Chapter XVI: Act 18: Geo. II., c. 33, provided, among {50}other things, that the streaks (13)

Turnpike trustees had always had full power to reduce and subsequently to advance their tolls, at their own discretion, provided they never sought to exceed the maxima imposed under their special Acts; and down to this time it had been assumed that railway companies had similar powers in regard to maxima which Parliament had already expressly sanctioned in the Act or Acts of each individual company. There was--and still is--no question (except in cases of "undue preference" or "through rates") as to the right of a company to _reduce_ a rate, or to transfer a commodity to a lower class, thus effecting the same object; and there was, down to 1894, equally thought to be no question as to their right to increase a rate within the same limitations as those applying to turnpike trustees.

What the Act of 1894 did was to restrict the powers of railway companies to increase their rates even within the range of their statutory maxima. It enacted that in the event of complaints being made of any increase of rates, direct or indirect, since December, 1892 (and under the Act of 1888 {343}a railway company had already been required to give public notice of any increase in tolls, rates or charges it proposed to make), "it shall lie on the railway company to prove that the increase is reasonable"; and for this purpose it is not to be "sufficient to show that the charge is within any limit fixed by an Act of Parliament or by any Provisional Order confirmed by Act of Parliament." Complaint is first to be made to the Board of Trade, and, if agreement between the trader and the railway company should not follow thereon, the trader has the right of appeal to the Railway Commissioners, to whom jurisdiction to hear and determine such complaint is given. "So that," as Butterworth remarks in his "Maximum Railway Rates," "the legislation of 1888-1894 presents this remarkable result--that Parliament in 1892, after probably the most protracted inquiry ever held in connection with proposed legislation, decided that certain amounts were to be the charges which railway companies should for the future be entitled to make, and in 1894 apparently accepted the suggestion that many of the charges, sanctioned after so much deliberation, were unreasonable, and enacted that to entitle a company to demand them it should not be sufficient to show" that the charge was within the limit which Parliament itself had previously fixed.

Whether traders have really gained any balance of advantage from this further outcome of legislative policy in the assumed protection of their interests, as against the railway companies, is open to question. On the one hand they have a guarantee against increases that offer even the slightest suggestion of unreasonableness. On the other hand the Act has destroyed the element of elasticity in rate-making, inasmuch as railway managers must needs show extreme caution in granting reduced or "experimental" rates--in the interests of growing industries--when, if the experiment should fail, and the expected traffic not be forthcoming, the company must go through the formality of advertising the "increase" involved in putting the rate back to its former level, and must, also, run the risk of having to "justify" such increase before the Board of Trade or the Railway and Canal Commission. "I know of my own knowledge and my own experience," Sir George Gibb once told a Departmental Committee of the Board of Trade, "that the effect of these sections has been to {344}prevent many reductions of rates that would have been tried experimentally."

When we pass on to consider the principles on which railway rates and charges are based we are met with so many complexities in the solution of transport problems, and with such direct conflict of interests on the part of different groups of traders, that we can in no way be surprised at the controversies and the grievances, real or imaginary, to which the subject has given rise from time to time.

The original idea that railway rates and charges should be fixed on a mileage basis, on the same principle as tolls on turnpike roads and canals, was soon found to be impracticable, and successive Parliamentary Committees have demonstrated its futility; though its advocacy, in one form or another, has not even yet been discarded by those who think that railway rates for any given commodity should be so much per ton per mile for all traders alike, irrespective of distance and all other considerations.

One effect of such a principle of rate-fixing as this would have been to exclude the long-distance trader from any particular market, and to confer an undue advantage on the trader in the immediate neighbourhood, or at a short distance therefrom, who would thus have gained a monopoly of the market, to the disadvantage of other traders and of the local community. Nor would such a system of rate-making have answered for the railway companies themselves, since the discouragement of long-distance traffic would have restricted the area of business, and limited their sources of revenue.

Another once much-favoured theory is that the railways should charge so much for cost of service, plus a reasonable profit for themselves.

Here, in the first place, there is the impossibility of deciding what is the cost of the service rendered in regard to each commodity and each consignment thereof that is carried. No basis exists on which the most expert of railway men could decide the respective costs of transport for each and every article in a train-load of miscellaneous goods, nor could any one apportion the exact amount that each should bear in regard to interest on capital outlay and other standing charges which must needs be covered as well as the proportionate cost of actual operation.

{345}Then we have the fact that, even if these figures could be arrived at, many of the commodities carried would be unable to pay the rates fixed thereon. This would especially apply to coal, iron-stone, manure and other things either of low value or of considerable weight or bulk. Whatever may be the real cost of carrying them, commodities of this kind cannot pay more than a certain rate. If that rate is exceeded either they will be sent in proportionately smaller quantities or they will not be sent by rail at all.

We arrive, in this way, by the logic of actual facts, at the fundamental principle, adopted by railway companies, of charging "what the traffic will bear"; and by this is meant "charging no more than," rather than "charging as much as," the traffic will bear. Findlay, in his book on "The Working and Management of an English Railway" (fourth edition, 1891) says of the practice based on this principle:--

"The rates are governed by the nature and extent of the traffic, the pressure of competition, either by water, by a rival route, or by other land carriage; but, above all, the companies have regard to the commercial value of the commodity, and the rate it will bear, so as to admit of its being produced and sold in a competing market with a fair margin of profit. The companies each do their best to meet the circumstances of the trade, to develop the resources of their own particular district, and to encourage the competition of markets, primarily, no doubt, in their own interest, but nevertheless greatly to the advantage of the community."

