Chapter XL: Appendix: I

[See p. 238.]

_Memorandum by Sir Rowland Hill on the Net Revenue
of the Post Office._

Much difference of opinion has arisen as to the amount of net revenue or profit of the Post Office department, _i.e._, the excess of receipt above expenditure; some estimating it at upwards of £1,500,000 per annum, others affirming that it is really less than £400,000.

This difference of opinion appears to arise from different views being entertained on the two following points:--

1. As to whether certain items should be included in the receipt.

2. As to whether certain other items should be included in the expenditure.

I may premise, that the subject of net revenue has to be viewed in two aspects. First, as to its absolute amount, and, secondly, as to its comparative amount when contrasted with the net revenue obtained before the establishment of Penny Postage. I propose, therefore, to consider the question from both points of view.

First.--As to the absolute amount of net revenue.

_Under the head of receipt_, the items regarding which there is a difference of opinion are:--

(_a._) The postage of the Government correspondence.

(_b._) The proceeds of the impressed stamps on newspapers.

(_a._) The postage of the Government correspondence is included in the ordinary amount of gross receipt, but it is contended by some that it ought to be excluded.

The amount of Government postage is, on the average,
about £150,000 per annum.[257]
Of which that of the Post Office itself
is about 40,000 "
--------
Leaving for the other Departments abou £110,000 "

The postage of the Post Office itself cannot affect the Net Revenue, seeing that it is included in the expenditure as well as in the gross receipt. It may, therefore, be left out of consideration.

As regards the correspondence of the other Government departments, if it were right to deduct the postage of it from the revenue of the Post Office, it is obvious that it would also be right to deduct the cost of its conveyance and delivery from the expenditure of the Post Office. The net revenue would therefore be reduced, not by the full sum of £110,000 above mentioned, but by that amount less the cost of conveyance and delivery; in other words, by the profit the Post Office obtains on the official correspondence. It is to be borne in mind, however, that official postage is, in nearly all cases, charged by weighing the letters not individually, but in the gross; a mode of procedure which, if applied to private correspondence, would reduce the rate of charge for such correspondence by about one-half; and although, owing to the greater average weight of official letters, the reduction of charge is not so great as one-half, it may be doubted whether the remaining charge be sufficient to leave any profit to the Post Office, so that, whether the amount received and the cost incurred for the conveyance and delivery of official correspondence be, or be not, included in the calculation, the net revenue of the Post Office could be but very slightly affected. It may be added that the postage charged against the various Government departments is actually paid into the coffers of the Post Office, and is not merely a statistical record.

(_b._) The proceeds of the impressed stamp on newspapers is an item regarding which the claim of the Post Office to include it in the receipts is sufficiently established by reference to the fact that, though this part of the revenue is collected by another department, the sole purpose for which the stamp is now resorted to is to obtain for the newspaper the advantage of postal transmission. At the same time, it may be added, that the proceeds in question, amounting for the year 1861, to £134,571,[258] are by no means a remuneration for the service performed. Divided by the number of such newspapers conveyed (viz., about 41 millions),[259] this amount gives only four-fifths of a penny per paper; so that, as newspapers weigh on the average 2-1/2 ozs. each,[260] the rate of charge for a newspaper is less than one-seventh of that for a letter of the same weight.

An argument in favour of the sufficiency, and even more than sufficiency, of the postage on newspapers to defray their postal expense, has been drawn from the fact that the railway companies actually convey them at a lower rate. But two important circumstances have to be borne in mind, 1st, that railway companies, instead of delivering the newspapers individually, merely hand them in bulk to the newspaper agents; and 2ndly, that the companies make little or no provision for conveyance to villages and hamlets, thus performing only the least expensive portion of the service, and leaving the more costly work to the Post Office.

After what has been said, it must be obvious, that even when newspapers are prepaid with a postage stamp (the charge being thereby raised to a penny for each transmission[261]), the payment is too low to be remunerative. Moreover, the privilege accorded to news papers indirectly forces another loss on the department, since the difficulty of discriminating between newspapers and other printed matter has, in fact, compelled a reduction of the book postage to the same rate. So that, whereas formerly no book-parcel was carried for less than sixpence, the charge on light book-parcels is now as low as a penny. Instead, therefore, of any part of the receipts from newspapers being withheld from the Post Office, as it is alleged ought to be done, an equitable adjustment would have the effect of placing to the credit of the department something additional for the unprofitable service thus thrown upon it.

