THE HOUSE OF COMMONS IS RESPONSIBLE FOR THE FINANCIAL FAILURE OF THE
STATE TELEGRAPHS
Sir S. Northcote, Chancellor of the Exchequer in Mr.
Disraeli's Ministry of 1874 to 1880, is disillusioned. The
State telegraphs become self-supporting in 1879-80. The House
of Commons, under the leadership of Dr. Cameron, M. P. for
Glasgow, overrides the Ministry and cuts the tariff almost in
two. In 1890-91 the State telegraphs would again have become
self-supporting, had not the House of Commons, under pressure
from the civil service unions, increased wages and salaries.
The necessity of making money is the only effective incentive
to sound management.
The consideration of the reasons for the financial failure of the
State telegraphs may begin with the discussion of the effect of the
building of unremunerative extensions. In 1873 the Treasury Department
forced the Post Office Department to abandon the doctrine that every
place with a money order issuing post office was of right entitled
to a telegraph office. The treasury in that year adopted the policy
of demanding a guarantee from private individuals whenever it did
not care to assume the risk of a telegraph office failing to be
self-supporting.[73] The new policy, of course, applied only to places
not yet provided with telegraphic service, for the withdrawal of an
established service would have led "to an immense amount of public
inconvenience and agitation that the Government would have been unable
to resist."[74]
[Sidenote: _Sir S. Northcote's Disillusionment_]
In speaking of the policy of requiring guarantees in order to check the
pressure brought by the House of Commons for additional telegraphic
services, the Chancellor of the Exchequer, Sir Stafford Northcote,
in 1875, said: "The Government cannot give the answer that private
companies could, and I am sure did, give. This is a point worthy of
consideration, not so much in regard to the telegraph service itself,
in which we are now fairly embarked, and of which we must make the
best we can, as in reference to suggestions of acquisitions of other
forms of property, and the conduct of other kinds of business, in which
I hope the House will never be led to embark without very carefully
weighing the results of this remarkable experiment."[75]
The guarantee in question, which had to be given by private
individuals, covered: the annual working expenses; interest on the
capital investment; sinking fund payments which should repay in seven
years the capital invested; and a margin for certain contingencies.[76]
In August, 1891, was abolished the provision requiring a guarantee of
the repayment of the capital in seven years.[77] At the same time, the
local governments were authorized to give the guarantee that continued
to be required.[78] In 1897, upon the occasion of Her late Majesty's
Diamond Jubilee, the Treasury authorized the Post Office to assume
one-half of the burden of non-paying telegraphic services; and since
May 1, 1906, the Post Office assumes two-thirds of that burden.[79]
The guarantees demanded after 1873 proved an effective check upon
log-rolling. For example, in 1876, Catrine, in Ayrshire, with a
population of 2,000, still was without telegraph service, while
Tarbolton, in Ayrshire, population 500, had acquired such service
previous to 1873.[80] In the period from 1874 to 1878 the number of
postal telegraph offices increased only from 3,756 to 3,761.
Before leaving this subject, it is necessary to warn the reader
against misleading tables published in several official documents,
and purporting to show that non-paying offices rapidly became
self-supporting.[81]
Those tables are constructed on the basis of including in the cost
of telegraph offices only the allowance to the local postmaster for
telegraph work, and the cost of maintaining the instruments in the
office, and of excluding the cost of maintaining the wire, the cost
of additional force required at the central station in London and at
the district centres because of the large number of outlying branches,
as well as the interest on the capital invested. Those omissions led
the Treasury Committee of 1875 to say: "We fear the full cost of
working these numerous and unremunerative offices is not realized
[appreciated]." In 1888, Mr. C. H. B. Patey, Third Secretary to the
Post Office, was asked by a Select Committee of Parliament: "Where
you have established telegraph offices at money order offices under
guarantee from individuals interested, do you find that eventually
these offices pay?" He replied: "No; in exceedingly few instances do
they pay. The guarantee has continued, and after seven years we have
got a fresh guarantee in order to continue the office."[82] Mr. Patey's
testimony is corroborated by the continued, and successful, agitation
of the House of Commons for the reduction of the guarantee demanded by
the Treasury.