The application of the principle is worked out by the division into various classes of all minerals and merchandise carried on the railway. The classes are known respectively as A, B, C, 1, 2, 3, 4, 5, the rates charged being lowest for commodities in Class A and highest for those in Class 5. The type of article included in each class may be indicated by the following examples:--

Class A (applicable to consignments of four tons and upwards).--Coal, coke, gravel, iron-stone, limestone, stable manure, sand.

Class B (applicable to consignments of four tons and upwards).--Bricks, concrete, various articles of iron and steel, granite (in blocks), lime (in bulk), salt (in bulk), common slates.

{346}Class C.--Parsnips, pitwood (for mining purposes), potatoes (in bulk or in sacks), salt (packed), soda, straw (hydraulic or steam-packed), waste paper (for paper-making).

Class 1.--Cardboard, cotton (unmanufactured), onions, printing paper, finished wrought iron in shafts (for driving mill wheels), soap, sugar (in bags, cases or sacks), tallow, vinegar (in casks).

Class 2.--Bacons and hams (cured and packed), celery, coffee, copper, earthenware (in casks or crates), crucibles (plumbago or clay), oranges, ropes, raw wool or yarn.

Class 3.--Baths, calicoes, carpeting, china (in hampers), combs, cotton and linen goods (in bales, boxes, etc.), cutlery, groceries, hardware, lead pencils, tea, wheelbarrows.

Class 4.--Light drapery (various), footballs, garden arches, grates, ovens or stoves, haberdashery, hats (soft felt), lamps, umbrellas.

Class 5.--Amber, engravings, feathers, cut flowers, hothouse fruit, furs, dead horses, lace, looking-glasses and mirrors, musical instruments, picture frames, silk.

These examples indicate the gradual rise in value in the articles included in the several classes, though, assuming that the traffic will bear the rate, other considerations as well as value will apply, among these being liability to damage during transit, weight in proportion to bulk, and nature of packing or cost of handling.

It is further to be remembered that although a good deal of raw material is carried in the lowest classes at rates which might work out at less than "cost" price, when every item in respect to "cost of service" and interest on capital expenditure had been allowed for, the commodities in question may reappear in various successive forms as part-manufactured or, eventually, as manufactured, articles, paying a successively higher rate, in accordance with their progressively greater value, on the occasion of each further transportation. Even when these results do not follow, the commodities carried at these low rates may help to develop the resources, or to expand the population, of a particular district, and thus serve to create traffic in other directions.

While, also, the rates for the low-value articles may not cover every item in the so-called cost of service, they do contribute to the revenue an amount which might otherwise {347}have to be made good by the fixing of higher rates on goods in other classes. Traders dealing in commodities of the latter type do not themselves lose by the fact that minerals, raw materials, or other things are carried at rates which, although exceptionally low, are the most they can be expected to pay. No injustice is done to them because the other classes of traders concerned get lower rates than they do themselves. They may even gain--directly, because they are saved from having to cover a larger proportion of the total railway expenditure; and indirectly, because the help given to those other lines of business may either bring trade to them or else keep down the cost of production in regard to manufactured articles they deal in or which they themselves require.

The principle of charging "what the traffic will bear" does more than govern the rates as applying to visible traffic. It embraces the further principle of what Hadley, in his "Railroad Transportation," calls "the system of making rates to develop business."

An immediate result of its application, not alone in England but in various Continental countries, was to bring about a substantial reduction in rates, so that, as Hadley further says, between 1850 and 1880 railway rates were reduced, on an average, to about one-half of their former figures. It may be assumed, also, that these former figures were themselves a substantial reduction on the rates once charged under the toll system in force among the "get-rich-quick" canal companies.

There was thus a gain to the traders as regards both an increase in facilities and a reduction in the cost at which those facilities could be obtained, as compared with previous conditions. The principle in question necessarily involved discrimination between trades; but it became one of the objects of the Legislature to prevent discrimination between individual traders in the same line of business as carried on in the same town or centre.

The general position has been further influenced by the existence of an ever-active sea competition, which is said to affect probably three-fifths of the railway stations in the United Kingdom. The rates for traffic between Newcastle and London, or any other two ports, will necessarily be influenced, if not controlled, by the possibility of the commodities going by a coasting vessel if the railway company {348}should try to get more than, in these particular circumstances, such traffic will bear. The amount of the railway rate in such a case as this will, in fact, be determined far more by the element of sea competition than by any question as to either presumptive cost of service or actual mileage.

It may well happen that between two other points, in regard to which there is no sea competition, the rates are higher than between two where there is sea competition, although the distance is the same. Here we have the elements of one of those "anomalies" which have often been urged as a reason for equal mileage rates. The inequality in the rates is, however, directly due to the inequality in the conditions. It is not a case of making the no-sea-competition places pay a rate in itself unreasonable; it is simply a case of charging the sea-competition places no more than they would be likely to pay. There may be an apparent inconsistency; but an increase in the rates where the sea competition exists would not necessarily be of advantage to the trader in the district where there is no such competition, though it might lead to the traffic going by sea, and involve the railway company in a loss of revenue which would not improve their position in giving the best possible terms to the inland trader. Nor could any claim by the latter to be put on the same footing as the trader on the coast, who has the alternative of sea-transport open to him, necessarily be made good. Discrimination of places, in addition to the discrimination of trades, there certainly may be; but it is a discrimination due essentially to geography and economic laws.