_Under the head of expenditure_, the only material item regarding which a difference of view prevails, is the expense of the packet service, which expense, it is maintained by some, should be charged to the Post Office.

The claim that the Post Office should be charged with the _whole_ expense must be considered as barred by the simple fact, that few of the mail-packets were established either by the Post Office, or for merely postal purposes, their expense being far beyond what such requirements could justify. "To assume that those packets were really established for Post Office purposes is to charge the Government with the most absurd extravagance. The West India packets, for instance, were established at a cost of £240,000 per annum, though the utmost return that was expected from letters was £40,000, leaving the £200,000 a clear deficit.

"Nor is this comparative uselessness for Post Office purposes confined to the packets to remote places; the great cost, even of the home packets, results from causes independent of the Post Office."[262]

Indeed, as was stated in the House of Lords by Lord Monteagle, who, when Chancellor of the Exchequer, arranged the first contracts for the mail steamers, "the expense of the packet service, which was said to swallow up the whole of the revenue now derived from the Post Office, had no more to do with the Penny Postage than the expense of the war in Afghanistan or China. It was as distinct from the Post Office as the expense of the army or navy. The great packet communication between Great Britain and the British North American Colonies was undertaken upon much higher principles than any connected with mere consideration of revenue. It was felt by the Government of Lord Melbourne that it was not wise to allow the only rapid mode of communication between the British possessions in North America and the mother country to be dependent upon the means afforded by the United States. Means were accordingly taken to establish a line of communication of our own. He admitted that this was not done, except at a very heavy expense; but it was not right to place that expense to the account of the Post Office."[263]

Still, it is obvious that, as these packets do postal work, some portion of their expense ought to be charged to the Post Office, and the question of _amount_ is what has really to be determined.

Upon this question it is necessary to explain that, upon a suggestion from the Treasury, viz., that the amount should be "measured in each case by the amount of ocean postage received,"[264] the following is the rule observed:--

Whenever the amount of ocean postage is below the cost of the line of packets by which the service is performed, the Post Office debits itself, for packet service, with a charge just equal to the ocean postage received. In the only two lines of packets (viz., those between England and France, and England and Belgium), in which the ocean postage exceeds the cost, the department debits itself with the whole expense of the packet service.

Whatever may be thought of this arrangement, it will scarcely be maintained that it is too favourable to the Post Office, which, save in respect of the two packet services just mentioned (which now jointly yield a surplus of about £56,000 per annum), is debited with an amount equal to its whole receipts (viz., £470,000), without even any allowance for the expense it incurs in that portion of the packet administration which is necessarily carried on within the department.

The Eighth Annual Report of the Postmaster-General[265] contains an estimate of the net revenue of the Post Office for the year 1861, prepared on the principles laid down in the foregoing remarks, but including some less important adjustments shown in the document itself.

The net revenue thus determined is £1,161,985, the whole, save the £56,000 mentioned above, and about £30,000 derived from money-order transactions, being the produce of inland postage, which thus yields a net revenue of about £1,076,000.

Second. I now proceed to consider the question of net revenue as to its _comparative_ amount, when contrasted with the net revenue obtained before the establishment of Penny Postage, the object being to ascertain the loss consequent on the reduction of the rate. When proposing Penny Postage, I estimated this loss (under different circumstances, however,) at about £300,000.[266]

The amount of net revenue in the year 1838, the last year throughout which the old rates were maintained, was, according to the mode of account then in use, £1,659,510.[267] For the purpose of comparison, it is obvious that a similar mode of account must be applied to the present state of things.

Bearing this in mind, we have now once more to consider the two points affecting receipt, viz., the postage of the Government correspondence, and the proceeds of the impressed stamps on newspapers, and the one point affecting expenditure, viz., the expense of the packet service.