The second reason for the financial failure of the State telegraphs is,
that while the precipitate reductions made in the rates charged to the
public led to a great increase in the number of messages transmitted,
that very increase of business was accompanied by such augmented
operating expenses, that some years elapsed before the reduced average
margin of profit per message carried sufficed to pay the interest on
the immoderate capitalization of the State telegraphs. The increase in
the operating expenses was in part inevitable; in part it was due to
the waste inherent in all business operations conducted by executive
officers who hold office, either at the pleasure of legislative bodies
elected by manhood suffrage, or at the pleasure of large bodies of
voters.
In 1876, Mr. C. H. B. Patey, Principal Clerk in the Post Office
Department, stated that the average of the operating expenses per
telegraphic message transmitted was 16 cents to 18 cents.[83] At
that time, with a traffic of 21,000,000 messages a year, and average
receipts per message of 28 cents, the net revenue of the telegraphs was
$1,060,000, while the interest on the bonds outstanding was $1,475,000.
In 1879-80, with a traffic of 24,500,000 messages, average receipts
per message of 26 cents, the telegraphs yielded a net revenue of
$1,667,000, while the interest on the bonds outstanding was $1,632,000.
And in 1880-81, with a traffic of 27,300,000 messages, the net revenue
rose to $2,257,000, while the interest on the bonds outstanding
remained at $1,632,000. A large part of that improvement was due to a
diminution in the waste with which the telegraphs had been conducted
in 1874 to 1878. The nature and the extent of that waste are indicated
in the fact that the number of clerks, telegraphists, and subordinate
engineers was reduced from 6,783 in 1876, to 6,220 in 1880,[84] at the
same time that the number of telegraph offices was increased from 3,741
to 3,929, and the number of messages was increased from 21,000,000 to
24,500,000.
[Sidenote: _The Telegraphs become self-supporting_]
In 1880-81, the telegraphs earned 3.25 per cent. on $69,455,000,[85]
which was $16,180,000 in excess of the total capital invested in them.
Under conditions which shall be described on a subsequent page, the
Government, "very much at the instance of the House of Commons,"[86]
raised wages and salaries, so that, in the period from 1880-81 to
1884-85, the expenses on account of salaries and wages increased
$1,100,325, while the gross receipts increased only $752,635. In
1884-85, the net revenue sufficed to pay the interest at 3.25 per cent.
on $45,710,000 only.
In the meantime, on March 29, 1883, the House of Commons had carried
against the Government of the day, the resolution of Dr. Cameron,
Member of Parliament from Glasgow: "That the time has arrived when the
minimum charge for Inland Postal Telegrams should be reduced to 12
cents."[87] Dr. Cameron said: "He brought forward the motion--and he
did so last year[88]--because he was absolutely opposed to the taxation
of telegrams [_i. e._, to raising more revenue from the telegraphs
than was requisite to paying the interest on the bonds outstanding];
and he believed that taxation could be levied in no other manner that
would be so prejudicial to the commerce, intercourse, and convenience
of the country. At the present moment there was practically no taxation
of telegrams, or, at all events, the principle of the taxation of
telegrams had not been affirmed. The surplus revenue [above the
interest on the debt outstanding] earned up to the present time had
been so small that it was impossible by sacrificing it to confer any
substantial advantage upon the public. But the telegraph revenue was
increasing; and it appeared to him that they had now arrived at a
point where a remission of taxation must be made in the shape of extra
facilities [_i. e._, reduced charges] for the public, or the vicious
principle of the taxation of telegrams for the purpose of revenue must
be affirmed. They had, it might be contended, not yet exactly arrived
at that point, but they were remarkably near it; and his object in
bringing forward the motion from year to year had been to afford the
Government no excuse for allowing the point to be passed, but to bring
up the subject every year; and the moment it was admitted that a change
could be made without loss to the taxpayers he should ask the House to
indicate its opinions that the change might be made.... He maintained
that the principle of taxing telegrams was most erroneous. It was one
of the worst taxes on knowledge[89]--a tax on economy, on time, and
on the production of wealth. Instead of maintaining a price which was
prohibitory not only to the working classes but also to the middle
classes, they ought to take every means to encourage telegraphy. They
ought to educate the rising generation to it; and he would suggest to
the Government that the composing of telegrams would form a useful part
of the education in our board schools."
