If the railway system be purchased by the nation it will be in contemplation as a business proposition to repay the capital expended in the purchase, and this means, therefore, that if this scheme is a practicable one the shareholders and stockholders of the present companies will be able to receive back their capital, although, under existing conditions, this appears absolutely hopeless. It is therefore now proposed to consider upon what terms the railways can be purchased and how the purchase money can be provided.

1. By the Railway Act of 1844 the Government is empowered to purchase every railway company formed after that date. The price fixed is the equivalent of 25 years’ purchase of the average annual divisible profits for three years before such purchase, subject to the proviso that any company whose divisible profits are less than 10 per cent. on its capital is at liberty to have the terms of purchase fixed by arbitration. At the date of this Act most of the Trunk lines, to the extent of about 2,300 miles had already been constructed and are not therefore subject to the provisions of this Act, but as the total length of lines open in 1911 was 23,417 miles, it will be observed that the Act applies to 90 per cent. of the whole railway system.

Notwithstanding this, there are undoubted difficulties in estimating the actual purchase price, having regard to the fact that the majority of the smaller companies, including the modern Tube Railways with their large prospective profits, and probably the whole of the Irish railways, pay less than 10 per cent. and would, therefore, be entitled to arbitration.

There is, however, another precedent, viz., (2) The Indian State Railways, which have been actually purchased by the Government from the private companies by whom they were owned.

The dates and terms of purchase of these railways are included in an official return of railways acquired by the Government. This return was issued by the Board of Trade in 1908, pursuant to an order of the House of Commons.[17] In India the railway undertakings of 16 separate companies were acquired by the State between the years 1868 and 1906. Of these companies six were purchased at a price mutually agreed upon between the Government and the companies, these being small companies, and the purchase moneys varying from £30,000 to £300,000. Three companies were acquired at a purchase price equal to the share capital. The remaining seven companies were purchased for a sum equal to the value of the shares calculated at the mean market price during the three years preceding the date on which notice of purchase was given. In addition to payment of the purchase price the Government assumed the liabilities of the company in respect of debentures and debenture stock. Four of these companies (the larger ones) were, under an option reserved by the contracts, paid by annuities spread over 73 or 74 years. One of these, the East Indian Company, was purchased in 1879 at the price, calculated on the above basis, of £32,750,000, payable by an annuity of £1,473,750 for the term of 73 years from 1880. This amounts exactly to 4¼ per cent. on the purchase money, and will cease to be payable after the year 1953.

In addition to this annuity, interest is paid on the debentures and loans amounting altogether to about £16,500,000, the interest whereon is about £500,000 or a little over 3 per cent.

If the Act of 1844 were now applicable to the whole of the companies in the United Kingdom, and if we assume that by the time when the option to purchase is exercised the net profits of £48,000,000 in 1911 shall have risen to £50,000,000, the purchase money would be 25 times that sum, viz., £1,250,000,000.

This sum is really slightly more than the total paid-up capital of the railways after allowing for “watered” stock.

The following were the figures in 1911:—

There is included in this total, stock to the nominal value of £198,000,000, or approximately 15 per cent., which represents nominal additions made on consolidations and divisions of stock, and commonly known as “watered” stock.

It will be noticed that the present net revenue of £48,000,000 only represents an average of about 3½ per cent. on this total paid-up capital. The total paid-up capital in the returns recently published for 1912 is £1,334,963,518.

The Railway Nationalisation Society has prepared heads of a Bill in Parliament, providing that the price to be paid for the whole of the railways shall be calculated on the basis of the Act of 1844. No doubt this would be opposed by holders of railway stocks and shares, having regard to the fact that the result might be in effect to merely return the capital, no account being taken of profits. If the purchase of the railways is to be considered as “a business proposition” it will be necessary to look fairly at both sides of the question, and endeavour if possible to arrange terms which will not prove an injustice to the present owners, and at the same time will be such as can be provided for out of the ordinary revenue of the railways without financial loss to the nation.

It must be remembered that shareholders or their predecessors invested their money with the reasonable and proper expectation of having an adequate return for it. No doubt they put down their capital with the primary, possibly the sole, object of benefiting themselves, but the fact remains that their capital has been the means of providing the splendid net-work of British Railways now available for the nation to purchase.

