new company were expected to enter into a subscription contract for a considerable portion of the capital required for the works. The old Standing Order required that three-fourths of the capital should be subscribed beforehand. In the early history of railway enterprize those contracts really represented a large amount, if not the whole, of the capital required. But the mania of 1845–6 led to the starting such an enormous number of schemes with large capitals that fictitious subscription contracts were made, and Parliament became dissatisfied with a system that seemed to offer a very imperfect security for finding the capital put down, and not very wisely abrogated the system of subscription contracts, substituting for it what they thought a reality—a system of deposits. But the deposits not being connected with the subscription contract, and not necessarily forming part of the capital required, the result was that while the subscription contract was really founded on a sum of money which was provided by those who had got up the scheme, the deposits were advanced by those who got out their money on bond after the Bill had passed. Thus the latter system, instead of being an additional security for the construction of the line, was mischievous rather than otherwise, because the money was borrowed at great cost, and was of no good to the promoters of the line. For a time he had thought that to make the deposits a reality would be sufficient in order to secure a sound system for those undertakings; but what had occurred lately, and further consideration of the subject, had satisfied him that Parliament must revert to the old system of subscription contracts, and make them a reality by attaching to them a real deposit. He knew he should be met by the assertion that if that were done new railways would not be constructed, and an end would be put to that branch of national enterprize. He thought it very possible that under the change he proposed a temporary check would be in- 861 terposed. The very formation of a subscription contract required time, and some little time would elapse before people could accommodate themselves to the new system. But their Lordships would agree that a little repose in the railway world at the present moment would be attended with considerable advantage. He would say to noble Lords who might have to attend on Committees on opposed Railway Bills that it would be their duty under present circumstances to be very careful how they gave their sanction to very speculative lines that required large sums of money. They were passing through a very trying time—although, perhaps, not so bad as had been apprehended—and unless something was done to prevent the country from being flooded with this system of false credit, the greatest injury would be likely to arise; and he did not know but what a moderate check to such schemes would be extremely desirable. He was aware that some of those who were interested in railway undertakings, and who had good opportunities of forming an opinion on the subject, but who at the same time were apt to look upon it under the influence of prejudices—he meant gentlemen of the Bar and Parliamentary agents—he was aware that these parties would object to the alteration he proposed, and thought that it would injuriously affect railway enterprize altogether. But he asked their Lordships to consider whether what had been done once could not be done again. It would also be well that their Lordships should bear in mind that even now the line was the foundation on which credit was obtained by the contractor; but if they asked for an advance of money on Lloyd's bonds, the security given was shares issued at 40 or 50 per cent discount. He believed- that if his proposal were adopted, the schemes would be more cautiously got up, with the view of inducing' people to advance their money upon them; more careful surveys and calculations of traffic would be made, and there would be no difficulty in raising the money from those who were always looking out for investments. Capitalists were ready to subscribe very large sums for all sorts of schemes all over the world, and when a new and sound system of railway construction was established money would be found as in former times for these projects. The old subscription contract was for three-fourths of the capital. What he should propose was, that it should be for two- 862 thirds of the capital; and he took that amount because borrowed money was now allowed by Parliament to the extent of one-third; and if two-thirds were first subscribed, and the one-third required under the estimate for the completion of the line was authorized to be borrowed, the remainder of the share capital would soon be forthcoming. One objection to the present system was, that practically there was now no company at all. A very small capital was subscribed, and subsequently, perhaps, one or two country gentlemen were put nominally upon the list of directors, but in many instances the contractor was practically the sole director. He gave a certain number of shares to his nominees, in order to enable a meeting of the company to be held for the purpose of making calls—and of doing nothing else whatever. How could things go on under such a system? One of the advantages of the change he proposed would be, that persons would be put into the management of the line in whom the public would have confidence. The next point to which he would refer was the amount he thought desirable to have for the deposit. He proposed that one-eighth of each share subscribed should be subscribed as a deposit. He selected that amount upon the subscription contract because it was as nearly as possible the same proportion as was as present required—namely, 8 per cent upon the whole capital. For example, on £.'300,000 capital a deposit on the plan proposed would be £25,000, while on the present plan it was £24,000. In addition, he proposed that the shares subscribed for should not be transferable until three-fifths of the amount were paid up. As it might be thought that the first deposit and the restriction on the disposal of shares might operate against persons entering