The Chancellor of the Exchequer, Mr. Childers, "hoped the House
would not agree to the motion" even if it were ready to accept Dr.
Cameron's estimate that the immediate reduction in the net revenue
would not exceed $850,000. "He had heard with surprise in the course
of the debate some of the statements which had been made in regard to
the unimportance of large items of expenditure [and of revenue]; and he
was all the more surprised when he remembered the great anxiety which
had been expressed during the present session in regard to the Public
Expenditure, and the care which ought to be taken over it."[90]
Dr. Cameron, in the course of his speech in 1882, quoted a statement
recently made by Mr. Fawcett, Postmaster General, to the effect that
there was an average of 80,000 telegrams a day for 5,600 offices, or
14 telegrams per office. The representative from Glasgow added: "The
state of things which they now had, therefore amounted to this--that
from each telegraph office was sent a number of messages which afforded
a little over half an hour's work per day for the operator. It would,
therefore, at once be seen that there was ample room for increased
business, without any increase of expenditure."[91] The foregoing
argument overlooked the fact that the wires between the large cities
were being worked to something like their full capacity; and that the
low average of 14 messages per office was due solely to the existence
of hundreds of offices in small places that had very little traffic.
And shortly after the House of Commons had passed Dr. Cameron's
resolution, in 1883, against the protest of the Government, the
Treasury authorized the Post Office to spend $2,500,000 in putting up
15,000 miles of additional wires, and in otherwise preparing for the
great increase in business that would arise between the larger towns in
consequence of the reduction of the tariff.[92] And by July 5, 1885,
three months before the date set for putting into force the reduced
rate, the Post Office had engaged 1,202 additional telegraphists
and learners,[93] to assist in doing the business which Dr. Cameron
in 1882, had said could be done "without any great increase of
expenditure."
[Sidenote: _Tariff is cut almost in two_]
On March 30, 1885, Mr. Shaw-Lefevre, Postmaster General, brought in a
bill to give effect to Dr. Cameron's resolution of March 29, 1883.[94]
The measure provided for a rate of 12 cents for not exceeding 12
words, address to be counted, and one cent for each additional word.
The Postmaster General began by reminding the House of Commons that
Dr. Cameron's resolution had been carried against the Government, and
by a considerable majority. That the Post Office has spent $2,500,000
in preparing for the increase of business anticipated from the 12
cent tariff. That the loss of net revenue was estimated at $900,000
for the first year; and that it would take four years to recover
that loss. That since Dr. Cameron's resolution had been passed, the
financial position of the telegraph department had grown "decidedly
worse," the net revenue having fallen from $2,200,000 to $1,275,000,
the latter sum yielding barely 2.5 per cent. on the capital invested
in the telegraphs, $55,000,000. Mr. Shaw-Lefevre said the decrease in
the net revenue had been due "to the very considerable additions to
the salaries of the telegraphists and other officers made two or three
years ago very much at the instance of honorable Members of the House,
and which Mr. Fawcett [the then Postmaster General] considered to be
absolutely necessary," and also to increased cost of maintenance[95]
arising from the necessity of replacing worn-out plant. The Postmaster
General also drew attention to the fact that a new and dangerous factor
had appeared: the competition of the telephone.[96]
The Bill became law; and the 12 cent tariff went into effect on
October 1, 1885, the close of the first half of the fiscal year
1885-86. The number of messages jumped from 33,000,000 to 50,000,000,
while the net revenue dropped from $1,370,000 to $440,000. In the next
