Clause 7. — (Claims against and by the Minister in Respect of Exercise of power)

Orders of the Day — Ministry of Ways and Communications Bill. – in the House of Commons on 2nd July 1919.

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(1) Where at the end of the period of possession by the Government of any undertaking the value thereof on a revenue-earning basis has been reduced or enhanced as Compared with the value at the commencement of such period, or where during that period the income thereof has been reduced or enhanced, after taking into account the natural growth of traffic on any railway belonging to a company which had not before possession was taken by the Government paid a dividend of four per centum on its ordinary capital, and in each case capital expenditure by the owners of the undertaking on any works brought into use in the interval, then, if and so far as such reduction or enhancement is due to the exercise by the Minister during that period upon the undertaking in question of the powers under Section three of this Act (including such powers as have been hitherto exercised by the Board of Trade as mentioned in paragraph (1) (a) of that Section) the owners of the undertaking shall, unless such reduction or enhancement is otherwise provided for by the payments mentioned in paragraph (1) (a) of that Section, be entitled to be recouped, or liable to pay, the amount by which that value has been so reduced or enhanced, and if any question arises as to such amount or the liability to pay the same, or otherwise with respect to the financial relations between the Minister and any person affected by the exercise by the Minister of any of his powers under the said Section, the question shall be determined by the Railway and Canal Commission having regard to all the circumstances of the case:

Provided that—

  1. (i) no claim in respect of any loss alleged to be due to any direction issued by the Minister shall be entertained if the direction was issued with the concurrence of the owners of (he undertaking; and
  2. (ii) if, whilst an undertaking of which possession has been taken before the passing of this Act remains in the possession of the Government, the State is authorised by Parliament to acquire the undertaking, nothing in this Sub-section restricting claims for enhancement attributable to the exercise by the Minister of such powers as aforesaid to cases where the value of the undertaking has been enhanced as compared with the value thereof at the commencement of the period of possession shall be held to affect, one way or the other, any question as to the principle on which the price to be paid on such acquisition is to be based.

(2) Without prejudice to any other form of payment or satisfaction, the Treasury, on the recommendation of the Minister, may, as or as part of the consideration for exercising any powers of control under the said Section, guarantee the payment of any dividends on any stock or other securities issued by the owners of an undertaking up to such amount as may be agreed, or the payment of any working expenses of the undertaking and any sums required to fulfil any such guarantee shall be paid out of moneys provided by Parliament.

Photo of Sir William Raeburn Sir William Raeburn , Dunbartonshire

I beg to move, in Sub-section (1), to leave out the word "Government" ["possession by the Government"], and to insert instead thereof the word "Minister."

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

The provision covers the whole period of possession by the Government, and if the word "Minister" is inserted it is of vital importance to the undertaking.

Amendment negatived.

Amendments made: In Sub-section (1) after the word "undertaking" [''of any undertaking the value thereof"], insert the words "or of any part or plant of an undertaking."

Leave out the word "thereof," and insert instead thereof the words "of the undertaking."—[Sir H. Geddes.]

Major BARNES:

I beg to move, in Subsection (1), to leave out the words "income thereof," and to insert instead thereof the words "revenue earned."

I do not know whether there is any distinction between "revenue earned" and "income thereof," but if there is no distinction I think it would make it clearer if the same words were used in all cases.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

I do not think this Amendment really improves the wording. There is no intention of any subtlety in the words "income thereof." This question was carefully considered in Committee, and if it has no further import, I hope the proposal will not be pressed. Furthermore, if it has any bearing upon the next Amendment the Government must resist it.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

This Clause has been very carefully considered, and I am glad the Government will not consent to accept the Amendment. I do not think myself that there is very much difference between "income thereof" and "revenue earned" If the hon. and gallant Member means gross revenue, there is a very great difference. Revenue earned would probably mean the net revenue. I am sure these words would cause considerable litigation and trouble, whereas the meaning of the words now are perfectly clear and understandable.

Major BARNES:

I have no dark designs in introducing these words. If the same thing is meant, I think we ought to use the same words, and I gather that the meaning is the same.

Amendment, by leave, withdrawn.