into subscriptions, he should propose a clause authorizing the payment of interest out of capital on calls at the rate of 4 per cent; the payment on the deposit to commence from the 15th of January, and on calls, of course, from the day on which payment was made. That was an alteration of the principle hitherto adopted by Parliament in not allowing interest on calls; but if they adopted the system of subscription contracts, it would be desirable to depart from the present practice, and to offer inducements to parties to subscribe—by that means they would probably get more sound subscription contracts. He knew it would be said that landlords and others who were 863 interested in a district would not care to subscribe more than they do at present, although they benefited their estates by the construction of the line. The present system had a tendency to discourage such subscriptions, as in almost every instance an issue of preference capital became necessary, whereby those who came forward to construct a line, and who subscribed 20s. in the pound, were the parties to suffer most—if they did not, as in too many in stances they did, really lose all the money they had advanced. A system of preferred and deferred shares had been introduced, which enabled persons desirous to promote the interests of a company at some personal sacrifice on account of the advantage to be secured to their properties, to subscribe to the same amount, or to a larger amount than they might be disposed to do at present without incurring greater liabilities. Under this system a share was divided into two parts, and when a portion was paid on one-half the other half was thrown upon the market with a secured preference. The effect was, that a person was enabled to increase his subscription without increasing his risk, that the necessity for raising preference capital was probably avoided, and the money required being found, the line would be constructed without delay, the shareholders knowing what they are about. Another matter, in respect of which he desired an alter action of the Standing Orders, was one of very great importance: he referred to the amalgamation and the sale of lines. He proposed to require that the terms upon which these amalgamations and sales were to be made should be stated beforehand. The rule at present was for general powers to be taken to enable line A to absorb line B by lease or purchase; but the proprietors of the railways really knew nothing about these transactions, and had not the means of inquiring into them before their companies were bound to the terms, whatever they might be. In each case notice was given of a general special meeting to sanction an agreement which had been entered into between the one company and the other for the transfer of one concern to the other; but the share holders were not told anything about the terms; they had no means of making inquiries; and he had no hesitation in saying that the grossest jobberies had been perpetrated by means of amalgamations, purchases, and arrangements effected in this manner. He proposed that notice of 864 every proposition for the amalgamation or sale of a line should appear in the November Gazette notices, and that the terms upon which the arrangement was proposed to be carried out should be set forth in the notice. There would then be time for the shareholders and others interested to make themselves acquainted with the terms, to ascertain what were the receipts of the line it might be proposed to purchase or lease, and to consider how far it might be advantageous that the amalgamation should be carried out. It was also desirable in these matters to increase the control of Parliament, which was allowing such control to pass too much out of its hands. Arrangements ought to be entered into in a more formal way than they were at present. These were the alterations in the Standing Orders he wished to submit to their Lordships, affecting the points to which he had called attention. He would lay on the table the formal alterations he proposed, but he would not ask their Lordships to agree to them without full consideration; and therefore, without positively pledging himself to the day, he would name that day three weeks as the day on which he would move the new Standing Orders.
§ LORD STANLEY OF ALDERLEY
said, that their Lordships were much indebted to the noble Lord the Chairman of Committees for having brought the subject under their notice. It was one of very great importance. At the same time, the proposals which the noble Lord had signified his intention to submit involved changes of the greatest magnitude, and he was inclined to think it would not be desirable that their Lordships should come to a decision upon them without entering into some communication with the other House of Parliament. No doubt there were abuses in the existing railway system, but in remedying them care must be taken not to throw unnecessary impediments in the way of the construction of railways which might materially benefit the country. He would appeal to their Lordships in their capacity of landowners to consider the bearing the matter might have upon the construction of lines in which they were peculiarly interested. The lines contractors now made were chiefly such as opened up country districts in connection with great trunk lines, which were often opposed by them; and if great difficulties and impediments were thrown in the way of their construction they 865 might not be made at all. He was not sure that if measures were adopted to make a deposit a more effective reality, the desired object would not be to a large extent attained; and if it were required that the money deposited with the Treasury should not be taken away until the line, or a considerable part of it, was constructed, the public would obtain the security that could be required for the construction of a line. One of the suggestions which had been made by the noble Lord was founded upon reason and propriety—he referred to the suggestion that the terms of an amalgamation should be set forth, so that the subscribers or shareholders interested in the matter might learn what they were.