three years, 1887-88 to 1889-90, the number of messages increased to
62,400,000, and the net revenue rose to $1,451,000, or within $431,000
of the interest on the capital invested, $62,748,000. In the following
year, 1890-91, the messages continued to increase at the rate at which
they had increased in the three preceding years, and the net revenue
would once more have sufficed to pay the interest on the capital
invested, had the operating expenses not been swollen by increases in
wages and salaries granted under pressure brought by the telegraph
employees upon the House of Commons. The raising of salaries and wages
continued through the subsequent years; and in the thirteen years
1893-94 to 1905-06, the State telegraphs have earned the operating
expenses in five years only.[97]
In 1888, the _Select Committee on Revenue Departments Estimates_
reported as follows: "Your Committee are of the opinion that the
reasons urged against treating the Post Office as a commercial business
are not applicable in anything like the same degree to the Telegraph
Department; and that the increasing annual deficit in the accounts of
the latter cannot be viewed otherwise than with grave concern. Looking
to the increasing costliness of the service as a whole, and to the
constant pressure upon it of demands for increased and unprofitable
expenditure, your committee deem it their duty to call attention to
the fact that the Department of the Postmaster General, in all its
branches, is a vast Government business, which is most likely to
continue to be conducted satisfactorily, if it should also continue
to be conducted with a view to profit [beyond the payment of interest
on the debt outstanding], as one of the revenue yielding departments
of the State. Excessive expenditure appears to your committee to be
sooner or later inevitable in a great Government business which is not
administered with a view to an ultimate profit to the State."
=========+============+============++=========+============+===========
Year | Number of |Net Revenue,|| Year | Number of |Net Revenue
| Messages | $ || | Messages | $
---------+------------+------------++---------+------------+-----------
1884-85 | 33,278,000 | 1,371,000 || 1894-95 | 71,589,000 | -50,000
1885-86 | 39,146,000 | 839,000 || 1895-96 | 78,840,000 | 646,000
1886-87 | 50,244,000 | 442,000 || 1896-97 | 79,423,000 | 678,000
1887-88 | 53,403,000 | 614,000 || 1899-00 | 90,415,000 | 326,000
1888-89 | 57,765,000 | 1,061,000 || 1901-02 | 90,432,000 | -848,000
1889-90 | 62,403,000 | 1,451,000 || 1902-03 | 92,471,000 | -548,000
1890-91 | 66,409,000 | 1,259,000 || 1903-04 | 89,997,000 | -1,530,000
1891-92 | 69,685,000 | 922,000 || 1904-05 | 88,969,000 | -917,000
1892-93 | 69,908,000 | 94,000 || 1905-06 | 89,478,000 | -63,500
=========+============+============++=========+============+===========
The minus sign denotes an excess of operating expenses over receipts.
Had the House of Commons permitted the successive Governments of the
day to act upon the doctrine contained in the foregoing quotation, the
State telegraphs would have been self-supporting ever since the year
1880-81. They would have paid the full interest upon the whole capital
invested in them; in spite of the high prices paid to the telegraph
companies and the railway companies for the sale of those companies'
plants and rights.
FOOTNOTES:
[73] _Report from the Select Committee on Revenue Estimates_, 1888; q.
2,396, Mr. C. H. B. Patey, Third Secretary to the Post Office.
[74] _Report from the Select Committee on Revenue Estimates_, 1888; q.
950, Sir S. A. Blackwood, Secretary to the Post Office.
[75] _Hansard's Parliamentary Debates_, April 15, 1875, p. 1,025.
[76] _Hansard's Parliamentary Debates_, August 4, 1887, p. 1,126, the
Marquis of Salisbury, Prime Minister.
[77] _Hansard's Parliamentary Debates_, August 31, 1893, p. 1,580, Mr.
A. Morley, Postmaster General.
[78] _Hansard's Parliamentary Debates_, May 27, 1892, p. 134, Sir James
Fergusson, Postmaster General.