Other apparent anomalies arise from the fact that where two or more railway companies have lines running to the same destination, the rates charged by each and all of them are, by arrangement between the companies concerned, generally governed by the shortest distance. Here, again, the idea of equal mileage rates is found impracticable. If the rates charged by each of the companies were arbitrarily fixed at so much per ton per mile, the line with the shortest route would naturally get all the traffic. When all charge the same between the same points all of them benefit, and the traders have the advantage of several routes instead of only one; though there is still the "anomaly" that the trader whose consignment is carried twenty miles, and the trader whose {349}goods are conveyed thirty miles or more to the same destination both pay the same rate.

How the general principle of a sliding scale, under which the charge per ton per mile decreases with distance over twenty miles, works out in practice may be shown by taking the case of merchandise in Class 5, the rate for which would be 4.30d. per ton per mile for a distance of up to twenty miles. For the next thirty miles the rate would be 3.70d. per ton per mile, for the next fifty miles 3.25d., and for the remainder of the distance 2.50d. If, however, the consignment travels over the lines of two or more companies on a through rate, the application of the scale begins over again in respect to the territory of each company concerned. The greatest degree of relative advantage is thus gained by the trader whose consignments travel throughout on the lines of one and the same company.

In any case, however, the effect of the principle is that traders in, say, Cornwall or Scotland are enabled to compete far more effectively on the London market with other traders who are located much nearer to London and thus pay less for rail transport, yet, it may be, do not have the same advantages in respect to economical production as the trader at the greater distance. The "tapering" railway rate--in addition to giving the companies a greater volume of long-distance traffic, and bringing greater prosperity to the long-distance places--thus helps to establish equality in the general conditions in regard to a particular market, whereas the equal mileage rate would keep the distant trader to markets within a circumscribed area, and shut him out from others at which he might otherwise hope to get a far better sale.

In the United States the effect of this "tapering" rate, when applied to large volumes of traffic carried for distances of 1000 or 2000 miles or even more, is to give a very low average rate per ton per mile, and especially so when such average is worked out for the whole of the goods and mineral traffic in the country. The United States average is, in fact, for these reasons, much lower than the corresponding average for this country, where both the average haul and the average weight per consignment are considerably less. Then, also, as the charges for terminals remain the same, whatever the length of haul, they make a material difference in the rate per ton per mile for a haul of five, ten or twenty miles while {350}assuming infinitesimal proportions per ton per mile when spread over a haul of a thousand miles.

There is thus no real basis for the comparison formerly so often made between average cost of transport per ton per mile in the United States and the United Kingdom respectively. The only fair method of comparison is to discard averages altogether, and contrast charges for actual consignments of equal weight carried equal distances in the two countries; and comparisons made on this basis will be found to favour the British lines rather than the American.

In some instances group rates are in operation for a series of producing centres or for a series of ports, the rates being common to all the places or ports included in the group. This arrangement is of advantage to the general body of the traders concerned, since it puts them all on a footing of equality, without reference to differences in distance; and it is, also, of benefit to the railway companies since it simplifies the clerical work and helps further to avoid unremunerative competition.

Another important feature in connection with railway rates is the distinction between "class" rates, which represent the authorised maxima given in the railway companies' scales for the various classes already mentioned, and "special" or "exceptional" rates, in which the companies concerned have made reductions below their maximum powers, whether for the encouragement of traffic or because of such reductions being warranted by the volume or other conditions of the traffic already carried. In "The Fixing of Rates and Fares," by H. Marriott (1910), it is stated that "probably about seventy per cent of the traffic between stations in the North of England is conveyed at 'exceptional rates,' much below the statutory authority."

In my book on "Railways and their Rates" I have already given, as follows, the general principles on which these special or exceptional rates are fixed:--

(a) Volume and regularity of traffic between the points concerned.

(b) Weight per truck or by train which can be maintained by such regular traffic.

(c) General earning power of the traffic.

(d) Liability or non-liability to damage.

{351}(e) Competition, direct or indirect, by water, by road or by other means.

(f) Special requirements of shipping traffic to or from ports.

(g) The creation of traffic by enabling new or increased business to be done.

(h) A general consideration of what the traffic will bear.

The following examples illustrate the actual difference between the class rates and the special rates at which the traffic is actually carried:--

CLASS RATE. SPECIAL RATE.
MILES. COMMODITY. per ton. per ton.
s. d. s. d.
17 Soap 8 9 (a) 7 11 (a)
107 " 21 9 (a) 17 6 (a)
154 " 28 2 (a) 22 9 (a)
46 Undressed leather 17 6 (a) 15 0 (a)
179 Cotton and linen goods 45 7 (a) 40 0 (a)
54 Common window glass 21 9 (a) 15 10 (a)
207 " " " 43 4 (a) 30 5 (a)
20 Iron in Class C 5 3 (b)(c) 3 8 (b)(d)
51 Grain 9 5 (b)(c) 7 6 (b)(d)
150 Common bricks 11 0 (b)(d) 10 5 (b)(d)

Notes: (a) Collection and delivery.
(b) Station to station.
(c) 2-ton lots.
(d) 4-ton lots.