THE MARQUESS OF CLANRICARDE
said, he thought that the alterations proposed in the Standing Orders did not go to the root of the matter. The noble Lord the Chairman of Committees had referred to the failures that had taken place recently; but how had such disasters in relation to railways originated? They were due to the fact that we had from the first gone upon an entirely wrong system; that very system which his noble Friend the Chairman of Committees proposed to bolster up and to restore in certain details which had been unwisely abandoned. To say that a Committee of that House could enter into the full consideration of everything appertaining to a railway speculation for the accommodation of the country was, from beginning to end, an absurdity. In matters of this kind there ought to have been some supervision on the part of the State; the Government ought to have had a control which might have been exercised for the benefit alike of the country and of speculators, and which might have been a source of great public economy and convenience. The money estimated to have been laid out in the construction of railways in this country he believed amounted to about £450,000,000; but the accommodation which the public had received might have been given for £250,000,000. What had made that great difference? It had occurred because our railways had been made higgledy-piggledy, one at a time, without any comprehensive plan, and under no supervision, which, if it had been properly applied from the first, might have given us gradually a system of railway accommodation, without the close competition, the battles of the gauges, the struggles of town with town, and the 866 jealous rivalries which had done so much injury. Had there been any supervision by the Board of Trade, or by a Department of the State, lines would also have been laid out with more regard to the public convenience, and the evils of unregulated competition might have been avoided. One result of our want of system and of supervision was that we were paying high fares, although, with the exception of Belgium and some parts of France, fares ought to be cheaper here than in any other part of the world. We were paying extravagant fares, and monstrous sums had been expended on our railways. Yet it was now proposed that speculation should be checked and the construction of railways stopped. Why should that be done? Nobody could deny that railways had led to very beneficial results, nor could any one doubt that the great increase in the wealth of the country of late years had been greatly owing to railways. See, too, how they had brought out the wealth of France. Indeed, they formed one of the requirements of the civilization of the present age, and the country ought, therefore, to be properly, gradually, steadily, and wisely supplied with them everywhere. He agreed, however, that that could not be done under the present system, and thought, therefore, that far greater alterations should be made than those proposed by the noble Lord the Chairman of Committees. The Select Committees now appointed to consider Railway Bills knew nothing whatever of the country through which the railways were to pass. For instance, the last Committee of which he was a member was appointed to inquire into a scheme for constructing a railway in the east of Yorkshire. He had no interest in the country, and knew nothing about the matter; the noble Lord who presided came from Cornwall, and two other noble Lords who sat on the Committee were, like himself, from Ireland—in fact, all the members were selected because they were supposed to have no interest in the line, and to be perfectly ignorant of everything connected with it. In the case to which he had just referred it was only proposed to make a line from Goole to Doncaster, but it turned out that all the northern and western counties and their railways were interested in the subject. Now, he maintained that such a scheme ought to have been submitted to some person who was thoroughly conversant with all those systems of railways. The Committee on that occasion came to a con- 867 clusion totally different from that which had been arrived at by the Committee appointed by the House of Commons, and the parties were in consequence sent back for a whole year—in the course of which, however, the matter in dispute was satisfactorily settled; but the Committee might have settled it in a very unsatisfactory manner indeed. No one appeared on the part of the public, though some resistance was offered by a few landed proprietors. Noble Lords and hon. Gentlemen were chosen to sit on the respective Committees simply because they had no interest in the matter and knew nothing about it. He was afraid that the Government of the late Sir Robert Peel did wrong when they refused to place the railways under State control, for at that time a general supervision of the railways might have been provided by the State. He thought their Lordships ought to proceed very carefully in the consideration of a proposal to place fresh obstacles in the way of making railways. If railways ought to be made, he did not see why the construction of them was to be stopped. He did not believe that the noble Lord the Chairman of Committees could, by the proposed system of deposits and paid-up calls, put a stop in toto to such proceedings as he had described. You might impose a fine, and thereby put an obstacle in the way of persons who wanted to make a railway; but what was called "financing" would still go on, for means would be found of driving holes through any Standing Orders which might be made. He hoped their Lordships would consider whether a system could not be devised much better than, and totally different from, that which had prevailed up to the present time. He was aware that all statesmen, whether in or out of office, would be averse from undertaking such a task, but still it was their duty to do so.' The penalty paid by men in high office, or who had attained political distinction and renown, was the dealing with difficult questions like this one—which, he might remark, was not in any way a party question. In conclusion, he urged upon their Lordships the necessity of considering the whole matter with great care and circumspection.
§ LORD OVERSTONE
was understood to express his thanks to the noble Lord the Chairman of Committees for having brought this subject before the House, and for the valuable and prudent observations with which he had accompanied his 868 proposal. He would not at present give any opinion as to the proposed alterations—he would only say that he quite approved their general object and purpose. It was painful to contemplate the commercial immorality which had prevailed in this country of late years, and which he feared could end only in disgrace to our national character. He attributed the position in which we were now placed in regard to our railway system to the imperfection of previous legislation, the con-sequences of which he had foretold long ago; and he welcomed the suggestions of the noble Lord, not only because he thought they would improve legislation on the subject of railways, but because he looked upon them as a first step towards a return to more sound, more healthy, and more just views than those which had prevailed for a very long time past.
