§ Order of the Day for the Second Reading, read.
§ Moved, "That the Bill be now read 2a."
THE EARL OF CAMPERDOWNcomplained that there was not sufficient Notice of the second reading of Private Bills. It was only by accident that he found this Bill in the list of those set down for second reading on Monday last. It stood on the Paper as practically an unopposed Bill, but it was one which deserved, their Lordships serious attention. The Companies to be amalgamated under the Bill as the Gas Light and Coke Company had attained very large dimensions; in the course of a few years it had contrived to absorb almost all its neighbours, and would now extend its operations over three-fourths of the metropolis. Its capital was at present very considerably over £8,000,000 sterling; and in the Bill power was taken 228 to increase that capital by £2,000,000—one-half in share capital and one-half in the form of loan or mortgage. The standard rate of dividend under this Bill was fixed at 10 per cent. That was provided by Clause 10. By Clause 19 it was provided that the initial standard price of the gas should be 3s. 9d. per 1,000 cubic feet. Regard being had to the price charged for the gas, the Company would be enabled to pay a dividend beyond the standard of 10 percent; for it had been shown by competent authority that 3s. 9d. per 1,000 cubic feet would give a dividend of 10 per cent; and it might be that by lowering the price below the initial standard of 3s. 9d. there would be a consumption which would enable the Company to pay much more than 10 per cent—perhaps 15 or even 20. Therefore, the effect of raising so much of the additional capital by the issue of new shares instead of by loan would be to raise the amount on which compensation must be paid by any public body which at a future time and in the interest of the public might purchase up the Gas and Water Companies. It was true there was a provision in the Bill that the new shares must be put up to public auction, and that would afford some protection to the public, but it was not a sufficient safeguard. If, as was very possible, the new shares should be sold at a premium, he could not see why the amount required by the Company should not be raised by loan. The Board of Trade addressed a letter to Mr. Forster, the Chairman of the Committee that was inquiring into this subject, recommending that the borrowed capital should not exceed one-third of the share capital of a Company. It was not for their Lordships to say how the Company should raise additional capital, but he thought that what they now did would be used as a precedent for the future; but why should they in this Bill guarantee a fixed dividend? The Board of Trade pointed out that it was as much to the interest of Companies to increase their capital as it was the interest of the public that they should not increase it. But if a dividend was to be guaranteed, why should it be at so high an initial rate? It might be said that 3s. 9d. was the sum sanctioned by Mr. Forster's Committee; but he maintained that their Lordships' House was in no way precluded from expressing an opinion, on the point, and that as 229 Bills such as this formed precedents it would be advisable for the House to do so. On looking through the Gas Bills from various parts of the country which had come before their Lordships' House recently, he observed that where the supply of gas was in the hands of private Companies the tendency was to raise additional capital by the issue of shares; but when it was in the hands of public corporations the tendency was to raise additional capital by way of loan. The Board of Trade recommended that where additional capital was required it should be raised by loan and not by the issue of new shares; and he (the Earl of Camperdown) was of opinion that articles of the first necessity, like gas and water, should be supplied in as pure a form and as cheaply as possible, and that this end could best be attained by their being supplied by bodies that had no interest in making a profit out of them. In any case they had a right to demand that these articles should not be supplied at a rate of profit which appeared to be extravagant. Having brought the matter before the House, he would suggest that a Committee of their Lordships' House ought to draw up resolutions expressing the views of the House as to the way additional capital should be raised by Gas and Water Companies and as to minimum or maximum rates of dividend.
§ LORD REDESDALEsaid, he did not concur with the noble Earl in the opinion that there was not sufficient Notice of the second reading of Private Bills, but he did concur with him in most of the observations he had made on the Bill now before their Lordships. When it first came before him he made a note on the clause providing for the raising of further capital, that the Company should not be allowed to raise money otherwise than by borrowing. If raised by shares a much larger sum might have to be paid in the way of dividends—which by the Bill were allowed to exceed 10 per cent—than would be paid upon it if it were borrowed:—money could be obtained by this company readily at 4 or 4½ per cent. He thought the arrangement by which the metropolitan Companies were allowed to have a guaranteed dividend very objectionable. That, however, could not be helped now, because the precedent was laid down years ago; but it was quite open to their Lordships to 230 object to the mode in which it was proposed under the Bill to raise the additional capital of the Company. To limit the issue of further shares for this purpose would in no way damage existing shareholders. On the contrary, it would be much to their advantage that additional shares should not be issued, as they would sooner be able to get the larger dividend, whereby the public were to gain by a reduction in price.
