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London Transport's Future ?

7th January 1938, Page 10
7th January 1938
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Which of the following most accurately describes the problem?

Costs are Rising More Quickly Than Receipts. Will C Stockhold ers Demand Appointment of Receiver?

By a Special Correspondent

L-ORD ASHFIELD and his six colleagues who form the London Passenger Transport Board must be worried men these days. After four years of monopoly operation, there is but little sign of the many economies which the protagonists of the Board said would result. Although it is true that the year ended June 30 last was the best the Board has had, in so far as 41per cent. was paid on the C stock, what satisfaction can be derived from that fact when the rate that should have been paid is 5i per cent.?

Within or at the end of the next six months, a vital decision will have to be made. Under Section 39 of the London Passenger Transport Act, if the Board does not pay 5.1. per cent. on the C stock for the year ending June 30, 1938 (not having paid it in the two previous years), the holders •of 5 per cent, of the C stock will be able to apply to the High Court for the appointment of a receiver or manager of the Board's B26

undertaking. Thomas Tilling, Ltd., itself holds more than 5 per cent, of the C stock. What will happen ?

[Actually, mere application by a proportion of the C stockholders does not imply the automatic appointment of a receiver or manager. Holders of A, L.A. or B stock also have the right of application and the Board must convene meetings of the holders of the various classes of share to ascertain whether they wish' to support or oppose the application.—En.] Looking, first of all, at the revenue side of the undertaking, the position is far from promising, in spite of the strenuousefforts of the Board to increase travel on all sections. In its report for 1935-6, the Board recorded that the rate of expansion of traffic was slowing down.

Not only has this report since been shown to be true, but the Board's weekly revenue statements indicate that traffic is actually falling off. For the current year, the total revenue from all services is no better than for the corresponding period of last year. No doubt the unfortunate bus strike of May, this year, has had something to do with this position, for a certain amount of the traffic which was then left to its own devices has ,been irretrievably lost.

On the expenses side the outlook is, indeed, a black one. On top of higher raw-material prices, the. Board is having to face increased wages costs, especially on the bus section of the system. Since the Board was established, the total wages bill has been increased by £1,162,000 a year, the rise last year being £.188,000, with a further advance to follow this year.

Lord Ashfield himself, giving evidence at the inquiry into the bus strike, stated that, on the basis of costs • . then obtaining, making no allowances for any -increases, the Board's expenses for the year 1937-8 would show an advance. The additional cost of certain items was already. known to be £273,000 in respect of that year.

Since then, the cost of petrol, materials and wages has risen still further, so it is apparent that the Board's operating expenses for the present year will show a considerable adyaace, on last year's. Here it is:appropriate to quote from a London Transport advertisement: "Whatever happens, the cost'of operation remains very much the same. Should revenue fall, it is very hard to find a means of making a corresponding reduction in costs."

What Cost Rises Mean . . . .

I think that the words "cost of operation" were obviously intended to mean that it costs just as much to operate a little-used as a much-used service. About 14 per cent, of the Board's expenditure is on the purchase of coal, petrol and oil fuel—items that are constantly fluctuating in price. An increase of Id. a gallon in the price of petrol costs the Board £190,000 a year, and another ls, a ton on coal raises expenses by £26.,000 a year; yet it is difficult to reduce substantially the consumption of either item.

On various occasions, the Board has complained about the incidence of taxation in relation to revenue. I believe it is estimated that about 11 per cent. of the gross,revenue goes in taxation in one form or another, apart from income tax paid by the stockholders. .

Why Preference? . . . .

But this, surely, is a handicap under which every transport undertaking has to operate, especially a roadtransport organization. It is difficult to .see why the Board shotild be accorded different treatment from anyone else in this respect, in .site of its problems. It Must be remembered that the coach and bus section of the undertaking is actually returning about 12 per cent. on the capital invested in it, this figure being arrived at after allowing for all working expenses, including provision for renewal, but not including any allowance for establishment charges.

The significant fact is that, with the possible exception of the trolleybus section, the motorbus section is the best paying, yet the C stock, much of which represents former road-transport undertakings, is the only stock that has not received a full and reasonable dividend.

Incidentally, it is interesting to note the result of the recent Court of Appeal action in Northern Ireland, where it has been held that it is not lawful for the Transport Board to pay for compulsorily, acquired undertakings in depreciated stock. The Board has

taken this decision to mean that, so long as the stock is depreciated, payments must be made in cash.

London Transport's C stock is noW quoted at around 80, and it seems to have been a serious oversight that provision was not made in the London Passenger Transport Act to cover the possibility of capital losses 1:1-.y the holders of that stock. HOwever, this is rather beside the point.

is understood that there have in factbeen no capital losses by stockholders, as the nuclei -lying stocks of the transport undertakings merged in the Board stood lower than 80 Nevertholessi. as a possibility, our special correipondent's 'Point still Stands.—En.] . . . . Fateful June The position now is that London Transport has so far -failed to meet ifs obligations to the C-stockholders. What is going to happen at the end of next June? From what has been set out above, it seems clear that only a miracle can produce sufficient net revenue to meet the 5i per cent, payment due, unless, of course, some important change of policy takes place.

This could take the form of a reduction in the amounts that have hitherto been allocated to renewal provision, but the Board has on various occasions declared its opposition to any such step, on the ground that it would not be sound management. One must agree with that view, because a careful examination of the Board's procedure in this respect will show that,the amounts that have so fax been allocated have not been excessive.

. . . Trifling Sum

-Perhaps the most surprising feature of all is that, although this' 51-per-cent. dividend question has assumed so much importance, the difference between 4 per cent. and 51 per cent. on the C stock is a matter of only £385,482—to all appearances a trifling sum by comparison, but one which the Board seems hard pressed to find in addition to its other commitments.

It is beginning to appear that Mr. Ernest Sevin was not far wrong when he suggested, during the bus-strike inquiry, that Parliament might have to revise the Board's financial structure.

In conclusion, one may refer to the comments of Mr. Frank Pick, vice-chairman of the Board, who, when addressing the London School of Economics two or three years ago, stated : "The appointment of a receiver is hedged about by such conditions as make it certain that the provisions will not be put into force, unless something has happened which could, or should, have been avoided. The Board may be said to be beyond the reach of these provisions and to have no master lurking in the background, based upon the power of capital."

And there is no reason to suppose that anything has happened that "could, or should, have been avoided."


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