Chapter XIII: Section XII

THE CONSTRUCTION OF RAILWAYS IN ENGLAND AND ON THE CONTINENT.

Sometimes it is asserted, although it is more often taken for granted, that all railway rates on the Continent are more favourable to traders than English rates. Upon this assumption is based the contention that the reduction of the latter may fairly be demanded. Whenever such statements have been carefully examined--_e.g._ in the inquiry before the Joint Committee of 1872--they have been proved to be erroneous. Nevertheless, they are still constantly repeated. More than once it has been publicly stated that in Germany, Holland, Belgium, &c., “rates are fixed on a scientific basis, and an intelligible principle,” while in this country they are “haphazard and estimates.” Seldom is there any attempt to make good such assertions and criticisms. The report made by Sir Bernhard Samuelson to the President of the Association of the Chambers of Commerce of the United Kingdom on the “Railway Goods Tariffs of Germany, Belgium, and Holland, compared with those of this country” is an exception, and on that account is specially important. That report endeavours to prove by figures that rates in this country are excessive. It has been cited--though, probably, such was not the intention of the author--as if it were an indictment of English railways; and the purport of it is to show that English rates ought to be reduced, and that, unlike the rates on the Continent they are fixed on no proper basis. Now, even if the difference between English and Continental rates were as great as Sir B. Samuelson describes, no inference unfavourable to English railways could be fairly drawn. No comparison could be useful which did not take into account the fact that railways in Great Britain have been constructed with private capital subscribed and expended on the faith of definite powers conferred on the companies by Parliament. Sir Bernhard Samuelson, however, passes lightly over the dissimilarities which mar his comparison; the widely different circumstances under which foreign lines were constructed; their much smaller original cost per mile, and the fact that most of the lines to which he refers were either constructed or assisted by the State, have been purchased by it, or have received State guarantees. The English railway companies obtained simply authority from Parliament to purchase compulsorily the land required, and to construct the necessary works.[47] On the other hand, the railways in the countries to which his report relates were, to a great extent, either originally constructed by the State, or the companies have been assisted by contributions towards the cost of construction, or a minimum rate of interest upon the capital provided and expended by them has been guaranteed to them, or the lines have been afterwards acquired by the State.

[47] There are some cases in Ireland in which Baronial Guarantees in respect of portions of the capital of railways have been given.

It is remarkable that Sir Bernhard Samuelson’s report gives no information as to the railways of France, though the nearest of the Continental countries, and though many of her products compete with ours. To correct this deficiency, it may be desirable to mention a few facts. The French Government constructed the first railways opened in that country or made advances for that purpose without charging interest; and they have since made or purchased other lines. In aid of the original lines for which concessions for 99 years were granted, the State in France contributed a vast amount, as appears by the following statement:--

Amount contributed by the State as shewn at December
31st, 1882 £66,639,549
Divers contributions also given by towns to
the extent of 1,753,992
The Companies have themselves provided 340,421,032
------------
£408,814,573

Upon the State railways (that is, for lines now
worked by the Government) they have
expended to December, 1882 33,851,598
In addition to which divers subscriptions were
given by towns to the extent of 1,305,334
------------
£443,971,505

Out of which the State (as shown above) provided £100,491,147
============
The total amount was thus found in the following proportions:--
A.--By the State on lines
worked by the Companies 15 per cent.
On lines worked by the State 7·6 per cent.
----
22·6
Contributions made by towns, &c. 0·7 per cent.
B.--Capital provided by the Companies 76·7 per cent.

The total capital expended on French railways up to the end of 1884 had increased to £532,960,000,[48] of which sum the State had provided £148,680,000, or 27·9 per cent.; in addition to which the subscriptions given by towns amounted to ·8 per cent. Thus, up to December 31st, 1884, the capital provided by the companies themselves was not more than 71·3 per cent. of the whole. The French Government have also guaranteed the dividend on four of the great lines at rates varying from 7 to 12 per cent. Two other great companies may pay 11 and 13·5 per cent. dividend respectively before they can be called upon to construct any new lines; while all the six companies may earn dividends varying from 10 to 22 per cent. before they are bound to divide any surplus with the Government.

[48] This capital relates to the principal lines only.