[79] _Hansard's Parliamentary Debates_, August 9, 1901, p. 289, Mr.
Austen Chamberlain, Postmaster General; and May 9, 1906, p. 1,294, Mr.
Sydney Buxton, Postmaster General.
[80] _Report from the Select Committee on Post Office_ (_Telegraph
Department_), 1876, Mr. C. H. B. Patey, Principal Clerk in the Post
Office; q. 3,705 and following, and 2,021.
[81] _Report of a Committee appointed by the Treasury to investigate
the Causes of the Increased Cost of the Telegraph Service since
the Acquisition of the Telegraphs by the State_, 1875, p. 8; and
_Parliamentary Paper_, No. 34, Session of 1876, p. 6.
NON-PAYING TELEGRAPH OFFICES
========+========+===========+========+=======+=======
| |The rest of| | |
| London | England |Scotland|Ireland| Total
| | and Wales | | |
--------+--------+-----------+--------+-------+-------
1872 | 10 | 417 | 40 | 261 | 728
1874 | 7 | 303 | 28 | 111 | 440
1875 | 0 | 150 | 6 | 72 | 228
========+========+===========+========+=======+=======
[82] _Report from the Select Committee on Revenue Departments
Estimates_, 1888; q. 2,621.
[83] _Report from the Select Committee on Post Office_ (_Telegraph
Department_), 1876; q. 2,712, 2,713 and 3,734.
Average operating expenses per telegram: Cents
At office where handed in 2
For receipt at transmitting office 3
For forwarding from transmitting office 3
For receipt at delivery office 3
For delivery to addressee 2
Stationery forms used 1
Rent of offices, way-leaves, and maintenance of wires and
instruments 2 to 4
--------
16 to 18
[84] _Miscellaneous Statistics of the United Kingdom_, current issues.
[85] The net revenue
Messages paid 3.25 per cent.
interest on:
$
1875-76 20,974,000 32,600,000
1877-78 22,172,000 30,165,000
1878-79 22,490,000 41,190,000
1879-80 24,500,000 51,310,000
1880-81 27,300,000 69,455,000
1884-85 33,300,000 45,710,000
[86] _Hansard's Parliamentary Debates_, March 30, 1885, p. 1,072 and
following, Mr. Shaw-Lefevre, Postmaster General, 1883-84.
[87] _Hansard's Parliamentary Debates_, March 29, 1883, p. 995 and
following.
[88] _Hansard's Parliamentary Debates_, June 26, 1882, p. 422, Dr.
Cameron moves the resolution: "That the working of the Postal Telegraph
Service, with a view to the realization of profit, involves a Tax
upon the use of Telegrams; that any such Tax is inexpedient, and that
the profits derived from the service is now such that the charges for
Inland Telegrams should be reduced."
[89] Ever since the nationalization of the telegraphs the newspaper
press messages had been carried at special rates which did not cover
operating expenses.
[90] _Hansard's Parliamentary Debates_, March 29, 1883, p. 1,018 and
following.
[91] _Hansard's Parliamentary Debates_, June 26, 1882, p. 427.
[92] _Treasury Minute_, June 14, 1883, _with Regard to Reduction of the
Minimum charge for Post Office Telegrams_; and _Hansard's Parliamentary
Debates_, April 24, 1884, p. 499, the Chancellor of the Exchequer; and
April 24, p. 569, and August 7, p. 138, Mr. Fawcett, Postmaster General.
[93] _Hansard's Parliamentary Debates_, July 5, 1885, p. 1,825, Lord
John Manners, Postmaster General.
[94] _Hansard's Parliamentary Debates_, March 30, 1885, p. 1,072 and
following.
[95] The increase in salaries and wages in 1880-81 to 1884-85 was
$1,100,000, and the increase in the cost of maintenance was $538,000.
[96] Compare also _Hansard's Parliamentary Debates_, June 6, 1887, p.
1,180, Mr. Shaw-Lefevre.
[97] See table on page 111.