LONDON PASSENGER TRANSPORT BOARD (FARES). (Hansard, 5 July 1939)

§ Captain Wallace

I am aware of the judgment to which the hon. Member refers but I cannot accept the construction he puts upon it.

As regards the last part of the question, following is a copy of the letter which I sent yesterday to a Deputation which I received on the 15th June.

Ministry of Transport.

4th July, 1939

Sir,

PASSENGER FARES IN THE LONDON AREA.

I am directed by the Minister of Transport to refer to the representations made to him on the above matter by the deputation which he received on Thursday, 15th June, at the request of a public meeting convened on Thursday, 8th June, by the Federation of Ratepayers and Kindred Associations of Surrey.

It was explained to the deputation and accepted by them that the Minister had no power to postpone the operation of the increases which came into force on Sunday, 11th June, and that no good purpose would have been served by his meeting there on the preceding Friday or Saturday, as originally requested, even if he had been able to do so.

2. The deputation laid before the Minister two main proposals:

(i)a public inquiry into the financial structure and operation of the London Passenger Transport Board, and
(ii)a revision of the constitution and terms of reference of the Railway Rates Tribunal, when considering passenger fares in the London Passenger Transport Area.

3. In support of the first proposal the deputation contended that the holders of the board's "C" stock were in an unduly favourable position and that the settlement made in 1933 should be revised accordingly. Alternatively, it was suggested by one member of the deputation that the payment of the standard 1325W rate on the "C" stock was not mandatory arid that it was unnecessary, therefore, to increase fares for that purpose.

It was also alleged that the board had built up an unnecessarily large reserve for the purposes of maintenance and renewal with a consequent reduction in the amount available for payment of dividend on the "C" stock. In this connection the deputation contended that the board had interpreted the same words in two different ways when providing:

(a) for the maintenance and renewal of rolling stock in their general accounts, and
(b) in the pooling scheme under Section 31 of the London Passenger Transport Act,1933;

in their view the board were either making too great a provision for this purpose in their general accounts or were obtaining less than their fair share of the pool.

The deputation further suggested that in order to encourage the wider dispersal of the population of London, the cost of passenger transport should be kept as low as possible and that to this end the board's stocks should be bought in and the undertaking re-financed with the assistance of Government credits.

4. The Minister has given careful consideration to these points and desires me to remind the deputation that the provisions of the Act of 1933, including the terms of compensation of the undertakings transferred to the board, were approved by Parliament after careful and exhaustive inquiry by a Joint Select Commit tee of both Houses. One of the principles underlying the whole conception of the board was that they should be free from political influence or interference and the Minister would not be prepared to suggest to Parliament any action which would tend to weaken that principle.

5.It is true that the terms of compensation as approved by Parliament might have been on a different basis. The standard rate of interest on the "C" Stock might, for in stance, have been fixed at a lower figure, but in that case the amount of stock issued as compensation would have been greater. The total interest payable would have been approximately the same, but there would have been a larger capital sum to be redeemed in due course. Compensation having been fixed and paid on the basis laid down in the Act, it would not now be equitable to reduce the standard rate of dividend on the "C" Stock or to alter the provisions of the Act designed to protect the holders of that stock who, un like the proprietors of an ordinary company, have no voice in the policy or management of the Board.

6. The Minister has no power to interpret an Act of Parliament but he has given consideration to the two questions of a legal nature raised by the deputation and is advised:

(i) that the Board must endeavour to maintain their revenues at such a level as will enable them to defray all the charges which are by Section 46 of the Act payable out of that revenue, and
(ii) that there is no legal obligation on the Board to make provision for the maintenance 1326 and renewal of rolling stock in their general accounts on the same basis as for the calculation of the operating allowances under the pooling scheme.

7. On the first point, Section 46 (1) of the Act provides that the revenues of the Board shall be applied in defraying the charges there set out in a certain order of priority. The Minister is advised that this means that the revenues of the Board shall be so employed so far as they are available. The mandatory element which compels the Board to keep up their revenue so as to pay these charges is provided by Section 3 (4) of the Act which lays on the Board an obligation to conduct their undertaking in such a manner and to fix such fares and charges as to secure that their revenues shall be sufficient to defray "all charges which are by this Act required to be defrayed out of the revenues of the Board." If it were contended that this sub-section does not refer to charges which are only to be met in so far as revenue is available, there would be no charges to which it could refer, because payment of all the charges to be met out of revenue as set out in Section 46 are subject to that qualification. The Minister is advised, therefore, that Section 3 (4) of the Act is clearly intended to refer to the charges set out in Section 46.