Major BARNES:

I beg to move, in Sub-section (l), after the word "en- hanced" ["income thereof has been reduced or enhanced"], to insert the words as compared with the revenue earned during a period of equal length immediately preceding the period of possession under this Act. When you come to deal with the question of annual value there does not appear to be any standard of comparison. You have to decide whether the income has been reduced or enhanced, but there is no period to compare the income. There was a standard set up in the 1913 Act, but here there does not appear to be any comparison by which you can compare the income during the period of possession. My Amendment suggests that you should compare the income during the period of possession with the income of equal length immediately preceding the period of possession under this Act.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

The intention was that the revenue basis should be taken on a comparison with the period preceding possession by the Government—that is, the pre-war period—and that seems to me to be the only fair comparison to make. If we were to adopt this Amendment it would mean that we would have to take the revenue for the two years preceding the passing of this Act. Whatever we wish to do in regard to this matter, we wish to be fair to these undertakings, and they are mainly the railways, and it would not be a fair basis to compare their income for the last eighteen months of the War and the next six or eight months with the two years immediately preceding. The comparison must be with the same period as the one for which we made the capital value—that is, the period preceding the taking over of these undertakings by the Government.

Major BARNES:

If my Amendment said "immediately preceding the period of the War," or the period of the passing of the Act of 1871, would that be acceptable?

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

I do not think so, because, owing to the War, the accounts were made up and the basis taken was 1913, and the agreement was to compare on the 1913 basis, and it is on the 1913 net revenue that we undertake to make good, so that the actual words would not apply. If there is any doubt as to whether the period is properly laid down, and I am told that it is, an Amendment can be introduced in another place.

Photo of Mr Marshall Stevens Mr Marshall Stevens , Eccles

I would like to ask whether it would be fair or correct to take the period before the War for undertakings that have not yet been taken possession of, because there are cases in which they are quite different undertakings today compared with what they were before the War. Some of the smaller railways, for instance, have doubled their mileage. I only want to put the matter to the Minister-designate so that he may have the point covered.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

That is a point which no one here can decide. There are innumerable ways in which undertakings conceivably might be affected, and, therefore, it would only be a matter of bargain or arbitration. It would be equally unfair to deal with every undertaking on a pre-war basis.

Major BARNES:

It is quite clear that some words must be introduced into this Clause. Two absolutely different periods are apparently to be taken, and the capital value of the undertaking when taken over will be compared with that at a date in 1919 or 1920. The right hon. Gentleman is apparently going to compare capital value with a reduction of income in time of war. But, as I understand the point will be considered in another place, I ask leave to withdraw my Amendment.

10.0 P.M.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

I think the hon. Gentleman opposite has put an interpretation on the words of the right hon. Gentleman which is not quite correct. The right hon. Gentleman said he would consider whether it was necessary to add certain words, and, if he came to the conclusion that it was, then it would be done in another place. It is absolutely impossible to say what the actual earnings of each individual company may be. Suppose the hon. Gentleman goes to a station and takes a ticket for a journey extending over three lines, a not unusual thing at all. In the old days the sum of money paid for that ticket was sent to the clearing house and apportioned between the three lines. That is not done at the present moment; the money instead goes to the line that issues the ticket. Therefore taking a period of two years from the commencement of the Act it would be quite impossible to find out what the revenue of the particular undertaking was. The whole question of compensation for the railway is based on the year 1913, and if at the end of that period a question arises under this Act whether anything done by the Government has enhanced or depreciated the undertaking it is perfectly clear that it is the intention that the railway company shall obtain nothing except on the basis of 1913. Therefore it is quite unnecessary to put in any words, and those suggested in the Amendment are absolutely impossible. It is always a mistake, where legal questions are involved, to put in words at short notice.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

I think the right hon. Baronet has a little misapprehended what has been said. The Mover of the Amendment withdraws his Amendment, the Government undertaking to see whether the point raised is not clear, and, if it finds it is not clear, it will provide other words in another place.