A portion of the capital of each company is paid off annually beyond the guarantee; and at the end of the period of concession the railways will become the property of the State. The advances made to the companies under the guarantees by the Government, with interest at the rate of 4 per cent., are to be repaid out of any surplus beyond the maximum dividends which may be paid. If at the end of 99 years, any of the companies still be in debt, the Government are to be entitled to take without payment as much of the rolling stock as may be required to repay the debt, as far as the value of the stock may do so. By the conventions of 1883, the Government arranged with the companies to which they had given guarantees, that when a request to that effect is made by the State, new lines are to be constructed up to the amount of their debts at the end of 1883. In some cases this duty is incumbent only when the dividends paid by the companies reach or exceed the maximum percentage already mentioned. In addition to the large sum expended by the French Government on, or towards the original construction of railways, the total amount advanced to the companies to make up the guaranteed

dividends[49] amounted to December, 1883, to £23,592,000
and for the year 1884 to 2,250,000
-----------
£25,842,000
The interest on these advances amounted
to December, 1883, to 5,904,000
and for the year 1884 to 36,000
-----------
£31,782,000
===========

[49] The Report of the French railway Commission of Inquiry appointed in 1880 states: “Our railway companies have been largely subventioned for the construction of their lines, almost all receive annual subsidies, without which they could not meet the charges of their working expenses; all enjoy a monopoly which shelters them from internal competition; we have the right to demand from them, to force upon them, reforms that public and parliamentary opinion deem indispensable.” And again--“ * * * * In certain countries, England for example, where the system of liberty and commercial competition is largely in vogue, it is right that the railway companies, who have received nothing and from whom nothing is demanded by the State, and who may be considered only as belonging to the category of private merchants and manufacturers, should have greater freedom in dealing with their traffic and tariffs than is enjoyed in this country (France).”

But it is added: “It is not the same with Continental European nations. The Governments of Belgium, Holland, Bavaria, the Grand Duchy of Baden, Austria, Italy, Hungary, Russia, Sweden, and Norway are wholly or in part proprietors of the railway system.”--_Appendix 31 to Report from the Select Committee on Railways (Rates and Fares) 1882, Vol. II., pages 453-4._

In France the State has not pursued in regard to railways a policy strictly commercial. It has made great sacrifices to provide railways, in the hope of securing to the country indirect ulterior gains. For the sake of their development it has incurred great expenses which excite in some minds grave anxiety.[50]

In Germany most of the railways are now the property of the State.[51] In 1884, the various Governments owned 19,610 miles, and they worked another 496 miles for the companies, leaving only 2,505 miles out of a total of 22,611 to be worked by the railway companies. Of the railways which are the property of the State, about two-fifths were constructed, and the remainder were purchased by it. Of the total capital outlay of £485,831,766 on German railways, £437,728,471 has been expended by the State in constructing or purchasing them, and £48,103,295 has been provided by the companies themselves. The return upon the capital outlay of the State railways has been--[52]

1880-1 4·87 per cent.
1881-2 5·01 ”
1882-3 5·22 ”
1883-4 4·86 ”
1884-5 5·06 ”

This shows an average for the five years of about 5 per cent. per annum.

[50] “La dépense tout à fait stérile des 500 millions pour racheter des lignes ferrées improductives, les exagerations du projet Freycinet lors de sa naissance et les extravagances de développements posterieurs qu’on lui a donnés, des sommes énormes dépensées en des canals de transport, qui, pour beaucoup du moins, font double emploi et jouissent d’aucun trafic, toute cette mauvaise direction a absorbé les resources de l’État en sacrifices inutiles et ne lui a pas laissé le loisir de supprimer l’impôt sur la grande vitesse, les timbres sur les récepissés des chemins de fer, et d’obtenir, par un juste retour, des réductions de tarifs qui n’auraient été accompagnées d’aucune augmentation d’impôt.”--M. LEROY-BEAULIEU in _L’Économiste Francais, February 27th, 1886_.