8. As to the second point, the words in the Act which govern the provision of maintenance and renewal in the board's general accounts are contained in Section 46 (1) (a) and are "expenditure on or provision for the maintenance and renewal of the undertaking." Section 31, Sub-sections (5) to (8), makes pro vision for the preparation of a pooling scheme in accordance with the Tenth Schedule to the Act and this in turn provides for "operating allowances" to be fixed according to a formula which shall "give effect to those factors of cost which vary with the mileage of the trains or cars or other vehicles run." The pooling scheme includes "maintenance and renewal of rolling stock (excluding superintendence)" as one of the items of expense to be used for calculating the operating allowances, but it is clear that the allowance to be made for this item is subject to the governing words "factors of cost which vary with the mileage run."

9. In these circumstances, the Minister is advised that there is no legal obligation on the board to make provision on the same basis in both cases. In the one case the board are dealing with the maintenance and renewal of their undertaking which, as regards rolling stock, must take account of other factors be sides those which vary with the mileage run (for example, obsolescence); and in this connection it may be noted that the provision they are making is a close approximation to the estimate given by Sir William McLintock to the Joint Select Committee of both Houses of Parliament during the passage of the Act. In the other case the board are dealing with an allowance which is to be based only on factors of cost which vary with the mileage run and it does not seem unreasonable that this provision should be based on wear and tear only. It also seems essential that the charge for operating allowances should be agreed as fair as between all the parties to the pool and this would hardly be the case if the 1327W provision for maintenance and renewal of rolling stock were to follow the varying practices adopted by the parties in relation to their general accounts.

10. As regards the proposal made by the deputation that the board's capital should be re-financed with the assistance of Government credit the Minister wishes to point out that, quite apart from the undesirable effect of such action on the relationship of the board to the Government and the serious financial implications of such a course, it is at least doubtful whether an attempt to buy up the existing stock in the open market would result in any material saving in the total annual charge. A compulsory exchange which left the present holders of the stock worse off than was contemplated when the amount of their compensation was fixed (including their expectation of payment on the "C" stock at the standard rate) would not, in the Minister's opinion, be fair.

Having regard to these considerations and to the exhaustive nature and wide scope of the recent inquiry by the Railway Rates Tribunal, the Minister does not consider that there is any reason for a public inquiry into the financial structure and operation of the board.

11. The deputation's suggestion for a revision of the constitution and terms of reference of the Railway Rates Tribunal in relation to passenger fares in London was based on the grounds:

(i) that the membership of the tribunal does not include a representative of the travelling public, and
(ii) that the tribunal are not in a position to give proper weight to the needs and hardships of the travelling public.

The deputation also referred to the fact that there is no appeal from the decisions of the tribunal in relation to its functions under the London Passenger Transport Act, 1933, and they contended that there should be a right of appeal on points of law.

12. The statutory provisions governing the composition of the Railway Rates Tribunal are not based on the representation of interested parties and, in relation to the matters now under consideration, it consists of a president, who must be an experienced lawyer, and four other members, who must be persons experienced respectively in commercial affairs, in railway business, in matters relating to local government in London and in financial affairs. The Minister sees no reason to suggest to Parliament that the composition of the tribunal should be altered. Apart from the difficulty of finding any one person who could properly be said to represent the travelling public, it would be foreign to the whole conception of the tribunal to introduce into its membership representatives of particular interests.

13. The Act provides that, when dealing with the revision of the fares of the board, the tribunal:

(i) may have regard to the establishment and maintenance of a general basis of fares throughout the London Passenger Transport Area,
(ii) shall have regard to the desirability of the establishment and maintenance by the board of an adequate reserve fund, and
(iii) shall not make any order which would preclude the board from complying with their obligation to secure that their revenues shall be sufficient to defray all charges which are required by the Act to be defrayed out of the revenue of the board,

and that, when dealing with the revision of fares on the suburban passenger services of the amalgamated railway companies, the tribunal "shall not make any order…which would be likely to affect prejudicially the financial position of the amalgamated railway companies or any of them."

These provisions are all in keeping with the general principle underlying the Act, namely, that the public interest requires that the transport system in London should be worked upon an economic basis. The alternatives to economic charges are bankruptcy or State subsidy and the Minister is not prepared to suggest to Parliament an alteration of the obligations placed on the board or of the directions to the tribunal which were designed to avoid those contingencies. Unless the board are placed in a position to meet their obligations to their stock holders they cannot raise the new capital necessary to pursue a progressive policy for extending and improving the facilities for passenger transport in their area.

14. On the final point, the right of appeal on questions of law from a decision of the tribunal, the Minister considers that the matters which the tribunal are required to determine relating to fares and facilities are such that, as at present advised, he would not be justified in asking Parliament to reverse the decision which it took in 1933.

I am, Sir,

Your obedient Servant,

LEONARD BROWETT.

A. H. Page, Esq.,

25, Green Lanes,

West Ewell, Surrey.