On the other hand, railway stock and shareholders must recognise that their position under the present system is by no means an enviable one. Many of them have for years been in receipt of no dividend whatever. In no case has there been any attempt at repayment of capital moneys, nor does there seem any prospect of it. The average net annual receipts now earned by the whole of the companies is only a fraction over 3½ per cent., and this percentage (which is less than before the year 1870) has for the last few years been practically stationary. The working expenses have been increasing to such an extent by reason of the increase of wages and price of materials that last year the companies decided on an all-round increase in fares and rates. According to the latest returns this has already been to a large extent counteracted by a decrease in traffic.

If, therefore, an offer were made by the Government to purchase the whole of the railways upon similar terms to those on which the East Indian Railway was acquired, namely for a sum equal to the mean market price of the shares during the three years preceding the year in which the Act to acquire the railways is introduced, it is submitted that there could be no effective opposition to the proposal. In effect this would mean a purchase at a price which is the value the public to-day put upon each line of railway. The only practical difficulty of this proposal will be to ascertain the market value of the shares of some of the smaller companies, many of which are held by the larger companies.

In order, however, to avoid under-estimating the amount required, I suggest for the purposes of my argument that the Government and the companies mutually agree on a total sum of £1,350,000,000 as the purchase price of all the undertakings of the companies, subject to the existing liabilities for loans and debenture stock, now amounting to £357,500,000, which would be assumed by the Government. This would make a total in round figures of £1,700,000,000, or nearly £400,000,000 more than the total of the ordinary preference and guaranteed stock. Surely this would be an outside figure. Indeed, it might be suggested that the nation would be paying an excessive amount.

Mr. E. A. Pratt gives various estimates of what the purchase price would probably be.[18] These vary from £1,052,000,000 up to £1,769,847,000, an estimate of “The Railway News,” confirmed by the “Financier and Bullionist,” of September 7th, 1912. “The Financial News” in 1912 suggested £1,941,865,000 in 2½ per cent. Stock in order to yield the present annual income of £48,546,000.

Taking the precedent of the East Indian Railway as a mode of payment and without making any allowance for better terms of interest which the Imperial Government might well obtain, it will be seen that the annual amount required to provide a purchase money of £1,350,000,000 and meet the above liabilities would be as follows:—

Annuities at the rate of:—

According to the estimates set out in Chapter V. (if no further increase of traffic is secured than is required for producing the present revenue), there would be available toward this annual sum required for purchase the following:—

This annual amount could be provided by the following further increase in passenger and goods traffic respectively, viz.:—

In these estimates no account has been taken of the increased revenue of the Post Office, nor the increase in Local passengers and slow goods traffic respectively, which is sure to be realised, and the receipts for which would probably cover any increase in working expenditure. It will be noticed that if the above increase should be obtained the total estimated increase of passengers over the present totals would be as follows:—

It is, of course, not essential to the success of the scheme that the whole of the increase here estimated should be obtained in the first year after nationalisation has been carried out, although it is considered that even in that short period, according to all precedents, so small a percentage of profits may fairly be anticipated. It would probably be necessary for the Government to raise a temporary loan for initiating the scheme, but in any case it appears essential that the purchase of the whole of the existing undertakings of the United Kingdom should be completed as at one and the same date.

Other advocates of railway nationalisation suggest that the purchase should be carried out gradually, and this course has been followed by other nations. It is, however, of the very essence of the scheme here proposed that every part of the country shall have the benefit of the uniform fares and rates, and this would be impracticable unless the whole system be taken over by the Government at one time.

The proposal that the price should be fixed by taking the mean price of stocks for the three years preceding the year in which the Act should be passed, is in order to avoid the market changes which might be caused by anticipation of purchase by the State. It is suggested that whatever price is taken as the basis of the purchase money, such price should include everything, so that the whole undertaking would be taken over without the necessity for any valuation of stock and plant, a prolific cause of so much trouble and expense, as in the case of the purchase of the National Telephone Company.

It may be said that the figures of the railway systems are so vast that it would be impracticable to cope with them in one transaction. Enormous as the figures must necessarily be, the principle is exactly the same as in other financial transactions. Just as the Government acquired the undertaking of the National Telephone Company by purchase, which took effect on one day, so can this much larger transaction, or series of transactions, be carried out. It is assumed that the existing shares and stocks of railway companies would be converted into Government Stock, all necessary apportionments being made up to a date to be named in the Act of Parliament authorising the acquisition of the railways. Upon such date the completion of the whole transaction will be deemed to be effected.

[17] This was on the initiation of Mr. Chiozza Money, M.P.