§ EARL FORTESCUE
said, he joined in acknowledging that the House owed a debt of gratitude to the noble Chairman of Committees for the luminous and valuable statement which he had made, and he quite concurred with the noble Marquess (the Marquess of Clanricarde) as to the unsatisfactory legislative proceedings of both Houses of Parliament with regard to railways. He could not help feeling that successive Governments and successive Parliaments had been drifting too much and steering too little with respect to railway legislation. There had been too much fear, or too much neglect, in laying down general principles for the guidance of the Committees on Railway Bills. It seemed to him extraordinary that after so many Railway Bills had received the sanction of Parliament no general principle should have been laid down by either House for the guidance of its Committees, and that at this very moment no one could tell, except from his knowledge of the individual opinions of the members of a Committee, whether the fact of a line being competitive was to be held as a recommendation or an objection to the Bill authorizing its construction. Years ago he did hope, when he was a Member of the other House, that the Government of Sir Robert Peel, under the guidance of a much lamented and most able Member of their Lordships' House (the Earl of Dalhousie), would have laid down some general principle for the guidance of Parliament in legislation on this subject. Millions and millions had been wasted since that time; scheme after scheme had been passed, and 869 scheme after scheme had been rejected by different Committees on the same ground—that the line was a competitive one. He ventured to hope, before it was too late—before the remaining links in the railway communication of the United Kingdom were connected—some general principles would be laid down for the guidance of projectors and Committees, and, above all, that Parliament would authoritatively decide whether competition should be considered an objection or a recommendation to a line.
THE EARL OF BELMORE
wished to direct attention to the manner in which the borrowing powers of companies were exercised. The public were told that Parliament had put a limit upon these borrowing powers; but they all knew that under the semblance of this limit, money was every day borrowed beyond the authority which Parliament had given. The question was, what remedy they could apply to this state of things. He did not want to try to make it safe for people to jump in the dark—you cannot do that, but he thought that every company ought to be compelled to make periodical Returns, coupled with some system of registration, which should be open to public inspection; this would enable the public to judge for themselves. Last Session he introduced a Bill on this subject, which passed their Lordships' House, but, owing to the lateness of the Session, did not go further. This Session a Bill, which was substantially the same as his, had been introduced into the other House, and had gone as far as the second reading; but its further progress was postponed for the present, until a Bill brought forward by the Government on the same subject would reach the same stage. He trusted the Government would have no objection to refer both Bills to the same Committee, in order that a principle of registering the securities of railway companies might be considered.
§ LORD REDESDALE
, in reply, said, that his object in proposing these alterations was the same as that of the noble Lord on the cross-bench (Lord Overstone)—his desire to see a sounder system of finance in respect of railways. The noble Marquess (the Marquess of Clanricarde) seemed to be of opinion that no legislation could put a stop to "financing," and that whenever a speculator desired to borrow money for his schemes some means would be found for driving a hole through any Standing Orders that might be made. But the effect of having the required capital 870 to begin with would prevent the necessity for having resort to these measures for raising money, which became more objectionable at every step, and which raised money by offering more and more ruinous terms. With regard to what fell from the noble Lord opposite (Lord Stanley of Alderley), he did not desire to make the subscription contract more stringent—what he wished was to add the deposit to the subscription contract in order to test its soundness. The money would, of course, be applied to the completion of the scheme, and was not to be returned to the person who had subscribed it. He should deprecate any direct communication with the other House on this subject. The other House had constantly altered their Standing Orders without any communication with that House, and he did not see why their Lordships should not do the same. But he should be sorry to do anything without giving the whole House and the public the means of knowing precisely what alterations he proposed. If they were likely to be beneficial there was every reason to anticipate that they would be adopted by the other House. Yet there were interests that did operate to prevent measures which were thought desirable from being carried into effect. More than two years ago measures were proposed in the shape of Standing Orders, with a view of carrying out a system of efficient deposit available for the construction of lines; but they were defeated. He should therefore recommend their Lordships to wait and see how the proposals he made were received by the other House and the public; and if they saw that the alterations proposed would be advantageous, he hoped they would have prudence and courage to adopt them, in order to insure that some change should take place in a system which, if suffered to go on, would lead to the greatest and most serious inconvenience.
§ House adjourned at half past Seven o'clock, till To-morrow, half past Ten o'clock.