Yet another characteristic of English railway rates is their division into "company's risk" rates and "owner's risk" rates, the latter being a lower scale on which consignments are carried provided the trader signs either a general indemnity for the whole of his traffic or a separate owner's risk consignment note on the occasion of each despatch relieving the railway from "all liability for loss, damage, misdelivery, delay or detention, except upon proof that such loss, damage, misdelivery, delay or detention arose from wilful misconduct on the part of the company's servants."

The difficulty of proving such "wilful misconduct" in case of damage or loss has long been a grievance with traders consigning under "owner's risk" rates, and vigorous efforts have been made by them, or on their behalf, from time to time to obtain a modification of these conditions.

The railway point of view in regard to this vexed question was thus expressed by Mr F. Potter, in an address on "The {352}Government in Relation to the Railways of the Country," given to the Great Western Railway (London) Lecture and Debating Society on February 11, 1909:--

"Traders are apt to conveniently overlook the fact that owner's risk rates did not precede the ordinary rates, but that they have depended from the latter, and proposals have actually been made that the order of things should be reversed, and the owner's risk rates made the base rates, the company's risk rates being arrived at by the addition of some percentage. Traders well know the value of the insurance which the difference between the two classes of rates represents to them, and, indeed, base their practice in making use of either rate upon this knowledge. If the trader is prepared to be his own insurer, that is, when there is a sufficiently wide margin between the two rates, he takes the owner's risk rate; but if he considers his goods are too valuable for him to accept the risk himself, he makes the company do so by sending his freight at the ordinary rates."

In the controversies which have arisen on this question of owner's risk frequent reference has been made to the fact that in Germany there is only one kind of rate, and that under it the State railways do, nominally, assume the risk. I have, however, already shown in my pamphlets on "German _versus_ British Railways" and "German Railways and Traders" that unless the consignments forwarded on the German State railways are packed so securely that it is practically impossible for them to come to any harm, they are accepted by the railway officials only after the trader has signed a form of indemnity declaring that the goods are either "unpacked" or "insufficiently packed," thus absolving the State railways of the responsibility they are supposed to accept.

Complaints respecting "preferential rates" have been an especially fertile source of controversy and litigation. The phrase as here used is somewhat misleading. The real ground of complaint is against, not simply "preference," but "_undue_ preference."

If a lower rate is given for a 2-ton or a 5-ton than for a 2-cwt. or a 5-cwt. consignment, the trader in the former case gets a distinct advantage over the trader in the latter case, just in the same way as the wholesale man buys a large quantity of goods at a lower price than that asked for from {353}the purchaser of only a very small quantity. Here, in each instance, we have "preference" strictly in accord with commercial principles.

The question really at issue turns upon the consideration whether there is undue or unfair preference. It is thus dealt with in a proviso to sub-section 2, section 27 of the Railway and Canal Traffic Act of 1888:--

"Provided that no railway company shall make, nor shall the Court, or the Commissioners, sanction any difference in the tolls, rates or charges made for, or any difference in the treatment of home and foreign merchandise, in respect of the same or similar circumstances."

The position is thus controlled by the words "same or similar circumstances." In what is known as the "Southampton case," decided by the Railway and Canal Commission in 1895, the fact that foreign produce was being carried at lower rates by the London and South-Western Railway Company from Southampton to London than were being charged for English produce was not disputed; but it was successfully argued (1) that lower rates might reasonably be granted for train-loads of produce capable of being loaded into the waggons at the docks and carried through, under the best transport conditions, direct to London than for small consignments, picked up at wayside stations, and loaded and carried under far less favourable traffic conditions; (2) that there was no real detriment to local producers, since the towns concerned were importing more than they were sending away; and (3) that in no respect were the circumstances "the same or similar." There was, said Sir Frederick Peel, one of the Commissioners, "no concurrence between the two classes of traffic, and the greater economy of transport in the dock traffic justified the lower rate."

The principle here involved disposes of, probably, most of the complaints which have been made from time to time on the subject of undue preference; but as these complaints were especially rife in 1904, a Departmental Committee, presided over by Lord Jersey, was appointed by the Board of Trade to inquire whether or not the railway companies were according preferential treatment to foreign and colonial farm, dairy and market-garden produce from ports to urban centres as compared with home produce. The Committee declared {354}in their report "that the evidence tendered has failed to show that the railway companies are giving undue preferential treatment to foreign and colonial produce as compared with home produce contrary to the intention and effect of existing legislation." They found that some of the traders who complained had compared rates which did not include terminal services with rates that did; had quite wrongly divided what were, in effect, "through" rates, first subtracting the full charge of the shipping company and then assuming that the remainder could be compared with the rate from the first; or had omitted to take into account differences in regard to bulk of consignments, packing, etc.

In effect, no British railway rate may give a preference to foreign as distinct from British produce so far as quantities, conditions and circumstances are the same. The rates are to be available for like consignments whatever the source of their origin. Where the home producer has been unable to provide the same quantities, under the same conditions and circumstances as the foreigner, he has equally been unable to avail himself of a rate open to all the world. He has had the disadvantage of the retail trader as compared with the wholesale trader. The principle involved is practically the same as that in operation on Continental State railways, where the traders who can provide the biggest loads get the advantage of the most favourable rates. On the Belgian State railways, for instance, there are special rates for 50, for 100 and even for 300-ton consignments which can obviously be taken advantage of by only a limited number of traders. But while the retail man cannot expect to get the same terms as the wholesale man, there is no adequate reason why the wholesale man should be kept to the same level as the retail man, and be refused the lower rates for his consignments to which he is entitled on account of their greater bulk or better loading. The question is certainly complicated by the fact that the wholesale man here in question is generally a foreigner; but the railway companies could not be required to discriminate against him, and to penalise him on account of his nationality. The matters at issue must needs be looked at from the point of view of a business proposition rather than from that of expecting the railway companies to usurp the functions of the State in carrying out a policy of Protection.

