Railway reform: its importance and practicability considered as affecting the nation, the shareholders, and the government

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CORNELL

UNIVERSITY

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Preface

In 1H44 an Act of Parliament was passed for the purpose of enabling Government to purchase on certain specified terms all railways in the United Kingdom that from that time forward should be constructed.

To protect, however, the interests of the shareholders, and give ample time to the nation and the Legislature to have full experience of the management of our railways by companies, it was enacted, that tieenty-one years should elapse before our present system should become subject to any change, or the rights of propiietorship or management of the directors be in anyway interfered with. - It will, therefore, be seen that in 1865 this Act comes into operation, and Jive-sixths of the existing railway mileage will eventually become subject to its provisions.

This measure was introduced into Parliament by Mr. Gladstone, then President of the Board of Trade, in Sir Robert Peel's administration, and passed through under his charge. For a considerable time previous to its introduction there had been not only great dissatisfaction on the part of the public with 'railway management, but also to some extent with the system itself. The behef was universal that the country did not derive as much benefit from its railways as some continental countries did from theirs, where they had been constructed by the State, and were managed under the immediate control of their respective Governments.

On the opening of the Parliamentary Session of 1814 a

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committee, composed of some of the leading members of the House of Commons, was appointed " to consider whether any or what new provisions ought to be introduced in such railway bills as would come before the House during that or any future session, for the advantage of the public and the improvement of the railway system." This committee was nominated and presided over by Mr. Gladstone, and there were examined before it nearly all the principal men of the country connected with railways. The evidence of these gentlemen formed the groundwork on which the committee framed its reports, and the measure subsequently introduced into Parliament was in accordance with the recommendation of the committee.

Although there were clauses in this bill relating to other matters connected with railways than their purchase by Government, yet to enable the Government at a future time to effect this object was the main purpose for which the Act was passed. " The question," said Mr. Gladstone, on introducing it to the House, " of the whole bill is the purchase or option of purchase on the part of Government : if we agree about that we shall not quarrel about the rest; on the other hand, if we differ about that, it will be a question for our consideration whether we will take the rest, or postpone the whole till a future period."

Sir Eobert Peel likewise took a warm interest in the success of the measure. He was not prepared, he said, on the second reading of the bill, "to advise the immediate purchase of railways, nor did he wish to see the Government, or part of the Government, the directors of railway concerns ; but, seeing that there was a monopoly with respect to conveyance and communication, the Legislature should have the power of purchasing, after a certain period, after giving due notice thereof to the parties concerned. They were about to say to the railway companies, ' Fou shall not have a permanent monopoly against the public, but after a limited number of years we give you

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notice we shall have the option of purchasing your property.' " Such were the opinions held by Sir Eohert Peel on this subject, which induced his Government to bring forward, and carry through Parliament, the bill in question. The second reading was opposed, but carried by a majority of nearly two to one ; and on the third reading, matters having been satisfactorily arranged, all opposition was withdrawn.

The law is therefore complete that enables the Legislature to take the initiatory steps in the next session of ParHament, for the purchase of our railways ; hut where is the life and spirit to give that law effect ? I am compelled to answer, that they do not exist. Neither in the community at large, nor in any section of it, great or small, has there ever been expressed a desire to carry out the object for which this Act was passed. Whatever may be the dissatisfaction with the manner in which our railways are managed, and however loudly that dissatisfaction may at times be expressed, it has not extended to any complaint against the. system itself, still less to a demand for that great organic change for which the Government of Sir Kobert Peel thought it so necessary to provide. The Railway Act of 1844 may therefore be said to be quite forgotten at the very time it ought to be remembered, and to have become obsolete before it even could be brought into operation ; for all practical purposes it is at present a dead letter. Whether or not it can or ought to be revived, is the matter we have now to consider.

