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.