{355}Of late years far less has been heard, in the agricultural world, at least, of these allegations of undue preference. The whole position has been changed through the praiseworthy efforts of the Agricultural Organisation Society in spreading among the agricultural community a practical appreciation of the advantages of combination, as adopted by their foreign competitors, included in such advantages being the lower rates which the railways already offer for grouped or other large consignments. The excellent work carried on by the society is calculated to confer, in many different directions, much more benefit on market gardeners, dairy farmers and agriculturists in general than would be gained by them simply from seeking to persuade, or even to force, the railway companies to carry at wholly unremunerative rates the small consignments of non-associated producers, forwarded under the least favourable conditions in respect to economical transport.

As regards the machinery provided by Parliament for dealing with traders' grievances, there is, in the first place, the Railway and Canal Commission, which, taking the place of the earlier Railway Commissioners, was made a permanent body under the Act of 1888. The Court consists of two Commissioners appointed by the Board of Trade, and three _ex-officio_ members, chosen from the judges of the High Court, and nominated by the Lord Chancellor, the Lord President of the Court of Session and the Lord Chancellor of Ireland for England, Scotland and Ireland respectively; though in practice only one of the three takes part in the proceedings in connection with any case brought before the Court. The jurisdiction of the Commissioners includes powers to enforce obligations under special Acts, and to deal with questions of traffic facilities, private sidings, undue preference, through rates, etc.

Whether or not procedure before this body is too costly for other than wealthy litigants to take advantage of is a question which need not be discussed here; but traders have the further advantage of what is known as the Conciliation Clause of the Act of 1888, which provides that "(1) Whenever any person receiving, or sending, or desiring to send goods by any railway is of opinion that the railway company is charging him an unfair or an unreasonable rate of charge, or is in any other respect treating him in an oppressive or {356}unreasonable manner, such person may complain to the Board of Trade. (2) The Board of Trade, if they think that there is reasonable ground for complaint, may thereupon call upon the railway company for an explanation, and endeavour to settle amicably the differences between the complainant and the railway company." A resort to this expedient by aggrieved parties involves the payment of no fees or costs.

The eleventh report by the Board of Trade of their proceedings under the Conciliation Clause shows that during 1908 and 1909 the number of complaints made to them was 280--a total insignificant in comparison with the many millions of separate transactions in which the traders and the railway companies must have been concerned during the two years in question. The 280 complaints are classified as follows: Rates unreasonable or excessive in themselves, 39; undue preference, 65; rates unreasonably increased, 22; classification, 30; delay in transit, 27; owner's risk, 17; rebates, 23, through rates, 15; miscellaneous, 42. Settlement or partial settlement was effected in 91 cases; in 62 the complaints were not proceeded with; in 122 an amicable settlement could not be arrived at; and in five the proceedings had not been completed. "In certain of the cases," the report further states, "in which an amicable settlement was not reached, it seemed clear to the Board of Trade that the complainants had no real ground for complaint."

Boyle and Waghorn are of opinion that in matters more or less personal to the applicant, or of comparatively minor importance, the procedure under this Conciliation Clause has saved much litigation; though when questions of general principles are at issue the Board of Trade, as a rule, prefer to remit the determination of them to the Railway Commission. They further say: "The principal cause of the comparative absence of litigation lies in the fact that a law of railway traffic is being gradually evolved, reasonably considerate of the rights of both parties, and adapted to the actual circumstances of the traffic. In the early days of railways this was very far from being the case." ("The Law Relating to Railway and Canal Traffic.")

Much of the adverse criticism of railway rates and charges which has been indulged in of late years, without even any resort to an inexpensive complaint to the Board of Trade, {357}has been due to comparisons with railway conditions in other countries.

At one time the comparison specially favoured was between English and American railway rates; and this was persisted in until it was conclusively shown that there was, and could be, no basis of comparison between huge consignments, carried long distances, on comparatively inexpensive lines, and small average consignments, carried short distances, on the most costly railway system in the world. The element of "the same or similar circumstances" was obviously lacking.

Comparisons were then made with railway conditions in Continental countries, and various tables of comparative rates were published from time to time, in support of railway nationalisation theories or otherwise. But many of these comparisons have been wholly untrustworthy because, once more, they have not compared traffic carried under the same or similar circumstances. Exceptional rates granted, say, by the Prussian Government in the special interests of their commercial policy, but (1) applying to large consignments sent to a port for shipment, the rates being substantially higher when the commodities do not go further than the port, (2) granted in competition with routes passing through adjoining countries, and (3) being simply haulage rates, which include no additional services whatever, have been compared with English "domestic" rates for smaller quantities of traffic, or, it may be, with "paper" rates for traffic that is practically non-existent, and, therefore, has not called for special rates, while the English rates may also include a variety of supplementary services by the railway company (loading, unloading, collection, delivery, warehousing, etc.), which the Continental trader would either have to perform himself or pay for as extras.

