SUBSIDENCE

5th May 1961, Page 109

5th May 1961

Page 109

Page 109, 5th May 1961 — SUBSIDENCE

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Keywords : Subsidies, Public Finance, Subsidy, Taxation, Public Economics, Political Economy, Economic Policy, Subsidies In India, Business / Finance

COMMENTARY by JANUS

MOST industries that receive subsidies do not seem to show much diffidence about taking the money and are not worried about the method of distribution. They argue vigorously if they think the amount too small, and there will be discussions within an industry about which section should have the largest share. Torturing moral doubts about the right to a subsidy, or about the duty that should be given to the community in exchange, either do not arise or are smothered at the outset.

Subsidies in transport are still something of a novelty and are certainly not taken for granted. This may be why, from the point of view of the outsider, transport operators seem unduly sensitive on the subject. There is no brazen disposition to demand payment and the arguments that operators stress—which may be good arguments for all that—favour indirect methods of making the gift. So far as one can make out, the ideal procedure for the recipient would be to find the money one morning on the doorstep, as if it had been left there by the fairies.

It is something of a linguistic triumph for the Jack Committee to have reached the conclusion that rural bus services should be paid a subsidy without, so far as I can discover, once using the word. "Financial assistance,is the boldest euphemism the committee will permit themselves. Incidentally, the signatories of the minority reports do not feel similarly inhibited. For various reasons, Mr. W. T. James and Mr. H. R. Nicholas both object to the proposal of a subsidy and do not hesitate to put the point in so many words.

PASSENGER vehicle operators have reinforced the minority opinion. There are sound reasons for not liking the proposals that the committee put forward. In addition one cannot help detecting the sentiment that free and enterprising businesses, accustomed so long to standing on their own two feet, dislike any scheme that gives them the appearance of becoming state pensioners or hangers-on of the welfare state. They would prefer something less humiliating, such as a remission of taxation, which is after all a subsidy in another form but does not carry the same stigma, much less the same name.

Independent operators are not alone in this. A similar spirit seems to animate the British Transport Commission. Their comments have now been published on the report on British Railways that the Select Committee on Nationalized Industries presented to the House of Commons last summer. The Commission examine in detail the proposal that the decision to continue providing an "unprofitable " service should be taken not by them but by the Government, who would also bear the cost.

MANY businesses would be only too pleased to have such a proposal made on their behalf. The Commission express no gratitude—perhaps none was expected—and stress the technical difficulties of implementation. These are seen to fall into two main categories: identification of the service to be subsidized and assessment of the amount of money lost by continuing the service. It might be possible to define unrcmunerative branch lines, say the Commission, but the committee's proposals could cover cross-country services, some passenger services on main lines, commuter services, Sunday services and general merchandise and

parcels services in particular areas. Where through-traffic makes use of a particular service, the loss if the service were discontinued might not be confined to the local section. Contributory or feeder values have to be considered.

The problem would be even greater when it came to fixing the cost. At the very beginning the loss on a service would have to be estimated •so that the Government could make up their mind whether the service justified the amount of the subsidy that would be required. More complicated still, in the opinion of the Commission, would be the subsequent task of working out how much had been lost, and carrying on the financial negotiations through the Ministry of Transport and the Treasury.

ONE is left guessing at the Commission's honest opinion

on a subsidy. They give recognition to the "inherent merits of the committee's proposal, but leave ambiguous the question whether it is the subsidy of which they approve or merely the method of payment that the committee put forward. The impression is that, as they have often maintained in the past, the Commission do not want a subsidy if it can be avoided. They would prefer to be rid of any services that do not pay and to make a bid for solvency with the streamlined remnant.

This could well fit in with the views of the Minister expressed in the same White Paper as the observations by the Commission. He repeats the Government's opinion that the practical test for the railways, as for other transport, is how far users are prepared to pay economic prices for the services provided. Payment of subsidies on the grounds of the national interest or of social needs might be said to apply to other nationalized undertakings and is, therefore, being considered in that general context. For the time being, the Minister went on, railway losses, from whatever cause, are being covered in practice by the large contributions from public funds proposed in the Government's earlier White Paper.

THE Minister might have added that the welfare of other transport interests ought also to be considered before any decision were taken on subsidies. Evidently, as the Jack Committee make clear, something must be done to keep

certain rural bus services running. Cross-subsidization may be successful in some cases but not in all. Whatever method is finally adopted for the payment of a subsidy, direct or disguised, it must not confer benefits too easily and every opportunity should be given to operators to provide the necessary services from within their own resources.

On the goods side, hauliers should support the Minister in his intention to bring the railways down to the size , at which they can balance their books. The misgivings that the Commission feel about a subsidy are as nothing to the state of mind of the haulier. By tradition he is supposed to be able to pick and choose his traffic and to skirn the cream. This does not work out in practice. He has to please his customers and there may be other reasons for sending some vehicles on uneconomic journeys. He cannot be easy with a competitor who is able, or who is entitled to attempt, to make up from national funds for a proportion of all the traffic which he may be obliged to carry at a loss.

SUBSIDENCE

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