[51] It is generally assumed that the railways in Germany were purchased with the view of more effectually utilising them, and the rolling stock for military purposes. The Government in this country are under no necessity to undertake the liability of acquiring the railways and guaranteeing the dividends for such a reason; the number of lines of railway and routes are so ample, and the number of engines, carriages, and wagons so great, that any movement required for the defence of the country can be carried out within any reasonable time, while under the Regulation of the Forces Act, 1871, Her Majesty, by Order in Council, may empower any person or persons, named in such warrant, to take possession of any railroad and of the plant belonging thereto, and to use the same for Her Majesty’s Service at such times and in such manner as the Secretary of State may direct; and the directors, officers, and servants of any such railroad, shall obey the directions of the Secretary of State.

[52] See note, page 118.

In Belgium, out of a total mileage at the end of 1884 of 2,711 miles, the State owned 1,930, or more than 71 per cent. of the railways. The outlay upon this mileage was as under:--

(_a_). Cost of railways actually purchased £36,668,915
(_b_). Amounts payable by annuities 12,442,804
(_c_). Capital expended on lines worked by State 3,900,653
-----------
£53,012,372

The interest paid by the Belgian Government on the above capital outlay was--

(_a_). 4 per cent.
(_b_). 4, 4½ and 5 per cent.
(_c_). 4¾ per cent.

The gross receipts on the State railways for the year
1884 amounted to--Coaching £1,620,565
Goods 3,088,108
Sundries 98,971
----------
4,807,644
and the expenses to 2,871,268
----------
leaving net receipts £1,936,376

Upon a capital outlay of £53,012,372, these figures give an average dividend of nearly 3¾ per cent. It would, therefore, appear that the working of the State railways results in a loss to the Government, which the public have to make up by increased taxation.[53]

[53] In the Report of May 3, 1882, made by Sir H. Barron to the then Minister for Foreign Affairs (Earl Granville) (part 4 of the “Reports by Her Majesty’s Secretaries of Embassy and Legation on Manufactures, Commerce, &c.,”) on the subject of the Belgian Budget, the former stated that “The 5 years from 1876 each closed with a deficit rising in 1881 to 6¼ million francs (£250,000), the main explanation being the ever-increasing burden thrown on the Treasury by the extension of the railway, which undertaking has ceased to cover its charges and completely disturbed the financial equilibrium of the State. The first lines constructed and worked by the State, being great trunk lines, gave every year an increasing return which enriched the Treasury. To these were first added conceded lines, which had to be purchased from companies at high prices; then secondary lines, whose traffic was unremunerative. After many previous experiments, the accounts of the railway have been since 1878 drawn up on a new and presumedly more accurate principle. The Treasury is now considered as the bankers of the railway; it is assumed that all funds advanced by the former are chargeable with an interest of 4 per cent., and repayable within ninety years. According to this new method of book-keeping, it appears that the railway contributed largely to the revenue until 1872 inclusively, but that since that year it has, on the contrary, entailed an annual loss. Thus, the deficit of 1881 is for the greater part (4,861,725 fr.) due to the insufficiency of the railway revenue. Fortunately Belgium has a resource at hand.”

“The Minister of Finance in the debate on the Budget of Public Works, points to that resource in the following pregnant words: It is proved that the railway fails to cover its charges by about five millions (£200,000). We are informed that this year the deficiency may be seven millions; in 1883, possibly even ten millions. What will it be in 1884? No one knows, but the progression is ascending. Must we follow it without counting the cost? Must we raise the tariffs or throw on the Treasury the burden caused by the insufficiency of the railway receipts? _Either the railway must be worked on a principle which shall allow it to cover its charges or the taxpayers must make up the difference._”

He further added that in his report of 1876 he recommended “_a raising of the tariff_.” Sir H. Barron goes on to state “_that the inferior productiveness of the Belgian Railway was due to the inadequate tariff, which, for passengers and merchandise, was much lower than those prevailing in the rest of Europe_.” He further remarks, however, that “notwithstanding all this _it has been held_ that the experiment is a great success, and bears evidence in favour of State ownership, because, as the railway is worked in the interest of trade, &c., it is considered that the benefit thus indirectly accruing to the public at large, is greater than that which might be realised by aiming at a commercial profit for the direct and immediate benefit of the taxpayers.”

The construction of railways in Belgium has, no doubt, developed the commerce and industry of the country to a remarkable extent. It was stated by Sir Bernhard Samuelson (page 9 of Report) that the receipts of railways had increased from £1,815,000 in 1870 to £4,880,000 in 1883, or 168 per cent.; but he omitted to point out that the length of the railways had increased by more than 250 per cent.