The comparisons may thus be wholly misleading; but, assuming that complete equality of conditions could be assured, or allowed for, and assuming that the Continental rates were then found to be lower than the really corresponding English ones, it would still be necessary to remember that in this country there have been, from the earliest period of railway development, many circumstances and conditions, due to State policy or to other causes, which have tended to swell {358}to abnormal proportions the capital expenditure that the revenue based on rates and charges must needs cover if any reasonable return at all is to be made to the investors. There would, in fact, be no cause for surprise if rates and charges on British railways could be proved to be higher than those in force on the Continent, where the conditions attendant on railway construction and operation have differed so materially from our own. The wonder is, rather, in view of all that I have said as to the past history of our railway system, that British railway rates and charges should, generally speaking, be as low as they are.

{359}CHAPTER XXVI

THE RAILWAY SYSTEM TO-DAY

Whatever the difficulties which have attended the development of British railways, the lines themselves have been spread throughout the three kingdoms to such an extent that there are now very few districts not within easy reach of a railway; while though the different lines are still owned by, altogether, a considerable number of companies, the physical connections between them and the arrangements of the leading companies, not only for through bookings but for through trains, supplemented by the operations of the Railway Clearing House, have brought about as close an approach to a really national network of railways, connecting all the different sections of the country one with another, as could well be expected in view of the lack of co-ordination when the lines were first called into being.

At the end of 1910, according to the Railway Returns issued by the Board of Trade, the "length of line" of the railways in the United Kingdom was 23,387 miles. By itself, however, this figure does not give an adequate idea of the extent of the railway system. This is better realised by taking the figures for track mileage and sidings. A far greater proportion of the railways in England and Wales than in any other country consists of double, treble or other multiple track, so that for one mile in length of line there may be two, three or more miles of separate pairs of rails, increasing the transport facilities in proportion. The percentage of single track to total length of line in various countries is shown by the following figures:--

PER CENTAGE OF
COUNTRY. SINGLE TRACK.
England and Wales 33.0
Scotland 59.0
Ireland 80.2
United Kingdom 44.2
Prussian State railways 57.3
Germany (the entire system) 61.7
France (main line system) 57.0

{360}"Track mileage" in the United Kingdom is shown in the Board of Trade Returns for 1910 as under:--

TRACK. MILES.
First 23,389
Second 13,189
Third 1,517
Fourth 1,192
Fifth 236
Sixth 143
Seventh 70
Eighth 44
Ninth 24
Tenth 14
Eleventh 10
Twelfth 7
Thirteenth 5
Fourteenth 4
Fifteenth 3
Sixteenth--nineteenth 1 each

Corresponding figures for the United States of America, taken from an abstract issued in July, 1911, by the Interstate Commerce Commission, give the following classification of track mileage, excluding yard track and sidings:--

TRACK. MILES.
First 240,831
Second 21,659
Third 2,206
Fourth 1,489

It will be seen from the figures relating to track mileage in the United Kingdom that there is at least one mile of railway in the United Kingdom which really consists of nineteen pairs of rails alongside one another, though counting, in length of line, as only a single mile. In the United States there seems to be no suggestion of any railroad having more than four tracks.

The length of track in the United Kingdom is 39,851 miles. To this must be added a further 14,460 miles, the length of sidings reduced to single track, giving a total, including sidings, of 54,311 miles.

Rolling stock was owned in 1910 by the different railway companies throughout the United Kingdom as follows: Locomotives, 22,840; carriages used for conveyance of passengers only, but including rail motor carriages, 52,725; other vehicles attached to passenger trains, 20,090; waggons of all kinds used for the conveyance of live stock, minerals or general merchandise, 745,369; any other carriages or waggons used on the railway, 21,360; total number of vehicles, excluding locomotives, 839,544. These figures are exclusive of about 600,000 waggons owned by private traders.[54]

{361}The total weight of goods and minerals conveyed in 1910 was 514,428,806 tons, and the total number of passengers carried (exclusive of 752,663 season-ticket holders) was 1,306,728,583. The miles travelled were--by passenger trains, 266,851,217; by goods trains, 154,555,559; by mixed trains, 1,814,762, giving a total of 423,221,538 miles. It is difficult to grasp the real significance of these figures; but, taking the train mileage alone the total distance run by trains in the United Kingdom in 1910 was equal to nearly 17,000 journeys round the world, and to four and a half journeys to the sun.

The total amount of railway capital returned as paid-up at the end of 1910 was £1,318,500,000, of which about £197,000,000, or approximately fifteen per cent, was due to nominal additions on the consolidation, conversion and division of stocks, showing a net investment of £1,120,500,000. The gross receipts of the companies during 1909 were as follows:--

PROPORTION TO
SOURCE. £ TOTAL RECEIPTS.
Passenger traffic 52,758,489 42.57
Goods 61,478,643 49.61
Miscellaneous[55] 9,688,433 7.82
---------- -----
Totals 123,925,565 100.00

The working expenditure in the same period amounted to £76,569,676, a proportion to total receipts of 62 per cent. The net receipts, therefore, were £47,355,889, the proportion of which to paid-up capital was 3.59 per cent.