It would be difficult in the whole course of our legislative history to find another instance in which a Government measure has been treated with such utter neglect as has fallen to the lot of this unfortunate Act. A committee, composed, as we have seen, of the most eminent men of the House of Commons, after a thorough investigation of the subject, recommended it to the Legislature ; after a full discussion in Parliament, the bill passed the third reading without a dissen-

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tient voice, and is then— forgotten. Surely such a lame and impotent conclusion, on a matter of such vital importance to the best interests of the country as our traffic on railways undoubtedly is, was never before heard of. One might reasonably have supposed it would have been otherwise. The name of Sir Robert Peel is not yet quite forgotten among us ; nor can Mr. Gladstone be called an unknown man; and yet that Act, on which these two certainly not undistinguished men expended so much care and trouble, is virtually defunct. There are scarcely twenty people, perhaps, in the country, unconnected with railways, who have any recollection of it; and very probably those few persons have now very little wish to remember anything about it. Although I shall have frequent occasion to refer to it, and will treat it with every respect, just as if its provisions were to be brought into full force next session of Parliament, it must, nevertheless, be understood, that in doing so I do not differ from others, as to its real position: and when I speak of "the Eailway Act of 1844," it will be only for the purpose of rounding a period or giving point to an " idea," as the case may be.

The administration, however, of that day must have been deeply impressed with the importance of the subject, and the necessity of providing a remedy for anticipated evils, when it succeeded in having this Act passed by the Legislature. But why is it despised or forgotten ? It may be said in reply, that the very fact of its being in such a position is a sufSoient answer to the question; but I altogether demur to such an answer as satisfactory ; there may be causes, and in this case I think it will be found that there are causes, which have prevented it from receiving that consideration to which, as I contend, it is justly entitled.

In order more fully to comprehend the motives which induced the Government of Sir Robert Peel to bring this measure forward, it is right to recall to mind not only the

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principles on whioh tliat administration was founded, and the general policy that it carried out, but also the peculiar circumstances that have been in operation having the' tendency to render the lavp in question practically obsolete.

The railway monopoly had in 1844 become very powerful. It had possessed itself of the main channels of communication throughout the country ; it had superseded the ordinary means of conveyance ; it was to a great extent independent of the Legislature and Government ; its abuse of power had become altogether intolerable; and the more the system under these circumstances was extended, the more was this monopoly consolidated and confirmed.

But the subject was one in every respect exceedingly difficult to deal with. In accordance with that traditional policy of this country which leaves to private enterprise the execution and management of our great industrial works, the construction of railways had been, as a matter of course, undertaken by joint-stock companies, and the Legislature, in giving them powers to construct their lines, conferred on them a virtual monopoly of the traffic in the several districts through which their lines ran. But the companies that, up to this time, had obtained their Acts and invested their capital in the works on the faith of Parliament, had constructed upwards of two thousand miles at an expenditure of nearly one hundred millions sterling ; hence the impossibility of any attempt to impose obligations on the companies not in accordance with the original agreement.

The public feeling on the management of railway affairs at home was not much gratified by a comparison with the way in which they were managed abroad. Belgium was the first of the continental kingdoms to establish a railway system ; the railways were constructed by the State, and a very low and nearly uniform tariff, at about one-third of the average English rates, was adopted.

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As the Legislature was debarred from passing an ex post facto law in regard to the companies that had already been incorporated" and had expended their capital, Grovernment determined on adopting such precautionary measures in regard to future railways as the nature of the case might require, and for the purpose of fully investigating all matters connected with railway legislation, the committee I have referred to was, at the instance of Government, appointed. This committee sat for the greater part of the session, and, after a thorough investigation of the subject in all its bearings, came to the conclusion that it was inexpedient at that time to make such an organic change in our system as the purchase of railways by the State would involve ; but that it was desirable to adopt such measures as would enable the Legislature to carry such a purpose into effect if it so thought fit, at a future period, and an Act to that effect was passed.

Under these circumstances it is desirable that the public, whose attention has not been in any way directed to the subject since the year 1844, and then but very partially, should be enabled to form a judgment on the general merits of the two systems — the one founded on the possession and management of the railways by joint-stock companies for their own benefit ; the other on their possession by the State, and their management entrusted by the Legislature to those whom it should consider best quahfied to perform that ofBce.

In 1844, when the expediency of the purchase of railways by the State was first mooted in Parliament, the subject was not only little understood, but there existed, almost universally, strong preconceived opinions, not only utterly erroneous in themselves, but of such a nature as in a great measure to stop in limine all investigation of the subject. Nor were these opinions confined to those who, from their position in society, might naturally be supposed to be without the means of acquiring due information, but nearly all classes, even those who

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undertook to enlighten the ignorant, shared with them ahke in the popular errors.