See the observation of M. Leon Say as to the tendency to reduce railway tariffs to an unremunerative point when the State is the owner.--_Le Rachat des Chemins de Fer, Journal des Economistes, 1881, p. 343._

In Holland also, the railways are owned to a large extent by the State, to which belong 797 miles out of a total of 1,617 miles. The State does not, as in Germany or Belgium, work its own lines. It leases them upon certain conditions to companies, viz., to a Company for working the State railways and to the Holland Company. The companies provide the rolling stock and staff, and maintain the line; but they do not execute “works of art” or repairs arising from circumstances over which they have no control, such, for instance, as war, inundations, landslips, &c. Materials for the execution of works have to be conveyed at a very low rate. All rates must be submitted to the Minister of Public Works for his approval; and the mails must be carried free. From the gross receipts are made deductions at the rate of £67 per mile of single, and £134 per mile of double line per annum, which serve as a fund to cover repairs. Eighty per cent. of the remainder is retained by the company. The balance of the receipts belongs to the State. If, however, the company’s percentage, plus the deductions, do not amount to £644 per mile, the gross receipts are so apportioned as to yield that amount. If the net profit of the company exceeds 4½ per cent. upon their capital, the surplus up to 5 per cent. is divided equally between the State and the company; and any further surplus, is distributed in the proportion of four-fifths to the State and one-fifth to the company. The total capital expenditure on the Dutch State Railways to the 30th June, 1885, was:--

On lines worked by the Company for
working the State Railways £15,958,328
” ” Holland Company 3,477,914
-----------
£19,436,242
===========

The amount received in respect of dividend or interest for the year from both working companies was £158,170 or about ·81 per cent on the capital involved.

There is a remarkable difference in the cost of construction of English and Continental lines--a fact of which Sir B. Samuelson takes no adequate account when he says “the average cost of construction has been considerably less in the case of German railways than in that of our own.” Without citing many figures on the point, it may be stated that at the end of 1884 the amount of capital expended in the construction of railways in the United Kingdom was £801,464,367, or £42,486 per mile of line opened; and in England and Wales alone £665,055,879, or £49,854 per mile. If the rates for carriage of goods and passengers were based solely on cost per mile, those in force in the United Kingdom and England and Wales respectively would exceed the rates of other countries to the extent shown in the following table:--

--------------------------------------------------------------
|On the average cost in|On the average cost in
| the United Kingdom. | England and Wales.
----------------+----------------------+----------------------
France | By 45·41 per cent. | 70·62 per cent.
Germany | By 97·73 per cent. | 132·02 per cent.
Belgium (State) | By 54·67 per cent. | 81·13 per cent.
Holland | By 121·42 per cent. | 159·82 per cent.
--------------------------------------------------------------

Not only has the construction of the railways in this country been more costly, but private companies have accomplished a task which has not yet been fulfilled in some Continental countries, even with all the aid of the State, and which, if ever fully carried out, must entail further liabilities upon the Governments of those countries. In England private companies have not only made trunk lines, but, to a degree unknown abroad, they have constructed branch lines, penetrating into sparsely-peopled districts of the country, yielding little traffic, and necessarily involving heavy working expenses and loss of interest. Official figures show that private enterprise has hitherto given one mile of railway to every

6·41 square miles in the United Kingdom,
4·36 ” ” England and Wales,
as compared with
10·42 ” ” France,
9·38 ” ” Germany,[54]
4·2 ” ” Belgium,
7·82 ” ” Holland.

It further appears from official statistics that the capital outlay for every 1,000 inhabitants has been

£22,287 in the United Kingdom.
24,512 ” England and Wales,
13,977 ” France,
10,593 ” Germany,
11,365 ” Belgium,
7,252 ” Holland.

[54] NOTE.--The figures relating to the capital, revenue and working expenses of the German Railways have been taken from the “Statistische Nachrichten von den Eisenbahnen des Vereins Deutscher Eisenbahn-Verwaltungen,” which differ in some respects from those contained in statements obtained after going to press from the Department of the German State Railways; the latter giving the revenue for the working year 1884-5 as £50,735,165, the expenses as £29,057,889, or 57·27 per cent. of the receipts. The balance would yield a return of 4·51 per cent.