Finance

The Home Railway Outlook IN noting from time to time in The Spectator the pro- spects of English Railways from the stockholder's point of view, I have felt it necessary to adopt a very cautious tone with regard to the prospects for the Ordinary Stocks, although it has been possible for some time past to speak hopefully with regard to many of the Debenture and Preference Issues. During the early part of the present year there was a great rise in Ordinary as well as in Prior Charge Stocks, the advance being based upon hopes of improving traffics. Those hopes have, to a large extent, been fulfilled, so that in the case of the four Trunk Railways there was an increase in Gross Traffic Receipts for the first half of the current year of £3,301,232.

At first sight this appears to be a very substantial increase, and one pronaking some good results, at the . end of the year, for the stockholders. There are, how- ever, at least three factors which have to be taken into consideration. In the firstplace the comparison is with abnormally low figures for the first half of 1933. In the second place it is almost certain that when the half-yearly statements are issued later this month it will be shown that as against this increase in Gross Receipts there has been a considerable expansion in working expenditure. And in the third place, the fact that during recent months there has been an agitation for a restora- tion of the cuts in wages, which were imposed in 1931, has offset any effect which the higher gross earnings might have had upon prices of the Ordinary Stocks.

IMPARTIAL VIEW ESSENTIAL.

Probably there was never a time when it was so neces- sary to take a judicial and impartial view of the points at issue, between capital and labour, which in this particular instance means the interests of railway stockholders and of those employed by the railway industry. If in any- thing that is said or written, less than justice is done to the case of employees, there can only be a reactionary feeling fraught with unfavourable developments, and subsequently with developments unfavourable to the stockholders themselves. On the other hand, however, the fact has also to be frankly-faced, that if injustice is inflicted on capital, it will ultimately react unfavourably, not only upon stockholders, but upon Labour generally, for the impairment of confidence will restrict the flow of capital necessary to finance new industrial developments.

" STANDARD " REVENUES.

So far as may be judged, the agitation which began early this year for the restoration of the wages cuts, rested largely upon the fact that some improve- ment was shown last year in Net that,., What, however, seems to have been left out of Consideration is the fact that not one of the railway companies during last year earned a Net .Revenue at all approaching to the " Standard 'Revenues •". which were supposed to be secured to them' under the Railways Act of 1921. Indeed, only one company earned 'anything' at alhon its Ordinary Stock last year. The " Standard Revenues " of the railwayS under consideration come to £51,000,000 in the aggregate. ' That figure, be it remembered, was based on the pre-War, 1913 level _plus allowances for capital expenditure since. It makes no allowance for the stockholders' increased cost of living since the pre-War days. Unfortunately, however, this standard level is at present far from being reached, the Net Revenues of the Four Trunk Railways of 1938 being under £29,000,000. But while the Net Revenues have fallen far below the " Standard," the wage bills of the Four Lines which in 1913 aggregated about £47,000,000, totalled £172,000,000 in 1921, and even in 1928 the figure was as high as £118,000,000, while even in 1933 it was £98,000,000. Not only so, but it has to be remembered that any reduction in the present wage rate; compared with the time when Government control ceased in 1921, is far more than balanced by the great fall in the cost of living.

A COMPARISON.

It is difficult, therefore, to see on what grounds there can be a claim fbr immediate restoration of the 5 per cent. cut made in 1981 on the ground of cost of living, while it is still more difficult to see how the claim can be based on the actual net earnings of the Railways. - In 1930 the four Lines between them had a net income of £37,700,000, while for last year, as I have already stated, the amount was under £29,000,000. Moreover, so greatly have the profits fallen that dividends on Ordinary stocks have disappeared, the 3 per cent. still paid on the Great Western Ordinary stock having been obtained from Reserves. In 1913 out of each £1 received by the railways in earnings 7s. 3d. went in wages and 2s. 10d. towards dividends on the Ordinary stock. In 1933 the amount received by wages out of every £1 was ils., leaVing ld. for the Ordinary stockholder. Needless to say that this state of affairs has had a disastrous effect upon capital values. Thus to quote two examples, L. M. and S. Ordinary Stock, which in 1923 stood at 118, is today about 22, while L.N.E.R. Preferred which stood at 89 in 1923 is now about 17.

THE POSITION TODAY.

But what is to be said of the position today in the light of the good increase in gross revenues for the past half- year ? In this connexion I cannot forbear from referring to what I can only describe as a piece of special pleading in the columns of the Daily Express of July 5th. That newspaper has bestirred itself actively during recent months in asserting that various industries can quite readily afford to pay increased wages, a very laudable campaign, only it is necessary to state the facts fully and fairly. Here is what appeared in the Daily Express on the date named :

RESTORE RAIL CUTS.

British railways prosper. The Big Four Railway Groups report larger earnings. The estimated increase in this year's earnings will exceed £9,000,000. That will put the total net earnings of the railways up to nearly £38,000,000. In 1931, the year when the railwaymen's wages were cut, the earnings were £33,000,000.

There is plenty in the bag to hand those cuts back NOW.

PREMATURE OPTIMISM ?

It will be noticed that the first line of the foregoing cutting asserts that " British railways prosper.' In view, however, of the actual facts extending over a num- ber of recent years it may be doubted whether Railway stockholders would endorse the assertion. Then it will be noted that although the increase in the gross earnings for the first half of 'the year is under £3,500,000, and although nothing is known yet as to how far expenditure may have increased, the .writer. does. not hesitate to present the picture of an estimated increase in the year's earnings of over 19-;090,000, after which hasty estimate it is an easy step to suggest that Railwaymen's wages should at once be...raised. " There is," says the Express, " plenty in the bag to hand these cuts back now." I have endeavoured to state this case of railway wages as affecting the position of the Railway stockholder moder- ately and fairly. It is impossible to study the facts with- out feeling that before the question of a restoration of wage cuts is raised, the actual results for the present year, as expressed in net earnings, must first be revealed. Surely in this important question of wages and relations between capital and labour, it should not—especially in these critical days—be a question of agitation and fight- ing, but rather of a calm appeal to the facts.

ARTHUR W. KIDDY.