22 MARCH 1940, Page 33


Those of us who hoped that Lord Stamp would lighten our darkness on the subject of railway earnings have been disappointed. At the London, Midland and Scottish meet- ing he left no room for doubt that war had brought a substantial increase in gross traffic receipts, but he studiously avoided any reference to the current level of net revenue. We are therefore forced back on Lord Home's intimation that pool earnings were running between Stage 1 and Stage 2 in the last four months of 1939 for our only piece of official guidance. On other matters Lord Stamp was more helpful. For example, he analysed the railway posi- non in relation to Excess Profits Tax with characteristic skill. He made it clear that if E.P.T. were to be applied in the ordinary way to railway earnings the companies would

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be subject to a " three-decker " limitation of profits. First, the standard revenue is made a fixed " ceiling," with each year standing alone at the rate of 41 pet cent. on the sub- scribed capital. Second, the Government impose a special tax of 5o per cent. on part of the company's profits, which makes it necessary to earn 27 per cent. more than the new fixed ceiling to retain the ceiling. Third, the company would be liable to a 6o per cent. tax on what would still be left of its profits in excess of the unknown E.P.T. standard.

I cannot imagine that the Government, in face of these arguments, will seek to impose E.P.T. on the railways except in some mild form which will not reduce appreciably the amount available for dividends. What the net amount is must therefore depend on the course of gross receipts on the one hand and costs on the other. In war conditions gross receipts, especially in the heavy goods sections, must increase. So far as costs are concerned, while capacity working must bring substantial economies, there will be higher prices for materials and a heavier bill for wages. Already, costs have risen since the outbreak of war to a level which calls for an adjustment of charges under the new arrangements with the Government The case for increased charges is now being prepared and formal appli- cation may be expected early next month. In the mean- time, rail stocks have suffered a sharp setback in a market bewildered by peace rumours. These are difficult days for the speculative investor to whom it is so important to know whether we are to have a war and what sort of war it is going to be. I do not pretend to know the answers.