There existed at this time two prevailing ideas in the public mind in regard to railways, that had a very unfortunate effect ; one was, that the charges on a railway must bear a certain proportion to the cost of its construction; and as the cost of Enghsh railways was exceedingly heavy, so the charges by them under any system, according to popular opinion, must always be very great. The other idea was, that if railways were the property of the State, they must necessarily be managed by Grovernment, when there would be a great addition to its patronage and power, and the management might be still worse than it had been by the companies.

The Quarterly 'Review had an article on Eailway Legislatioii in its number for July that year ; and in criticising a publication that advocated a reduction of fares in this country to the level of those charged in Belgium, thus attempted to prove the impossibility of such a reduction being effected, without great loss to the State : —

" Let us look," said the reviewer, " at the expense of making the respective lines, as stated in Mr. Laing's report : —

Cost of Construction.

Average of the 71 railways of England . . .£34,360 Average of Belgium 17,120

Will any one pretend that a thing which costs £40,000 ought to be furnished in detail to the pubhc as cheap as if it had cost only £17,000 ? But is it not curious to find that the average expense of the Belgium hnes turns out to be so exactly the one-half of the average of the British lines, as are the fares on the railways ?"

Is it not more curious, it might in reply be asked, if, as a general rule, it will be found that the English railways on which the greatest amount of capital per mile has been expended, are precisely those on which the charges are the

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lowest? The Charing Cross Eailway, for instance, cost a million and a half sterling per mile, and passengers are carried at a lower rate on it than on some railways that were constructed at the hundredth part of that cost. The reviewer, it will be seen, fell into the prevailing error of confounding the cost of the machinery by which the passengers were conveyed with the cost of the conveyance itself, and does not seem to have been aware that when the fares exceed the actual expense incurred in conveyance, it becomes a mere question of numbers as to what fares best pay.

The second error I have referred to was not less prevalent than the first. It was universally assumed, as a matter of course, that the possession of railways by the State necessarily involved their management by Government ; and although this fallacy, as well as the previous one, is too transparent to be seriously discussed, there are still many who do not perceive the broad distinction that exists between ownership and management. It might with just as much truth be contended, that the purchaser of an estate must necessarily farm it himself, as that the owner of a railway should himself be obliged to manage it. In 1844 the whole force of opposition was directed against this imaginary necessity. It is scarcely necessary here to observe, that any scheme in regard to the possession of railways by the State that would involve their direct management by Government, or greatly increase its power and patronage, would never in this country receive the sanction of public opinion.

It is easy, under these circumstances, to understand how little the Government plan for the future purchase of railways was appreciated at the time it was introduced : " As railways cost in this country double or treble per mile more than they do on the Continent," it was said, " so the fares must always remain in the same proportion, and badly as the companies manage here, the Government management would be still worse." Further, the Act could not come into operation till after the expiration

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of twenty-one years, and then only contingently ; therefore, its future results were of no immediate interest to any one.

In addition to these special reasons we must add the great dislike entertained in this country against Government interference in mercantile affairs even in cases that many might deem absolutely necessary, and the little distinction drawn between the possession and management of railways and that of other industrial works of a quasi public nature.

"The laissez /aire system," says Mr. Porter, in his " Progress of the Nation," " which is pursued in this country to such an extent that it has become an axiom with the Government to undertake nothing and to interfere with nothing which can be accomplished by individual enterprise, or by the associated means of private parties, has been pregnant with great loss and inconvenience to the country in carrying forward the railway system. Perhaps there never was an occasion in which the Government could with equal propriety have interfered to reconcile the conflicting interests involved, and to prevent public injury arising from the false steps so likely to be made at first in bringing about a total revolution in the internal communication of the country. It is not meant by these remarks to infer that Government should have taken into its own hands the construction of all, or any, of the railroads called for by the wants of the community, but only to suggest the propriety and advantage that must have resulted from a preliminary inquiry made by competent and uninterested professional men, with a view to ascertain the comparative advantages and facilities offered by different lines for the accomplishment of the object in view. If this course had been adopted before any of the numerous projects were brought forward for the construction of lines of railway between all imaginable places, and if it had been laid down as a rule by the Legislature that no such projected line could be sanctioned by Parliament which was not in accordance with the reports and recommendations of the Government engineers, the saving of money would have been immense." *

Mr. Porter appears to have forgotten how little the Government of a free country can do when it attempts to initiate a

* Sec. iii. chap. &•

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policy, however wise in itself, that is opposed to the feelings and prejudices of the people.