THE DUKE OF RICHMOND AND GORDONthought the noble Earl (the Earl of Camperdown) had done good service in calling attention to this question; but, at the same time, he hoped he would not interpose any further obstacle to the progress of the Bill. The object of the Bill, which had come up to their Lordships as an unopposed Bill, was to enable the Chartered Gas Company to purchase additional land. When the project was brought forward the President of the Board of Trade saw that it was likely to give rise to protracted and expensive litigation. He accordingly invited the Companies concerned—the Imperial Gas Company, the Independent Gas Company, and the Chartered Gas Company—to meet and discuss the question. He also invited the Metropolitan Board of Works and the Corporation of London, as the representatives of the public and the consumers, to join in the deliberations, and the result of the negotiation and discussion was the compromise embodied in the Bill then before their Lordships. He thought, therefore, that it would be unwise, and he might say unjust, to now stop the further progress of the Bill. The passage of this Bill would secure one point of considerable importance. It was very inconvenient and a great disadvantage to consumers that gas should be supplied in one district by several different Companies: the premises of one firm in the West-end of London were at present lighted by three different Companies. Now this Bill would place three-fourths of the metropolis under one Company. Moreover, purity, uniform pressure, and illuminating power were all promoted by the amalgamation of Gas Companies. He could not go the length to which his noble Friend (the Earl of Camperdown) went in the advocacy of raising additional capital by loan rather than by the issue of additional shares. He was 231 not sure that it was in all cases advisable to encourage the execution of undertakings by borrowed money—the principle might be carried too far, because Companies, like individuals, lowered their credit by going into the market to borrow money. Hitherto it had been the practice to limit the borrowing powers to one-fourth of the capital, and with regard to Railway Companies to one-third. He was far from saying that in cases of this kind the money should not be borrowed; but they ought not to adopt such a resolution in the present state of things without great care and caution. Again, it must be remembered that if in this Bill the limit of a 10 per cent dividend fixed by the Act of 1847 would be done away with as far as this Company was concerned, the Company could only raise its dividend beyond that sum when it lowered the initial standard of price, and therefore the consumer would benefit by the provisions in the Bill. He doubted whether it would be for the benefit of the consumers that the Gas and Water Companies should be bought up by public corporations. Under all the circumstances, he trusted their Lordships would read the Bill a second time.
THE EARL OF AIRLIEthought that a case had been made out for the postponement of the Bill. The arrest of the Bill at this stage of it would not interfere with the vested interest of the Company, as they now came only for new powers; but he would suggest to his noble Friend that he should move for a Committee to draw up regulations which should be followed when any of these Bills came before the House; and that this Bill should be either postponed or referred to a Select Committee to consider it more fully; and that any other Bills of the same nature should be treated in the same manner.
§ EARL FORTESCUEsaid, that for a long time Parliament considered that the public were sufficiently protected by the principle of competition; but that idea had been exploded, and now Private Bills were, to a certain extent, watched by the Government, acting on behalf of the public. Still, from the case brought forward by his noble Friend it appeared that the interests of the public in the metropolis were not sufficiently watched by any public authority. He did not 232 think that the Board of Works need have acquiesced in the creation of this very large number of new shares, but that they should have insisted on the Company borrowing the money required, which they could have easily done at 5 per cent. The creation of new shares would impose a great liability upon the consumers, and on the ratepayers when the time came for the purchase of these Companies. He preferred having one large Gas Company to a number of smaller ones, who could break up the streets at any time they might please to do so.
§ LORD CARLINGFORDsaid, from what he had heard he could not believe that the Board of Trade and the Metropolitan authorities had so completely failed to protect the consumers as that it should be necessary to take the unusual course either of postponing or rejecting this Bill at this stage of it. At the same time, as considerable doubts had been expressed with regard to some of the provisions of the Bill, and particularly on the question as to the best mode in which authority should be given for raising this large amount of capital, he submitted that was a question which could be considered in Committee. He hoped that his noble Friend would not press his opposition further, but that he would allow the Bill to be referred to a Select Committee.
§ LORD REDESDALEsaid, that he understood that the Bill was unopposed.
§ LORD CARLINGFORDNo, there were two Petitions against it.
§ LORD REDESDALEsaid, that these Petitions related to the taking of land only, and not to the principle of the Bill, and it would be perfectly competent to their Lordships to deal with the Bill when it came back from the Select Committee. The Company had already borrowed all the money allowed under their Act in proportion to their capital, and he thought that the Bill required to be narrowly watched whether it came before himself or not. The House should declare how the Company was to raise the money required.
§ LORD STANLEY OF ALDERLEYsaid, that the analogy which had been drawn between Companies lowering their credit by borrowing like individuals did not seem quite correct, since the Gas Companies would borrow in 233 order to increase the area from which they would raise dividends.
THE EARL OF CAMPERDOWNsaid, in reference to the statement of the noble Duke that this Bill was a compromise between the Metropolitan Board of Works and the Company in the presence of the Board of Trade, he would remind their Lordships that they were not a party to that compromise, and that they had power to say whether the terms of that compromise were objectionable or not. It was also said that the dividends would not be at a fixed rate; but he would observe that they were not to be less than 10 per cent unless the gas should be supplied at a figure higher than 3s. 9d. per 1,000 feet—therefore, practically, they were sanctioning minimum dividends at the rate of 10 per cent, and those dividends might be very much enhanced. He contended that the consumers were not sufficiently protected, and believed that gas could be produced at a much cheaper rate. Their Lordships could now sanction a scheme which would enable the Company to raise the money which they wanted at 5 per cent, and that would be far better than sanctioning a scheme which would give the Company power to create shares and pay dividends upon them at the rate of 10 per cent. The Company asked to be allowed to raise their capital by the sum of £2,000,000 sterling He was willing to withdraw his opposition to the second reading provided it were distinctly understood that their Lordships were to have an opportunity of considering this Bill at a future stage. In that understanding he would also include the South Metropolitan Companies Bill, which was almost as objectionable as the present one—orperhaps more so. To refer this Bill to a Select Committee would be almost useless; and the question was one which would be more properly dealt with by their Lordships than by a Select Committee. It really raised the whole question of gas legislation. He thought that the question of raising capital by these Companies might be raised by submitting Resolutions to the House, where they might be discussed and settled.
§ Motion agreed to:—Bill read 2a accordingly, and committed; The Committee to be proposed by the Committee of Selection.