The average rates of dividend or interest alike on ordinary {362}and on all classes of capital paid in the years from 1900 to 1909, were as follows:--

YEAR. ORDINARY. ALL CLASSES.
1900 3.34 3.45
1901 3.05 3.33
1902 3.32 3.45
1903 3.30 3.44
1904 3.26 3.42
1905 3.29 3.43
1906 3.35 3.46
1907 3.31 3.45
1908 2.99 3.32
1909 3.15 3.39
1910 3.48 3.53

It is pointed out in the Returns, however, that on account of the nominal additions made to the capital of the companies the rates of dividend or interest given in the tables are lower than they would otherwise be. Thus the average rates of dividend or interest for the United Kingdom in 1910 calculated on capital exclusive of nominal additions would show: Ordinary, 4.28 per cent (instead of 3.48 as above), and "all classes" 4.15 (instead of 3.53) per cent.

These averages, nevertheless, allow for a large amount of capital on which the dividend or interest paid is either _nil_ or substantially below the averages stated.

The rates of dividend on ordinary capital in 1910 were as follows:--

ORDINARY.
RATES OF DIVIDEND OR INTEREST. Amount of Per cent of
Capital. Total.
Nil £67,358,262 13.7
Not above 1 per cent 29,427,057 6.0
Above 1 and not above 2 per cent 18,072,847 3.7
" 2 " 3 " 87,676,759 17.8
" 3 " 4 " 109,788,247 22.3
" 4 " 5 " 38,193,955 7.7
" 5 " 6 " 85,503,721 17.4
" 6 " 7 " 54,962,066 11.2
" 7 " 8 " 362,000 0.1
" 8 " 9 " 40,000 0.0
" 9 per cent 694,907 0.1
------------ -----
Total 492,079,821 100.0

{363}The various classes of capital on which the rates of dividend or interest paid in 1910 were either _nil_ or not above three per cent may be shown thus:--

RATES OF DIVIDEND OR INTEREST.
Above Above
1 per cent 2 per cent
DESCRIPTION OF Not above and not above and not above
CAPITAL. Nil. 1 per cent. 2 per cent. 3 per cent.
£ £ £ £
Ordinary 67,358,262 29,427,057 18,072,847 87,676,759
Preferential 16,607,907 631,967 2,296,250 103,019,553
Guaranteed -- -- 101,180 23,318,760
Loans and
Debenture Stock 558,782 676,789 4,666 189,122,426
---------- ---------- ---------- -----------
Totals 84,524,951 30,735,813 20,474,943 403,137,498
-----------------------------------------------------
£538,873,205

There are those who regard railway shareholders as "capitalists," and consider that the keeping of railway dividends at a low level, together with any depreciation in the value of railway stock that may result therefrom, are matters only likely to affect a comparatively few wealthy men, and not, therefore, of material concern to the country so long as the railways give the best possible service at the lowest possible rates. In the United Kingdom, however, the ownership of the railways is distributed among a far greater number of persons than is the case in the United States, where the control and the dividends of a great railway system may alike be in the hands mainly of a few financiers. That by far the larger number of shareholders in British railways have comparatively small holdings was well shown by a table published a few years ago giving the percentage of holdings of £500 or under by shareholders, exclusive of debenture-holders, in thirty-nine leading railways of the United Kingdom. An analysis of this table gives the following results:--

Number of Percentage of Holdings of
Companies. £500 or under.
2 32 to 40 per cent.
10 41 " 50 "
8 51 " 60 "
9 61 " 70 "
7 71 " 80 "
3 81 " 90 "
--
Total 39

{364}It is true that many of the shareholders here in question might have invested in several companies, so that their £500 or less would not represent the full extent of their railway holdings. On the other hand, there is the fact that many of the single investments are those of friendly societies, trade unions, or other organisations representing the interests and dealing with the savings of a large number of members of the artisan class.

In any case, whether the railway shareholder be a capitalist large or small or only an ordinary thrifty middle-class person who has saved a little money which he seeks to put into something both safe and remunerative, the fact remains that since the advent of the railway era he is the person who, though supplying the means by which this huge system of inland communication has been brought into existence, has had the least consideration of all. The trader, the passenger and the railway servant have all been the subject of much legislative effort for the protection or the furtherance of their own interests, whereas the railway shareholder has been too often regarded with an absolute lack of sympathy, and treated as a person who must be severely restrained from becoming unduly wealthy at the expense of these other interests, and should be thankful that he is not deprived of his property altogether.

It has really seemed as though the aim alike of the State and of local governing authorities has been less to ensure to the railway shareholders, who have undertaken a great public work at their own risk and expense, a fair return on their enterprise than to extract from the railway system huge sums in the way of taxation.

What the railway companies have paid in the way of "rates and taxes" since 1894 is shown by the following table, which I compile from the Board of Trade Returns for 1903 and 1910:

INCREASE (+) or
DECREASE (-) as
AMOUNTS PAID FOR compared with
YEAR. RATES AND TAXES. previous year.
£ £
1894 2,816,000 --
1895 3,011,000 (+) 195,000
1896 3,149,000 (+) 138,000
1897 3,249,000 (+) 145,000
1898 3,425,000 (+) 131,000 {365}
1899 3,582,000 (+) 157,000
1900 3,757,000 (+) 175,000
1901 3,980,000 (+) 223,000
1902 4,228,000 (+) 248,000
1903 4,493,000 (+) 265,000
1904 4,736,000 (+) 243,000
1905 4,933,000 (+) 197,000
1906 4,965,000 (+) 32,000
1907 4,863,000 (-) 102,000
1908 4,884,000 (+) 21,000
1909 5,010,000 (+) 126,000
1910 5,102,000 (+) 92,000
Total payments in ----------
17 years 70,228,000

These figures show a continuous increase since 1894, with the exception only of the year 1907, when there was a decrease of £102,000 as compared with 1906, due to the activity of the railway companies in appealing against excessive assessments. The advance in the total paid in 1910 over the total for 1894 was no less than £2,286,000, or 77.9 per cent.