Amendment, by leave, withdrawn.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

I beg to move, in Subsection (1), to leave out the words the natural growth of traffic on any railway belonging to a company which had not before possession was taken by the Government paid a dividend of four per centum on its ordinary capital, and in each case capital expenditure by the owners of the undertaking on any works brought into use in the interval, then and to insert instead thereof the words, in either case—

  1. (a) any capital expenditure by the owners of the undertaking on any works brought into use in the interval; and
  2. (b) where the undertaking has not before possession was taken by the Government paid a dividend out of revenue of four per cent. on its ordinary capital the natural growth of traffic on the railway."
This is really only a drafting Amendment. In Committee we provided for capital expenditure being allowed for, as well as for the normal growth of traffic, when we were dealing with undertakings which pay less than 4 per cent. on their capital. The Amendments are merely drafting Amendments in order to make the point more clear.

Amendment agreed to.

Photo of Mr Evan Hayward Mr Evan Hayward , Seaham

I beg to move, in Sub-section (1), after the word "Section" ["paragraph (1) (a), of that Section "], to insert the words and is not due to the natural growth of traffic or the natural growth of outgoings. In Committee Amendments were made to allow for natural growth of traffic, and I suggest that side by side with these provision should be made for the natural growth of outgoings. What this Clause provides is that assuming the net revenue of the railways in question, to have been £40,000,000 and when they are handed back it is only £20,000,000 there is a 'reduction of £20,000,000, there will consequently be a loss of £20,000.000 per annum. This Clause provides that depreciation upon that basis is to be paid. The railway company may say, "You must pay us so many years' purchase of this depreciation." I quite agree, I do not think anybody will dispute it, that if there is any reduction in the net revenue which is due to something which the Minister has done under the exercise of his powers and which would not otherwise have been done, then, of course, the Government should pay for the depreciation. But it is very clear that in the normal state of things, even if the Minister never had taken possession, and even if the Government had never taken the railways—the right hon. Gentleman made it quite clear in his speech on the Second Reading—the net revenue of the railways would be diminished. It is a thing one cannot state, but the Minister seemed to make out that the railways were in a very parlous condition and the probability was that, apart from any interference whatever, the revenue was likely to steadily diminish That being so, it seems hardly fair that the State should be called upon to make good that loss which would have happened inevitably and to capitalise that loss and hand it over to the railways. This Amendment provides that where, apart from anything that the Minister has done under the exercise of his powers, there would have been an increase in outgoings —the natural growth of outgoings—that shall be taken into account in assessing the depreciation to be paid under this Clause. It is only fair. It provides that where anything is done by the Minister that would not have otherwise have been done which reduces the revenue, then the Government should have to pay, but that where by the natural growth of outgoings, apart altogether from anything that has been done, there would have been a reduction in revenue, then that must be taken into account in allowing for this depreciation.

Major BARNES:

I beg to second the Amendment. Its object is to extend the advantage which the right hon. Gentleman has conceded to a very small number of undertakings in the Amendment which has just been passed. There is a very small group of undertakings who are to have the benefit of the natural growth of traffic. We desire to extend that privilege to all undertakings. We are quite sure that the right hon. Gentleman will agree with us that everything that happens on the railways will not be due altogether to the exercise of his powers. Some misfortunes will fall upon the railways quite apart from anything he may do, and some benefits will accrue to the railways quite apart from the advantage of having his administration. We are anxious to be perfectly fair both to the railway companies and to the State, and where there are some benefits that would have accrued to them whether he had come along or not, owing to the natural growth of traffic, we do not see why a little group of undertakings should be singled out to receive this benefit. It does not seem fair. There must be the natural growth of traffic on all undertakings. Why the right hon. Gentleman has selected only a small number for this benefit is not very apparent. We are anxious that where the benefit exists, all should get it. Therefore, we move that the natural growth of traffic should be something that should accrue to all undertakings. There is the complement to that. There is the natural growth of outgoings. Increases in salaries will come in any ease by the length of service. As the undertakings grow more profitable, there will be increased rates and taxes. These are the natural outgoings, not due to anything he may do. We suggest that the fair and proper thing is to give the undertakings the benefit of the growth of traffic, and to set against all that the natural growth of outgoings. It seems so eminently reasonable a suggestion that probably it will not be accepted.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

I hope the Government will not accept this Amendment, because the only result of it I can see will be to increase the work of lawyers. Although no doubt in some cases that is a good thing, it is really a thing to be avoided. Let me put briefly what the actual effect of the Amendment will be. The last speaker said he was anxious to preserve to the railway companies any- thing that might accrue to them by the natural growth of traffic. Those are the words of the Amendment.