From the time the Act was passed till the present, the subject has remained in abeyance; but, next year, in the ordinary course of events, it may- again come before Parhament, as the twenty-one years of probation granted to the present system will have expired. All the facts, figures, and arguments bearing on the merits of the two systems ought to be fully investigated by a Parliamentary committee, and the twenty-one additional years of experience we have had of railway management be turned to profitable account. For the purpose of preparing the public mind in some degree for this subject, if the occasion arise, the following treatise has been written. As there are many, however, who would wish to have first, before entering on details, a general conception of its nature, to know the precise objects sought to be attained by the transfer of the railways from the companies to the State, and why those objects cannot be attained under the present system, a brief introduction will be desirable.

The distinctive policy that marked the accession to power of Sir Kobert Peel in 1841, was the substitution to a considerable extent of direct taxation in the form of an income tax for indirect taxation on the principal necessaries of life. " Give me," said Sir Eobert Peel in effect, " a direct payment of five millions per annum, and I shall be able to reduce your taxation on tea, coffee, sugar, and all the other necessaries of life to the amount of twenty millions per annum," and he redeemed the pledge he gave to the nation. He made a reduction in the indirect taxation of the country that would have reduced the revenue by that amount, had there been no increase in the consumption of those articles on which the reduction of duty had been made; but the natural elasticity of the country, relieved of such a burthen, made up by increased

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consumption three-fourths of the loss to the revenue, and the income lax paid the remaining fourth.

We shall find, in the course of our investigation, that on this principle — but with a very important difference in matters of detail— was founded the Railway Act of 1844. Locomotion is one of the great necessaries of life, and then, as now, the means of locomotion throughout the country was a monopoly in the hands of private individuals, whose charges for the conveyance of passengers and goods were enormously disproportioned to its cost. The proprietors of railways, with very few exceptions, found it was more to their advantage to carry the comparatively few at high fares than the multitude at low fares, and neither the Legislature nor the Government had any right to interfere with their charges, inasmuch as they were strictly legal. Wliat Government, however, had a right to do and did do was this ; it induced the Legislature to pass an Act by which, after a limited number of years, the right of purchase, on certain specified terms, should revert to the nation, when the same policy could be carried oat in regard to the charges on railways as had already been pursued in reference to our postal rates, and to our customs and excise duly.

It is highly probable, however, that the success of the Post- Office Reform scheme, which had been then several years in operation, had no small influence in inducing the Government to follow the course it did in respect to railways ; and as the objects to be attained were in some respects analogous, we shall briefly notice the principles ■ on which the Post-Office Reform Bill was based.

The gross amount of the Post-Office revenue in 1839 was, in round numbers, 2,400,000/., the net revenue 1,400,000/., and the number of letters conveyed 75,000,000. The postage varied according to distance from twopence to two shillings for a single letter, and any inclosure, however small, had the effect of doubling the postage. There had been for many years xviii PREFACE.

great complaints of these high rates, but till Mr. (now Sir) Eowland Hill took the matter up, no step was taken towards reducing them. Sir Eowland Hill directed special attention to three matters :— 1st, that the conveyance of a letter from one end of the kingdom to the other cost less than half a farthing ; 2nd, the great disproportion that existed between the cost of conveyance and the charge to the public ; and 3rd, the enormous increase that might be expected to take place in the number of letters conveyed by post, if the average postage was reduced to one-sixth of the then existing rates. The nation adopted Sir Eowland Hill's scheme, the average postage of sixpence on each letter was reduced to the uniform rate of a penny ; and we all know with what result.

The same principles applied with equal force to the conveyance of passengers and goods by railway as to the conveyance of letters by mail coach : there were the same high charges to the public compared with the cost of conveyance, and a great increase of passengers and goods might be expected by making a material reduction in those charges. Government, however, found itself in 1844. comparatively powerless to act with immediate effect in the matter, further than by entering into an arrangement with the old companies for the establishment of Parliamentary trains, and thereby securing to the working population, what they much needed, a very considerable reduction in charge, and some degree of comfort in travelling. There was not then in the opinion of Government sufficient experience of the working of railways by joint-stock companies to justify Government in recommending the Legislature to pass a bill for the purchase of railways then made, nor did it desire to have constructed at the public cost those railways that might be considered necessary to complete our system ; the middle course was adopted of securing the right of purchase, with its exercise reserved till a distant time.