_As regards the Government correspondence._

It is alleged that, under the old system, this was carried free. Now the fact is, that under that system the departments of probably the largest correspondence, viz., the Customs, the Excise, and the Stamps and Taxes, paid the postage of all their letters, while some other departments, though less strictly dealt with, paid at least for their foreign correspondence. The aggregate of such payments amounted, on the average, to about £45,000 per annum.[268]

Now, seeing that, since the adoption of Penny Postage, the non-official correspondence has increased nearly eight-fold, it may well be doubted whether, had the old system continued, the official correspondence would not have so increased as to raise the expenditure from £45,000 per annum to at least equality with the £110,000, the present average.[269]

_As regards Newspapers._

As, under the old system, the proceeds of the impressed stamp did not enter into the accounts of the Post Office, so, for the purpose of comparison, they must be excluded now; the only question, therefore, is, whether the Post Office should now be credited with the revenue derived from the adhesive stamp as applied to newspapers. This claim has been contested on the ground that, as under the old system newspapers were carried free, so the same service should be reckoned as performed now on the same terms; and it has been naturally supposed that the effect of recent changes has been to reduce the number of newspapers transmitted under the impressed stamp, the decrease being counterbalanced by the use of the adhesive stamp for which, therefore, in the comparison, no claim should be made.

Now, the fact is that, notwithstanding the option now given, the number of newspapers freed by the impressed stamp at the present time is not only as great as the number so conveyed in 1838, but is even somewhat larger; whilst a considerable increase has also taken place in the weight and bulk of the individual papers; so that the amount of gratuitous service, instead of being diminished, has been largely increased, and consequently, the sum derived from the adhesive stamp is, to say the least, a mere payment for additional duty.

Again, it is a mistake to suppose that, under the old system, the conveyance of newspapers was altogether free. In fact, there were numerous and important exceptions, since the impressed stamp, to which all newspapers were then subjected, freed the paper only when transmitted from one post-town to another; moreover, in nearly every town there were extensive districts beyond the free-delivery, in which not only letters, but newspapers, were subjected to an additional charge. From this charge both are now relieved. Again, in addition to the towns that were then post-towns, there are at present more than 10,000 places having sub-offices. Before the introduction of Penny Postage, a newspaper transmitted by post between a post-town and, with few exceptions, any of the 10,000 places which have now sub-offices, was subjected to a charge of at least one penny; and when transmitted between any two of the above 10,000 places, with but few exceptions, to a charge of at least twopence.

At present a newspaper, even without the impressed stamp, if posted at any one of the 11,400 places at which head or sub-offices are now established, provided only that it does not exceed 4 ozs. in weight, is delivered at any other for a single penny.

No doubt, the number of newspapers directly charged with postage is larger now than under the old system; but as the charge is far from being remunerative, this is anything but a gain to the department.

_As regards the expense of the Packet Service._

For the year 1838, the last year, as has been said, throughout which the old rates were maintained, the Post Office accounts, excepting a trifling amount of arrears, contain no charge for packet service, that service having been transferred from the Post Office to the Admiralty, partly in 1823, and the remainder in 1837,[270] so that, for the purpose of comparison, such charge must of course be excluded from the present account.

In the Postmaster-General's Report for 1861 is a table (p. 31) prepared with a view to a comparison such as that now under consideration. It is proper to state, however, that a certain change of circumstances has led to a corresponding change in the mode of presenting the account. Formerly, when the year's disbursements were almost identical with its liabilities, their unmodified appearance in the account was sufficient for practical purposes; but, of late years, when, owing to unavoidable irregularities in the large payments made to railway companies, the disbursements and liabilities have often been largely at variance, the latter have been presented in the account in preference to the former, as obviously affording better means for determining the net revenue of the year.

The amount arrived at by this mode of proceeding is £1,525,311, or £134,199 less than the net revenue of 1838.

It may, perhaps, be objected to the above comparison, that the revenue derived from the packets is greater now than heretofore, and that equity requires a corresponding adjustment of the account. There can be no doubt that the revenue in question has considerably increased, although such increase is not wholly attributable to the improvements in the packet service. If, however, the adjustment thus called for should be made, equity would require corresponding adjustments on other points. Thus, allowance would have to be made, 1st, for a considerable amount of net revenue formerly accruing from various colonial post offices, as, for instance, those of British North America and the West Indies, which have recently been made independent. 2nd, for the great increase in the expense of conveying the mails, which increase, contrary to all that might have been expected, has arisen from the establishment and extension of the railway system. And, 3rd, for the additional expenditure caused by a general increase of salary and by a reduction of individual labour, both made to remedy admitted evils under the old system. It would, indeed, be very difficult, if not wholly impracticable, now to ascertain the result of all these adjustments; but it may safely be maintained that it would leave the account at least as favourable to the Post Office as at present.

ROWLAND HILL.

December 18, 1862.