It should be remembered, also, that the figures given relate to sums paid for rates and taxes, and do not include the expenses incurred by the railway companies in respect both to their rates and taxes departments (conducted by highly skilled officers) and to litigation arising on their appeals against assessments they consider unfair. The total expenditure under these two heads has been estimated at over £80,000 per annum.

Since comparisons are frequently made between English and German railway rates, with a view to showing that the former are higher than the latter, it may be of interest to compare, also, the amount paid for taxation by the railways of the United Kingdom with the corresponding payments of the Prussian State railways. The length of line of the two systems is approximately the same; yet while the taxation of the British system comes to £5,000,000 a year, that of the {366}Prussian State railways is only £750,000 a year. Naturally, when a Government owns the railways, it is much more interested in checking excessive taxation of the lines by the local authorities than when the railways are owned by commercial companies; and one of the questions to which proposals in regard to the nationalisation of the British railways gives rise is whether, when the Government owned the railways, they would be willing to continue the payment from the railway revenues of all the taxation which local authorities are now able to exact from the railway companies. Presumably not; and in that case the trader, whether or not he got lower railway rates from the State, would probably have to pay higher local rates in order to make up for the tolls no longer levied, or levied only to a much less extent, on the railway traffic.

The growth in the payments made by individual companies for rates and taxes between 1902 and 1910 may be illustrated by giving the figures for the London and North-Western, the Great Western and the Midland Companies respectively:--

LONDON AND
YEAR. NORTH-WESTERN. GREAT WESTERN. MIDLAND.
£ £ £
1903 520,000 524,000 418,000
1904 572,000 558,000 435,000
1905 599,000 592,000 453,000
1906 603,000 621,000 475,000
1907 603,000 608,000 458,000
1908 610,000 638,000 436,000
1909 631,000 663,000 438,000
1910 638,000 669,000 456,000

In addition to the items coming under the head of "rates and taxes" the railway companies still have to pay to the Government the passenger duty of which I have spoken on page 263, their function here, presumably, being that of honorary tax-gatherers who are required to get the money from the British public in the interests of the national exchequer, and save the Government the cost and the trouble of collection. The passenger duty thus collected by them in 1910 came to £319,404, the total contributions of the railways to the public finances for that year being thus increased to £5,421,715.

{367}The amounts paid in 1910 by some of the leading companies under the two heads in question may be shown thus:--

GOVT.
RATES PASSENGER
COMPANY. AND TAXES. DUTY. TOTAL.
£ £ £
Great Central 149,899 4,156 154,055
Great Eastern 322,894 14,296 337,190
Great Northern 223,254 13,099 236,353
Great Western 669,330 29,640 698,970
Lancashire and Yorkshire 261,734 18,141 279,875
London and North-Western 638,443 50,359 688,802
London and South-Western 268,130 34,356 302,486
London, Brighton and
South Coast 209,491 31,617 241,108
Midland 455,759 16,423 472,182
North-Eastern 467,404 12,982 480,386
South-Eastern and Chatham 278,505 53,015 331,520
Caledonian 150,609 8,905 159,514
North British 129,486 8,721 138,207

The following table shows how the sum total of the payments both for rates and taxes and for Government duty in the years from 1900 to 1910 work out (a) per train mile and (b) per mile of open railway:--

PER TRAIN MILE. PER MILE OF RAILWAY.
Rates and Govt. Rates and Govt.
YEAR. Taxes. Duty. Taxes. Duty.
d. d. £ £
1900 2.24 .21 172 18
1901 2.39 .22 180 19
1902 2.53 .23 190 19
1903 2.73 .23 200 19
1904 2.86 .22 209 18
1905 2.95 .22 216 18
1906 2.87 .21 215 18
1907 2.72 .20 210 18
1908 2.77 .20 210 17
1909 2.86 .20 215 17
1910 2.89 .19 218 16

This question of the taxation of railways is a matter of material concern as regards (1) the direct results thereof on {368}(a) rates and charges and (b) dividends paid--or not paid; and (2) the general policy of the State towards the whole problem of internal communication.

As in the case of cost of land, of expenditure on Parliamentary procedure, of capital outlay on construction, and of any undue increase in cost of operation, the payments in respect to rates, taxes and Government duty can be met by the railway companies only by one or other of two expedients: either by getting the money back through the rates, charges and fares levied on the railway users (an expedient necessarily curtailed both by legislative restriction and by the economic necessity of not charging more than the traffic will bear), or, alternatively, by leaving the railway investors with only an inadequate return--if not, in respect to a large proportion of the capital, with no return at all--on their investments.

The system of assessing railways for the purpose of local rating is one of extreme complexity. It grew out of the earlier system of the taxation of canals, and, had the railway companies fulfilled the original expectation of being simply owners of their lines and not themselves carriers, the principles on which the system was based might have applied equally well to rail as to canal transport. But, while rail transport underwent a complete change, there was no corresponding adaptation of local rating to the new conditions, and the system actually in force is the outcome far less of statutory authority than of custom, as sanctioned by the judges--who have themselves had to assume the role of legislators--while the machinery of railway valuation differs materially in England and Wales, in Scotland, and in Ireland.[56]