The amount paid by the public to railway companies is now

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increasing at the rate of more tlian two millions sterling per annum : in 1862 twenty-nine millions were paid ; last year the income of the railways was thirty-one millions ; this year it will amount to nearly thirty -four millions; and next year it will, probably, equal in amount the one-half of all our taxation ! There is virtually no legal control over the fares and charges the companies make to the public ; in some localities they are double, treble, or quadruple what they are in others — the interest of each company being its only guide, and the interestg of the public entirely subsidiary to those of the companies.

Mr. Gladstone, on introducing the Eailway Bill,* stated the principal reasons which induced the Government to bring it forward : the first of which was the vast increase that might, in the course of twenty years, be expected to take place in the payments of the public to the companies, and the consequent necessity at the expiration of that term of revising our present system of management — at that time the receipts of the companies amounted only to five millions per annum, — "But I do not think,'' said Mr. Gladstone, " that it will be a very extravagant estimate for me to assume that, in fifteen or twenty years, the payment by the public will reach \a fifteen millions a year." Now, inasmuch as the estimated receipts of the companies for next year amount to fully Thirty-six millions ; and it would appear that Mr. Gladstone thought it desirable that the right of purchase should revert to the State when the payments to the companies by the public would amount to Fifteen millions — it follows that, according to the opinion then entertained by Mr. Gladstone, the time has long since arrived when the expediency of exercising that right should be discussed, and, if found desirable, be claimed by the Legislature.

There is, in one respect, a very important difference

* Mr. Gladstone's speech on the second reading of the Eailway BUI, and the Act itself, will be found in Appendix IV.

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between the Post- Office reform and the Railway reform projected by the Act of 1844. The great, and indeed the only, objection that ever had been made to the adoption of Sir Rowland Hill's scheme was the heavy loss it would entail, for many years at least, on the revenue ; nor was this point disputed by Sir Rowland Hill ; for the first few consecutive years there was a loss of a million per annum to the revenue, nor was ,it till last year that the net revenue, under the new system, equalled that of the old.

It would be a very different matter, in a financial point of view, to carry into effect the Railway Act of 1844. What is called " the purchase of railways by Government " would, if carried out as I suggest, be in effect an operation by which railway stock would, in a certain sense, be converted into Government stock, and its market value thereby increased in the proportion of 3|- to 5, the profits of the transaction being shared in equal proportions by the State and the companies. To the profit the State would have from the transaction would be added the great saving effected by the amalgamation of all the railways under one general management; that is, on the supposition that a simultaneous arrangement could be made by Government with the great bulk of the companies ; otherwise, if no better plan could be adopted, the Government purchase could be carried out in detail, according to the Act, as each company came severally within its provisions.

The exceedingly low cost at which passengers can be conveyed on railways is the broad foundation on which Railway Reform rests. Every one will admit that a very low tariff would greatly increase the traffic, but we cannot tell beforehand precisely to what extent. Could we ascertain that, the whole question could be solved to a mathematical certainty. But we can only approximate to a solution of that problem. We shall find, in the course of our inquiry, that the difference of fares within certain limits makes but little difference in the profits.

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and that there is every reason to believe the possession of railways by the State would enable Government to effect such arrangements as to have passengers conveyed at one-third of the present average fares without any assistance from the Treasury, and a proportionate reduction made on freightage.

It may, at first sight, appear to many, taking into consideration the small dividends that some companies pay, impossible for Government to make such a reduction in the fares without incurring a heavy loss, but the case in that respect is entirely analogous to that of the Post OfBce — it is a mere question of numbers. The reduction made on the Post-Office charges amounted to 84 per cent., and the reduction proposed on railway charges amounts only to 66 per cent. And we have seen that the Post Office, after reducing its postage rates from an average charge of sixpence on each letter to a uniform rate of a penny, without any extraneous aid, by the mere increase of numbers, returns now to the exchequer the same amount of net revenue as it did previous to the change. But, in regard to any reduction of fares and charges on our railways that the Legislature, under the new system, might determine on, there would be a reserve fund that might be calculated at five millions sterling to make up the loss incurred by reduced rates.