Major BARNES:

They are the words of the Government which have already been accepted. They are not my words.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

That is where the mistake is. The Clause provides that it the Minister exercises certain powers which result in the enhancement of the value of the undertaking, then the State is to be recouped when the undertakings are thrown back upon the shareholders If the State does anything which results in the depreciation of the undertaking then the railway company are to be paid by the Government for the depreciation. There is nothing about the natural growth of traffic or outgoings. The only effect of introducing these words would be to raise a new issue and offer an opportunity to litigious persons to go to the Courts of law to decide what is or is not natural growth of traffic or outgoings. Who is to define what is the natural growth of traffic or outgoings? It is very easy for the House to put in words of that kind, but when you come to argue the matter in the Law Courts you may have eminent counsel arguing for days and even for weeks upon that point. Therefore I hope the Government will not accept these words, which are superfluous, unnecessary, and will only lead to actions in the law Courts. Although I am extremely obliged to both my hon. and gallant Friends for endeavouring to obtain more money for the shareholders, in these circumstances we would rather do without it. We prefer to leave the Clause in its present simple form, namely, that all depends upon the action of the Minister whether or not the railway companies are to pay him something or whether he is to pay the railway companies something.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

There are two points in this Amendment. One is that the State shall not have a claim for any enhancement of the value, either on capital or income basis, due to the natural growth of traffic. I confess I thought that when the Amendment was proposed it would probably be accepted by the right hon. Baronet (Sir F. Banbury), who speaks for the railway companies and who is chairman of one company himself. But as they feel that it would not be to their interest, I hope the House will not press it upon them. I quite agree with the right hon. Baronet that it would cause a great deal of controversy and litigation. As regards the second point, that the natural growth in the outgoings is not to be taken into account when we consider the depreciation in value on a capital or revenue earning basis, in all these undertakings. I think myself that from the Government point of view I would rather not have the words. It is adopting a second standard which we should have to conform to in trying to arrive at what was the real depreciation due to the action of the Government. That really is the greatest plank that the Government has in meeting the claim of the railways. They have to prove that it was due to the action of the Government, and therefore I should very much prefer not to have the second standard introduced. I want the one standard, that it is to be due to the action of the Government.

Photo of Mr Evan Hayward Mr Evan Hayward , Seaham

Under Clause 3 the powers which the Minister is to exercise cover practically all powers which can be exercised, both executive and administrative, and therefore, cannot it be said that everything that is done will be done by the Minister under those powers, and therefore come under this Clause for depreciation? If the right hon. Gentleman could remove the apprehension I have in my mind about that it would be very helpful.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

I quite understand my hon. and gallant Friend's point, but anything done under those powers would have to be by a specific Order. It would be quite impossible ever to keep track of your prospective liabilities if you were to be responsible for everything that every railway or dock or light railway servant did everywhere in the Kingdom whatever grade he was. So that anything that the Minister orders will be by a specific order given. It will not simply go by default that we shall be responsible for what some unknown person does. I prefer very much to have the one standard—that we can only be charged with depreciation of an undertaking when it is due to the order of the Minister and no other standard.

Amendment negatived.

Further Amendment made: In paragraph (ii.), after the word "which" ["of which possession has been taken "], insert the words or of any part or plant of which."—[Sir E. Geddes.]

Major BARNES:

I beg to move, in Subsection (1, ii.), to leave out the words before the passing of this Act. This and the next Amendment are consequential. When I was at dinner I was told that the railway companies had sent out a whip asking their supporters to support an Amendment of mine. That naturally gave me a great deal of concern. I could only conclude that it was probably this Amendment, and I shall be very interested indeed to see whether I shall get support from that quarter. In this proviso it is laid down that something that is done under this Sub-section is to have no effect one way or the other on the principle on which the price to be paid for any undertaking is to be based if the undertaking should be bought by the State while it is in the possession of the Government. In other words, this, I take it, is for clearing the ground in the very remote case of the State acquiring any of these undertakings. I suppose there are some people who would like to see the State acquire the whole of these, undertakings, and I gather that this proviso has been nut in to protect the Treasury against something or other in this Sub-section affecting the principle upon which the price is then to be based. I do not want anything that is being done under this Sub-section to affect the price, if there should be acquisition later. I think it was the hon. and learned Gentleman who is chairman of the Land Acquisition Committee who said that it is important that there should be nothing, in this Bill that would prejudge the question of nationalisation. My object is to secure that the principle laid down in this Sub-section in regard to compensation should have no effect one way or the other later if it should be decided to buy. The proviso as it stands simply lays it down that one particular provision as to compensation shall not affect the price in the future one way or the other. I want to extend it so that nothing in this Compensation Clause shall have any effect in the future upon the question of price, but that it should leave the situation perfectly clear and free, so that if at some later date the State should come forward and say, "We want to buy," I do not want the State to be in a position to say under this Clause they can do this or do that, because under this Sub-section the principle has been effected. I do not want the railway companies to come forward and say the principle has been effected on which the State can buy. I want them to be free at that time to settle the principles which are right and proper. If the words "before the passing of this Act" are left out, all the undertakings will come in under the same conditions. I cannot see why an undertaking which is taken possession of before the passing of the Act should be treated differently from an undertaking which may be taken over later. My Amendment is that whatever undertakings are taken over nothing we do now shall affect the principle.

Photo of Mr Evan Hayward Mr Evan Hayward , Seaham

I beg to second the Amendment. This provision forms a very valuable asset to the railway companies, and the object of this Amendment is to provide that this asset shall not be an asset which shall be taken into consideration. The Home Secretary now indicates that he will accept the Amendment, and therefore, I will say nothing further about it.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

The hon. Member (Major Barnes) stated that the railway companies had communicated with him, that they desired this Amendment to be supported.

Major BARNES:

What I said was that I had been informed by an hon. Member that the railway companies had issued a whip asking their supporters to support this Amendment.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

As the hon. Member made that statement, will he say who is the hon. Member who informed him? So far as I know, the statement is absolutely unfounded. The hon. Member must not make statements of that sort, which may influence the House for or against the railway companies, unless he is quite certain that that has been done. Apparently the only ground he has for saying that a whip has been issued by the railway companies is that some other Members told him that it has been done.

Major BARNES:

I never said that a whip had been issued. What I said was that I have been informed that it has been issued.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

The hon. Member has no business to make a statement of that sort unless he is quite certain that the statement is correct.

Photo of Mr Frederick Banbury Mr Frederick Banbury , City of London

I will not pursue it, but I am rather surprised that the Govern- have accepted this Amendment. I have not been able to gather what is its precise effect, but it was not part of what was agreed to by the railway companies, and, therefore, I do not think it should be accepted, especially as the Government have given no reason for accepting it.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

The Amendment to this part of the Clause, which it is obvious from reading the Clause, was for protecting the Treasury, is, in the opinion of the Government, an improvement of the Clause. These words cannot, so far as I can see, and as I am advised, make the least possible difference to the railway company.

Amendment agreed to.

Major BARNES:

I beg to move, in Subsection (1. ii.), to leave out the words restricting claims for enhancement attributable to the exercise by the Minister of such powers as aforesaid to cases where the value of the undertaking has been enhanced as compared with the value thereof at this commencement of the period of possession.

Photo of Sir Eric Geddes Sir Eric Geddes , Cambridge

These words were put in after a prolonged consideration and consultation between the Treasury officials and the Parliamentary draughtsmen with the very object of providing specifically for the point which my hon. Friend has in mind, that nothing whatever which is laid down by this Section shall in any way create a value which could be urged in enhancement of the price, which, if eventually this House sanctioned the purchase of any of these undertakings, would be paid. It is an intricate Clause I grant, but to my own knowledge there were two mornings of close study and consultation given to the matter, and it would not be well to make any alteration without full consideration. The object of the Clause is exactly what my hon. Friend desires, and, therefore, I hope that he will accept the Clause as it stands.

Amendment, by leave, withdrawn.

Further Amendment made: In Sub-section (2), after the word "dividend," insert the words '' or interests."—[Sir W. Raeburn.]